A

SUMMER TRAINING PROJECT

ON

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: PROF. S.K. GROVER FACULTY SUBMITTED BY: AMBIKA JAIN ROLL # 9190509

INSTITUTE OF MANAGEMENT STUDIES NOIDA

ACKNOWLEDGEMENT
I express my sincere gratitude to my industry guide Mr. Anupam Nagar, Sales Manager, MAX NEW YORK LIFE, for acting as a mentor and as a catalyst during entire duration of my project. I also thank him for providing continuous cooperation support and expert guidance throughout my project, whenever needed. I would also like to thank the entire team of Max New York Life, for the constant support and help in the successful completion of my project. Also, I am thankful to my faculty guide Mr. J.L.Giri, Faculty Guide of my institute, for his continued guidance and invaluable encouragement.

AMIT NAGAR

CONTENTS
Chapter 1 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Objective and Scope of the study Corporate profile Critical Review of Literature Research Design & Sampling Methodology Findings and Analysis Conclusions Recommendations Limitations of the Project Executive Summary References Annexure Questionnaire

Objective & SCOPE of Study

OBJECTIVE To draw a comparative analysis of ulips and mutual funds and to explore various popular investment avenues for the investors has been the prime objective of this study. (i) (ii) (iii) (iv) (v) To Test the awareness level in the market for Unit Linked Insurance Plans (ULIPs) and Mutual Fund. To find the most popular investment avenues among sample of investors. To find the importance of various investments based parameters among sample of investors. To identify the potential customers across locations, agegroups, profession. To get an idea of customer expectations in terms of rate of return.

Scope The survey for the project was conducted in Delhi NCR area. The focus was on age group falling under the working class.

Corporate Profile

COMPANY PROFILE Max New York Life Insurance Company Ltd. is a joint venture between New York Life, a Fortune 100 company and Max India Limited, one of India's leading multi-business corporations. The company has positioned itself on the quality platform. In line with its vision to be the most admired life insurance company in India, it has developed a strong corporate governance model based on the core values of excellence, honesty, knowledge, caring, integrity and teamwork. The strategy is to establish itself as a trusted life insurance specialist through a quality approach to business. Incorporated in 2000, Max New York Life started commercial operation in 2001. In line with its values of financial responsibility, Max New York Life has adopted prudent financial practices to ensure safety of policyholder's funds. The Company's paid up is Rs. 1032 crore.

Having set a best in class agency distribution model in place, the company has is spearheading a major that thrust into additional the agency distribution channels to further grow its business. The company multi-channel distribution includes distribution, partnership distribution, bancassurance, distribution focused on emerging markets and alliance marketing through employed sales force. The company currently has 33 bancassurance relationships, 14 corporate agency tie-ups and direct sales force at 14 locations. Max New York Life has put in place a unique hub and spoke model of distribution to deepen rural penetration. The company has 39 (9 hub office 30 spoke offices) offices dedicated to emerging markets in Punjab and Haryana. Max New York Life offers a suite of flexible products. It now has 38 products covering both life and health insurance

and 8 riders that can be customized to over 800 combinations enabling customers to choose the policy that best fits their need. Besides this, the company offers 6 products and 4 riders in group insurance business.

The company currently has more than 7500 employees. Vision: To become the most admired life insurance company in India. Mission: Become one of the top life insurance companies in India Be Be Be the the a brand employer national of first of player choice choice

Become principal of choice for agents

SWOT ANALYSIS:
Strength: 1) Won Indo-American Corporate Excellence Award for best Indo Us company in Financial Services Category in 2006. 2) Received Best Six Sigma Project award at Sakal Six Sigma Excellence awards-2006 3) Among top 3 in Asia Life Insurance Company of the Year Award 2007 instituted by Asia Insurance Review. 4) First Life Insurance Company in India to be awarded ISO 9001:2000 certification.

Weakness:

1) A

huge

effort

needs

to

be

made

to

spread

awareness

regarding ULIPS as people are often wary of it since they do not know the potential and reliability of ULIPS as an investment avenue. 2) The risk associated is large since the returns are based on the performance of the stock markets. Opportunities: 1) There is a huge market that remains still uncaptured and unrealized. Hence the scope of expansion is immense. 2) India is a young country with a majority of its population falling under the working class category.Subsequently it translates into the fact that the customer base is large for this product. Since India is largely an under-insured country. 3) With the economy on a boom and a bullish trend prevailing in Threats: 1) Competitors like ICICI Prudential and Bajaj Allianz give a big competition to Max New York Life. People prefer LIC for Insurance and FDs for investments over ULIPs since they are conventionally considered safer. the markets, the returns have largely been good, encouraging and attracting more and more people towards it.

INDUSTRY PROFILE:

All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is no risk in going in for private insurance players. In terms of being rated for financial strength like international players, only ICICI Prudential is rated by Fitch India at National Insurer Financial Strength Rating of AAA(Ind) with stable outlook indicating the highest claims paying ability rating. Life Insurance Corporation of India (LIC), the state owned

behemoth, remains by far the largest player in the market. Among the private sector players, ICICI Prudential Life Insurance(JV between ICICI Bank and Prudential PLC) is the largest followed by Bajaj Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz). The private companies are coming out with better products which are more beneficial to the customer. Among such products are the ULIPs or the Unit Linked Investment Plans which offer both life cover as well as scope for savings or investment options as the customer desires.Further, these type of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant tax benefits offered to such of plans such under the with Income mutual Tax Act. Hence, be comparison erroneous. products funds would

There exists huge scope of investment in the insurance sector in India. India has an enormous middle-class that can afford to buy life, health and disability and pension plan products. Further, insurance is one of the most important tax saving instrument in the country. Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance

Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance of the market, which was hitherto the exclusive privilege Under public new sector insurance Indian companies/ insurance

corporations.

dispensation

companies in private sector were permitted to operate in India on the fulfillment of certain prerequisites. A large number of public and private players are competing today in both life and general insurance segments. The FDI cap/ Equity in the insurance sector is 26 percent under the automatic route subject to licensing by the insurance regulatory and development authority. Some of the major private players in the sector are: In Life insurance Sector:

Bajaj Allianz Life Insurance Corporation Birla Sun Life Insurance Co. Ltd. (BSLI) HDFC Standard Life Insurance Co. Ltd. (HDFC STD LIFE) ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) ING Vysya Life Insurance Co. Pvt. Ltd. (ING VYSYA) Max New York Life Insurance Co. Ltd. (MNYL) MetLife India Insurance Co. Pvt. Ltd. (METLIFE) Kotak Mahindra Old Mutual Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. (SBI LIFE) TATA AIG Life Insurance Co. Ltd. (TATA AIG) AMP Sanmar Assurance Co. Ltd. (AMP SANMAR) Aviva Life Insurance Co. Pvt. Ltd. (AVIVA) Sahara India Life Insurance Co. Ltd. (SAHARA LIFE) Shriram Life Insurance Co. Ltd

In General Insurance sector:

Bajaj ICICI

Allianz Lombard

General General

Insurance Insurance

Co. Co.

Ltd. Ltd.

(BAJAJ (ICICI

ALLIANZ)

LOMBARD)

IFFCO Tokyo General Insurance Co. Ltd. (IFFCO TOKIO) Reliance General Insurance Co. Ltd. (RELIANCE) Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Ltd. (TATA AIG) Cholamandalam MS General Insurance Co. Ltd. HDFC Chubb General Insurance Co. Ltd. (HDFC CHUBB)

In terms of policies the industry has witnessed 30% growth during FY07 when compared with FY06. LIC has registered 21% growth during the same period. Among private players Bajaj Allianz has sold the highest number of policies followed by ICICI Prudential, SBI Life & Max New York. Industry Total 46151566 35462117

CRITICAL REVIEW OF LITERATURE

ULIPs vs. MUTUAL FUNDS

Unit Linked Insurance Plans (ULIPs)

For the generation of insurance seekers who thrived on insurance policies with assured returns issued by a single public sector enterprise, unit-linked insurance plans are a revelation. The subsequent softening of interest rates introduced a degree a much-needed rationality to insurance products like endowment plans; attractive returns at low risk became a thing of the past. The same period also coincided with an upturn in equity markets and the emergence of a new breed of market-linked insurance products like ULIPs. While in conventional insurance products the insurance component takes precedence over the savings component, the opposite holds true for ULIPs. More importantly ULIPs (powered by the presence of a large number of variants) offer investors the opportunity to select a product which with matches a high their risk risk profile; can for shun example an individual appetite traditional

endowment plans (which invest about 85% of their funds in the debt instruments) in favour of a ULIP which invests most of its corpus in equities. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component. ULIPs are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same. Investors have the choice of enhancing their insurance cover, modifying premium payments and even opting for a distinct asset allocation than the one they originally opted for. This calls for enhanced flexibility in ULIPs. Also if an unforeseen eventuality

were to occur, in case of traditional products, the sum assured is paid along with accumulated bonuses; conversely in ULIPs, the insured is paid either the sum assured or corpus amount whichever is higher. Insurance seekers have never been exposed to this kind of

flexibility in traditional insurance products and it would be fair to say that ULIPs represent the new face of insurance. While few would dispute the value-add that ULIPs can provide to one's insurance portfolio and financial planning; the same is not without its flipside. For the uninitiated, understanding the functioning of ULIPs can be quite a handful! The presence of what seem to be relatively higher expenses, rigidly defined insurance and investment components and the impact of markets on the corpus clearly make ULIPs a complex proposition. Traditionally the insurance seeker's role was a passive one restricted to making premium payments; ULIPs require greater participation from the insured.

Charges and Expenses

ULIPs work very similar to a mutual fund with an added benefit of life cover and tax deduction. They have a mandate to invest the premiums The in varying difference proportions between in gsecs (government savings-based securities), bonds, the money markets (call money) and equities. primary conventional insurance plans like endowment and ULIPs is the investment mandate- while ULIPs can invest up to 100% of the premium in equities, the percentage is much lower (usually not more than 15%) in case of conventional insurance plans. ULIPs are also available in multiple options like aggressive ULIPs (which can invest upto 100% in equities), balanced ULIPs (which invest 4060% in equities) and debt ULIPs (which invest only in debt and money market instruments).

Broadly speaking, ULIP expenses are classified into three major categories: 1) Mortality charges Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age, sum assured and sum-at-risk for the individual. There is a direct relation between the mortality expenses and the above mentioned factors. In a ULIP, the sum-at-risk is an important reference point for the insurance company. The sum-at-risk is the difference between the sum assured and the investment value the individuals corpus as on a specified date. Usually, the mortality charges are levied on the per thousand sum assured. 2) Sales and Fund Administration expenses Insurance companies incur these expenses for operational

purposes on a regular basis. The expenses are recovered from the premiums that individuals pay towards their insurance policies. Agent commissions, sales and marketing expenses and the overhead costs incurred to run the insurance business on a day-today basis are examples of such expenses. 3) Fund management charges (FMC) These charges are levied by the insurance company to meet the expenses incurred on managing the ULIP investments. A portion of ULIP premiums are invested in equities, bonds, g-secs and money market instruments. Managing these investments incurs a fund management charge, similar to what mutual funds incur on their investments. FMCs differ across investment options like aggressive, balanced and debt ULIPs; usually a higher equity option translates into higher FMC.

Apart

from

the

three

expense

categories

mentioned

above,

individuals may also have to incur certain expenses, which are primarily optional in nature- the expenses will be incurred if certain choices that are made available to individuals are exercised. a) Switching charges Individuals are allowed to switch their ULIP options. For

example, an individual can switch his fund money from 100% equities to a balanced portfolio, which has say, 60% equities and 40% debt. However, the company may charge him a fee for switching. While most life insurance companies allow a certain number of free switches annually, a switch made over and above this number is charged. b) Top-up charges ULIPs allow individuals to invest a top-up amount. Top-up

amount is paid in addition to the premium amount for a particular year. Insurance companies usually deduct a certain percentage from the top-up amount as charges. These charges are usually lower than the regular charges that are deducted from the annual premium. c) Cancellation charges Life insurance companies levy cancellation charges if individuals decide to surrender their policies before the mandated lock-in period which is usually three years. These charges are levied as a percentage of the fund value on a particular date.

Comparative Analysis of ULIPs

Unit-linked insurance plans have caught the fancy of investors in urban centre. These not only provided life cover, but also brought in a lot of transparency in the way the policyholders' money is invested. The key stock market indices are touching newer and newer peaks. The returns from growth funds of leading private sector players, ICICI Prudential Life and Bajaj Allianz, are comparable with the gains in the NSE Nifty index since January 2005. The returns on ULIPs should normally be higher than the mutual funds. ULIPs do not face redemption pressures as the insurance money is available for investment for longer term and hence provides room for fund managers to design better and disciplined investment strategies. In contrast, fund managers at mutual funds are constantly under pressure from redemptions. Conventional popularity endowment the plans few seem to have diminished in

over

past

years.

Interestingly,

their

diminishing popularity has coincided with a greater appetite for unit linked insurance plans (ULIPs).

MUTUAL FUNDS

Mutual Funds operate as collective investment vehicles (CIV) that pools resources by issuing units to investors and collectively invests those resources in a diversified portfolio comprising of stocks, bonds or money market instruments in accordance with the objectives mentioned in the offer document issued for the purpose of pooling resources. The investors share the profit or losses in proportion to their investments in the fund. The first ever Mutual Fund in India, the Unit trust of India was set up in 1964. This was followed by entry of MFs supported by public sector banks and insurance companies in 1987. The industry was opened for the private players in 1993 providing Indian investors with a broader choice. Starting with an asset base of Rs. 25 crore in 1964, the industry has grown exponentially. The MF industry in India is governed by the SEBI, which lay norms for MF and its Asset Managing Companies (AMCs). A Mutual Fund is allowed to issue open-ended and closed-ended schemes Different reputed under a common groups/ firms. legal structure. Respective banks funds Asset have like Management Companies (AMC) manages mutual fund schemes. business financial Several institutions/ international sponsored these AMCs, either alone or in collaboration with international Alliance and Templeton are also operating independently in India. Many more international Mutual Fund giants are expected to come into Indian markets in the near future. Professional Management Mutual Funds employ the services of skilled professionals who have years of experience to back them up. They use intensive research techniques to analyze each investment option for the

potential of returns along with their risk levels to come up with the figures for performance that determine the suitability of any potential investment. Potential of Returns Returns in the mutual funds are generally better than any other option in any other avenue over a reasonable period of time. People can pick their investment horizon and stay put in the chosen fund for the duration. Equity funds can outperform most other investments over long periods by placing long-term calls on fundamentally good stocks. The debt funds too will outperform other options such as banks. Though they are affected by the interest rate risk in general, the returns generated are more as they pick securities with different duration that have different yields and so are able to increase the overall returns from the portfolio. Liquidity Fixed deposits with companies or in banks are usually not withdrawn premature because there is a penal clause attached to it. The investors can withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, the units can be transacted at the prevailing market price on a stock exchange. Mutual funds also provide the facility of direct repurchase at NAV related prices. The market prices of these schemes are dependent on the NAVs of funds and may trade at more than NAV (known as Premium) or less than NAV (known as Discount) depending on the expected future trend of NAV, which in turn is linked to general market conditions. Bullish market may result in schemes trading at Premium while in bearish markets the funds usually trade at Discount. This means that the money can be withdrawn anytime, without much reduction in

yield.

Some

mutual

funds

however,

charge

exit

loads

for

withdrawal within a specified period. Types of Mutual Funds There are a variety of funds available across categories. There are funds which invest in growth stocks, funds which specializes in stocks of a particular sector, funds which assure returns to the investors, funds which assure returns to investors, funds which invest in debt instruments, and funds which invest aggressively in the stocks. Thus , we have income funds, balanced funds, liquid funds, gilt funds, index funds, Exchange Traded Funds, sectoral funds, and then there are open-ended and closed-ended funds and assured return funds-----there is a fund for every requirement. MFs can be classified according to their maturity period. A closed ended fund has a stipulated maturity, the investors have to wait until maturity for redemption. A open-ended fund gives investors an option to redeem and buy units at any time from the fund. These schemes do not have a fixed maturity and can be traded conveniently at NAV prices declared on a daily basis. Value Advantage Effective Regulation Unlike the company fixed deposits, where there is little control with the investment being considered as unsecured debt from the legal point of view, the Mutual Fund industry is very well regulated. All investments have to be accounted for, decisions judiciously taken. SEBI acts as a true watchdog in this case and can impose penalties on the AMCs at fault. The regulations, designed to protect the investors interests are also implemented effectively.

Transparency Being under a regulatory framework, mutual funds have to

disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. This means that the investment strategy, outlooks of the market and scheme related details are disclosed with reasonable frequency to ensure that transparency exists in the system. This is unlike any other investment option in India where the investor knows nothing as nothing is disclosed. Flexible and Affordable Mutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial fees and other management fees are substantially lower than other options and are directly linked to the performance of the scheme. Investment in mutual funds also offers a lot of flexibility with features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans enabling systematic investment or withdrawal of funds. Even the investors, who could otherwise not enter stock markets with low investible funds, can benefit from a portfolio comprising of high-priced stocks because they are purchased from pooled funds.

Systematic Investment Plan (SIP) A Systematic Investment Plan (SIP) is an option that allows investor to invest a fixed sum of money at periodic intervals on specific dates.

It helps to save regularly and thus inculcates a sense of discipline

It harnesses the power of compounding It is the best possible way investors can reign in impulsive buys-and-sells that otherwise he is gripped by in times of market volatility - Rupee cost averaging

Treatment of Balanced Funds for Tax Purposes Budget 2006 altered the tax treatment of mutual funds in a manner that affects balanced funds. Under the new norms, at least 65 per cent of corpus must be invested in equities, (up from the earlier threshold of 50 per cent), to qualify as an equity-oriented fund for tax purposes. Many funds, which were receiving the tax benefits of equity-fund treatment, will have to raise their equity exposure to keep those tax benefits. Implications The change removes an anomaly. Earlier, the Income Tax Act's definition of an equity-oriented fund ran counter to SEBIs definition under which an equity fund required a minimum 65 per cent equity exposure. The IT Act kept this threshold at 50 per cent. Budget 2006 has retained SEBIs definition. And from 1 June 2006, only those funds with 65 per cent or more in equities are exempt from dividend distribution tax (14.03 per cent including surcharges) and unit-holders are exempt from paying long-term capital gains tax. This move places funds that invest 50-65 per cent in equities in limbo. Earlier, these funds enjoyed tax relief. Now they will have to push equity exposure above 65 per cent to claim benefits. Balanced funds have two choices:

Stay above 65 per cent in equities to enjoy tax relief. In this case, the risk profile of fund rises. Retain the option to drop below 65 per cent in a falling market and ignore the tax impact. The tax outgo of investors increases.

MF strategies in such a situation We are in the middle of a big bull run. Balanced funds returned 33 per cent, 17 per cent and 63 per cent in 2005, 2004 and 2003 respectively, due to high equity allocations and aggressive management. They have been managing debt passively: buying and holding till maturity with limited trading. Significant proportions of corpus are parked in cash and call securities. Some balanced funds like BOB Balanced Fund have their entire debt holdings (28.98 per cent) in cash and call markets. As many as 12 of 22 balanced funds already have the mandate to invest over 65 per cent in equities, as specified in their offer documents But they also have the mandate to go down to 50 per cent. Expect some of these funds to stay above 65 per cent under all conditions. Some will need to change their mandate to drop below 65 per cent. Most of the balanced funds are expected to maintain a status quo. This means that they will not hesitate in cutting exposure if markets correct. CHARGESThe Asset Management Companies (AMCs) managing the Mutual Funds levy a load as a percentage of NAV at the time of entry into the Schemes or at the time of exiting from the Schemes.

Entry Load - It is the load charged by the fund when an investor invests into the fund. It increases the price of the units to more than the NAV and is expressed as a percentage of NAV. Exit Load - It is the load charged by the fund when an investor redeems the units from the fund. It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV. Cost the of Churning/Turnover Portfolio cost It refers to the costs of

associated with the churning (or changes made to the holdings) of portfolio. changes have associated costs brokerage, custody fees, transaction fees and registration fees, which lower the returns. The quantum depends on the management style of the fund manager. Expense Ratio The Expenses of a mutual fund include

management fees and all the fees associated with the fund's daily operations. Expense Ratio refers to the annual percentage of fund's assets that is paid out in expenses. Tax Capital Gains Tax- The profit realizations on sale of securities and certain other capital assets (including units of mutual funds) are called capital gains. The gains can be classified into longterm or short-term depending on the period of holding of the asset and are charged to tax at different rates. Gains on mutual fund units held for a period of 12 months or more are long-term gains. These gains are taxable. Dividend Distribution Tax The Mutual Fund schemes

distributing dividends on their units to the investors attract a distribution tax as per tax laws.

Securities Transaction Tax AMCs managing the portfolio have to pay STT on transaction (buying/selling) of different securities in the stock market. Presently the tax rate is 0.025%.

Pointers to Mutual Fund Performance Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Quite simply then a fund generating more returns than the other is considered better than the other. But this is just half the story. Return alone should not be considered as the basis of

measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. The Total Risk of a given fund is sum of the market risk and the unsystematic risk and is measured in terms of standard deviation of returns of the fund. There are different statistical parameters available on which a fund may be analyzed. These are:

1.

Standard Deviation most basic of all measuresStandard Deviation allows

The

evaluating the volatility of the fund. Alternatively, it allows measuring the consistency of the returns. Volatility is often a direct indicator of the risks taken by the fund. The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return, the average return of a fund over a period of time. A security that is volatile is also considered higher risk because its performance may change quickly in either direction at any moment. A fund that has a consistent four-year return of 3%, for example, would have a mean, or average, of 3%. The standard deviation for this fund would then be zero because the fund's return in any given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fund will also exhibit a high standard deviation because each year the return of the fund differs from the mean return. This fund is therefore more risky because it fluctuates widely between negative and positive returns within a short period. Beta ()

2.

Beta is a fairly commonly used measure of risk. It basically indicates the level of volatility associated with the fund as compared to the benchmark. So quite naturally the success of Beta is heavily dependent on the

correlation between a fund and its benchmark. Thus if the fund's portfolio doesn't have a relevant benchmark index then a beta would be grossly inadequate. A beta that is greater than one ( >1) means that the fund is more volatile than the benchmark, while a beta of less than one ( <1) means that the fund is less volatile than the index. A fund with a beta very close to 1 ( ~1) means the fund's performance closely matches the index or benchmark. If, for example, a fund has a beta of 1.03 in relation to the BSE Sensex, the fund has been moving 3% more than the index. Therefore, if the BSE Sensex increased 10%, the fund would be expected to increase 10.30%. Investors expecting the market to be bullish may choose funds exhibiting high betas, which increase investors' chances of beating the market. If an investor expects the market to be bearish in the near future, the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. R-Squared

3.

The success of Beta is dependent on the correlation of a fund to its benchmark or its index. Thus whilst considering the beta of any security, investors should also consider another statistic- R squared that measures the Correlation. The R-squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark. Measuring the correlation of a fund's movements to that of an index, Rsquared describes the level of association between the fund's volatility and market risk, or more specifically, the degree to

which a fund's volatility is a result of the day-to-day fluctuations experienced by the overall market. R-squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation. If a fund's beta has an R-squared value that is close to 1, the beta of the fund should be trusted. On the other hand, an R-squared value that is less than 0.5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark. Alpha

4.

Alpha = (Fund return-Risk free return) - Funds beta *(Benchmark returnrisk free return)

Alpha is the difference between the returns one would expect from a fund, given its beta, and the return it actually produces. An alpha of -1.0 means the fund produced a return 1% higher than its beta would predict. An alpha of 1.0 means the fund produced a return 1% lower. If a fund returns more than its beta then it has a positive alpha and if it returns less then it has a negative alpha. Once the beta of a fund is known, alpha compares the fund's performance to that of the benchmark's risk-adjusted returns. It allows you to ascertain if the fund's returns outperformed the market's, given the same amount of risk. The higher a funds risk level, the greater the returns it must generate in order to produce a high alpha. Normally one would like to see a positive alpha for all of the funds owned. But a high alpha does not mean a fund is doing a bad job nor is the vice versa true as alpha measures the out performance relative to beta. So the limitations that apply to beta would also apply to alpha.

Alpha can be used to directly measure the value added or subtracted by a fund's manager.

The accuracy of an alpha rating depends on two factors: 1) the assumption that market risk, as measured by beta, is the only risk measure necessary; 2) the strength of fund's correlation to a chosen benchmark such as the BSE Sensex or the NIFTY. Sharpe Ratio

5.

Sharpe Ratio= Fund return in excess of risk free return/ Standard deviation of Fund

In case funds have low correlation with indices or benchmarks, they should be evaluated using the Sharpe ratio. Since it uses only the Standard Deviation, which measures the volatility of the returns there is no problem of benchmark correlation.

The higher the Sharpe ratio, the better a funds returns relative to the amount of risk taken.

Sharpe ratios are ideal for comparing funds that have a mixed asset classes. That is balanced funds that have a component of fixed income offerings.

RESEARCH DESIGN & SAMPLING METHODOLOGY

RESEARCH DESIGN

NON-PROBABILITY EXPLORATORY RESEARCH & DISCRIPTIVE EXPERIMENTAL

The research is primarily both exploratory as well as descriptive in nature. The sources of information are both primary & secondary. A well-structured questionnaire was prepared and personal

interviews were conducted to collect the customers perception and buying behavior, through this questionnaire.

SAMPLING METHODOLOGY

SamplingTechnique: Initially, a rough draft was prepared keeping in mind the

objective of the research. A pilot study was done in order to know the accuracy of the Questionnaire. The final Questionnaire was arrived only after certain important changes were done. Thus my sampling came out to be judemental and convinent Sampling Unit: The respondants who were asked to fill out questionnaires are the sampling units. These comprise of employees of MNCs, Govt. Employees, Self Employeds etc. Sample size:

The sample size was restricted to only 50, which comprised of mainly peoples from different regions of Delhi due to time constraints. Sampling Area : The area of the research was New Delhi, India.

Objective (vi) To Test the awareness level in the market for Unit Linked Insurance Plans (ULIPs) and Mutual Fund. (vii) To find the most popular investment avenues among sample of investors. (viii) To find the importance of various investments based parameters among sample of investors. (ix) (x) To identify the potential customers across locations, agegroups, profession. To get an idea of customer expectations in terms of rate of return.

Methodology Draft Questionnaire To fulfill the objectives of the market study, we designed a draft questionnaire. A copy of the draft questionnaire is added in the appendices. Survey A Survey was then conducted with the aid of the questionnaire having 6 questions in addition to personal information. The exercise was undertaken to collect data for analysis for the project.

Observations of the SurveyWe observed that people are reluctant in disclosing their exact investment and life insurance portfolio. Moreover, it was observed that there is a great degree of biasness as far as life insurance is concerned. Most of the people who responded to the pilot survey indicated their life-insurance subscription as an investment. While majority of them take lifeinsurance for tax-benefits, there are very few who subscribe to life-insurance schemes for life-cover for which it is intended. Majority of the respondents were found to be unaware of the exact returns they received from the individual investments in the past five years. The respondents disliked filling-in too many entries. Some people even refused to fill-in after seeing a three-pager questionnaire. Respondents were reluctant in disclosing some of their personal details like mobile number, address, office, pay package. Respondents indicated that they do not want any unsolicited calls from the telecallers. The respondent profile can be studied with the aid of the

following graphs:

FINDING AND ANALYSIS

FINDING AND ANALYSIS

Gender: Male 32 Female 18

GENDER

Female 36%

Male 64%

Age Group 20-30Y 16

31-40Y 20

41-50Y 9

Above 50Y 5

AGE GROUP
Above 50Y 10% 41-50Y 18%

20-30Y 32%

31-40Y 40%

Profession

Service 22

Business 27

House hold 1

Any Other

PROFESSION
House hold 2% Service 44% Business 54%

Monthly Income 10-20K 5

21-40K 16

41-60k 8

Above 61K 21

MONTHLY INCOME
10-20K 10% Above 61K 42% 21-40K 32% 41-60k 16%

Results

Awareness of ULIP:

Unit Linked Insurance Plans have emerged in the Indian market only a few years ago. The market gained momentum only after the private insurers came in with a variety of innovative market linked insurance cum investment plans. The popularity of ULIP is lower as compared to other investment avenues. With the softening of interest rates, traditional investment products have become less popular and more investors are being attracted towards stock market and Mutual Funds. Almost all the respondents across categories have taken term or endowment insurance but there are only a few who have taken a ULIP. This may be attributed to lower awareness level. Many respondents specifically indicated that they do not have any idea about a ULIP plan. As far as insurance in concerned, most of the respondents were tilted in their opinions towards the Life Insurance Corporations policies. In life insurance business, more than 75 % of the market is acquired by the LIC. As it is a Public Sector Enterprise, people have more faith in it. But slowly, the psyche of people is changing as more and more private players are coming up with innovative and affordable plans. Last year, Bajaj Allianz had the maximum market share among the private life insurers in terms of new premiums paid. Although LIC have also come up with its ULIP policy but people are more interested in buying ULIPs from private players because of their higher and steady returns. The Bajaj Allianz Unit GainEquity Gain Plan has given the highest Compounded Annual Growth Rate of return of 64.03 % since inception. The survey overall yielded following results:

1. Have you insured your life?

Yes 37

No 13

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

Yes and that too Yes but a little bit in detail 7 28

No

15

3. Do you make any sort of investment?

Yes 38

No 12

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

Fixed Deposits Real Estate Mutual Funds

7 4 1 0

Bonds ULIP Govt securities & certificates

9 6 8

Shares

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

investment?

High returns

12

Tax proceeds

free 10

Safety Liquidity

9 4

Flexibility Transparency

8 7

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

Building reserves Tax benefits Future security

cash 7

To income

supplement 10

12 10

Others

11

7. 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

11 16 23

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

MFs? UTI 6 ICICI 10

SBI Kotak Mahindra

13 4

Reliance Others

7 10

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

Bajaj Allianz

10

HDFC Standard Life

ICICI Prudential KMLI

16 4

Max New York Others

8 5

10. Which of the following factor plays a crucial role while selecting the mutual funds or ULIP? Broker/ Agent 8 Recommendation Friends/ 10 Relatives Suggestions Performance of 14 the product Brand name Advertisement 12 6

11. How oftenly do you invest? Weekly Monthly Quarterly 15 9 8

Half Yearly 1

Yearly 14

More than a yearly 3

Investment Frequency
More than a yearly 6% Yearly 28%

Weekly 30%

Half Yearly 2%

Quarterly 16%

Monthly 18%

12. What do you prefer Low Risk Low Return Moderate Risk Moderate Return 4 27

High Risk High Return 19

PREFERENCE
Low Rish Low Return 8% Moderate Risk Moderate Return 54% High Risk Righ Return 38%

13. Reasons for Investment Child Education Childs Marriage 13 17

Retirement 13

Emergency Purpose 19

Investment Reasons
20 18 16 14 12 10 8 6 4 2 0 17 13 13 19

No. of Respondents

Child Education

Childs Marriage

Retirement

Emergency Purpose

14. Where Have you Invested Mutual Fund Fixed Deposit 21 10

ULIP 34

Real Estate 25

Investment Avenues
35 No. of Respondents 30 25 20 15 10 5 0 Mutual Fund Fixed Deposit Real Estate ULIP 10 25 21 34

15. Which one you prefer in Future? Mutual Fund 20

ULIP 30

FUTURE FREFERENCE

Mutual Fund 40%

ULIP 60%

Segment wise analysis (of questions 11 to 15)

On the basis of age If we analyse the results on the basis of segments formed by taking age in to consideration, we can observe that that in the 2030 age groups, people were found to be very aggressive in their investment pattern.

FOR THE AGE GROUP OF 20-30 How oftenly do you invest? Weekly Monthly 6 1 Quarterly 6 Half Yearly 1 Yearly 2 More than a yearly

Investment Frequency
Yearly 13% Weekly 37%

Half Yearly 6%

Quarterly 38%

Monthly 6%

What do you prefer Low Risk Low Return

Moderate Risk Moderate Return 9

High Risk High Return 7

PREFERENCE

High Risk High Return 44% Moderate Risk Moderate Return 56%

Reasons for Investment Child Education Childs Marriage 5 3

Retirement 2

Emergency Purpose 10

Investment Reasons
12 No. of Respondents 10 8 6 5 4 2 0 Child Education Childs Marriage Retirement Emergency Purpose 3 2 10

Where Have you Invested Mutual Fund Fixed Deposit 8 3

ULIP 10

Real Estate 9

Investment Avenues
10 9 No. of Respondents 8 7 6 5 4 3 2 1 0 Mutual Fund Fixed Deposit ULIP Real Estate 3 8 10 9

Which one you prefer in Future? Mutual Fund 6

ULIP 10

FUTURE PREFERENCE

Mutual Fund 38%

ULIP 62%

This segment of the respondents is quite active on the investment front with maximum respondents investing on either a weekly or a quarterly basis. The risk with appetite 56% of for the this people segment opting is for predominantly moderate

moderate risk with unforeseen circumstances and emergencies remaining the motivating factor largely behind their investments. The respondents prefer to invest in ulips and real estate almost equally. However between mutual funds and ULIPS as the preferred option for future, ULIPS emerged as a winner.

FOR THE AGE GROUP OF 31-40 How oftenly do you invest? Weekly Monthly 9 5 Quarterly Half Yearly Yearly 6 More than a yearly

Investment Frequency
Yearly 30%

Weekly 45%

Monthly 25%

What do you prefer Low Risk Low Return

Moderate Risk Moderate Return 9

High Risk High Return 11

PREFERENCE
Moderate Risk Moderate Return 45% High Risk High Return 55%

Reasons for Investment Child Education Childs Marriage 5 8

Retirement 6

Emergency Purpose 6

Investment Reasons
9 No. of Respondents 8 7 6 5 4 3 2 1 0 Child Education Childs Marriage Retirement Emergency Purpose 5 8 6 6

Where Have you Invested Mutual Fund Fixed Deposit

ULIP 20

Real Estate 14

Investment Avenues
20 20 No. of Respondents 18 16 14 12 10 8 6 4 2 0 14

ULIP

Real Estate

FOR THE AGE GROUP OF 41-50 How oftenly do you invest? Weekly Monthly 2 Quarterly 2 Half Yearly Yearly 4 More than a yearly 1

Investment Frequency
More than A yearly 11%

Monthly 22%

Yearly 45%

Quarterly 22%

What do you prefer Low Risk Low Return 2

Moderate Risk Moderate Return 6

High Risk High Return 1

PREFERENCE
Low Risk Low Return 11% Moderate Risk M oderate Return 22%

High Risk High Return 67%

Reasons for Investment Child Education Childs Marriage 3 3

Retirement 3

Emergency Purpose 3

Investment Reasons
3.5 No. of Respondents 3 2.5 2 1.5 1 0.5 0 Child Education Childs Marriage Retirement Emergency Purpose 3 3 3 3

Where Have you Invested Mutual Fund Fixed Deposit 5 4

ULIP 1

Real Estate 1

Invesement Avenues
5 4.5 No. of Respondents 4 3.5 3 2.5 2 1.5 1 0.5 0 Mutual Fund Fixed Deposit ULIP Real Estate 1 1 5 4

Which one you prefer in Future? Mutual Fund 5

ULIP 4

FUTURE PREFERENCE

ULIP 44% Mutual Fund 56%

This segment is a combination of infrequent investments but a good risk appetite. The reasons behind the investment are equally distributed between family, retirement plans and emergency purposes. For this segment mutual funds are the clear winner with the current as well as the future preferences focused on this avenue only.

FOR THE AGE GROUP OF ABOVE 50 How oftenly do you invest? Weekly Monthly 1 Quarterly Half Yearly Yearly 2 More than a yearly 2

Investment Frequency
Monthly 20%

More than A yearly 40%

Yearly 40%

What do you prefer Low Risk Low Return 2

Moderate Risk Moderate Return 3

High Risk High Return

PREFERENCE
Moderate Risk Moderate Return 50%

Low Risk Low Return 50%

Reasons for Investment Child Education Childs Marriage 3

Retirement 1

Emergency Purpose 1

Investment Reasons
3.5 No. of Respondents 3 2.5 2 1.5 1 0.5 0 Childs Marriage Retirement Emergency Purpose 1 1 3

Where Have you Invested Mutual Fund Fixed Deposit 2 3

ULIP & Real Estate 1

Investment Avenues
3 3 No. of Respondents 2.5 2 2 1.5 1 1 0.5 0

Mutual Fund

Fixed Deposit

ULIP & Real Estate

Which one you prefer in Future? Mutual Fund 3

ULIP 2

FUTURE PREFERENCE

ULIP 40%

Mutual Fund 60%

People above 50yrs of age prefer investing less oftenly, they generally invest either annually or more than once in a year that too where the risk involve is either low or moderate ie they are risk averse. Risk taking ability is directly proportionate to the age, as younger people take higher risks, being risk averse they prefer investing in mutual funds or fixed deposits as they are least risky. Also the main reason for investement is either childs marriage as by the age of 50 children are already grown up, or for retirement purpose.

ON THE BASIS OF INCOME FOR THE Income Group of 10000-20000 How oftenly do you invest? Weekly Monthly Quarterly Half Yearly Yearly 3 More than a yearly 2

Investment Frequency

More than A yearly 40%

Yearly 60%

What do you prefer Low Risk Low Return 1

Moderate Risk Moderate Return 2

High Risk High Return 2

PREFERENCE
High Risk High Return 33% Moderate Risk Moderate Return 34%

Low Risk Low Return 33%

Reasons for Investment Child Education Childs Marriage 1 1

Retirement 1

Emergency Purpose 3

Investment Reasons
3.5 No. of Respondents 3 2.5 2 1.5 1 0.5 0 Child Education Childs Marriage Retirement Emergency Purpose 1 1 1 3

Where Have you Invested Mutual Fund 3

Fixed Deposit 2 Investment Avenues

ULIP 1

3 3 No. of Respondents 2.5 2 2 1.5 1 1 0.5 0

Mutual Fund

Fixed Deposit

ULIP & Real Estate

Which one you prefer in Future? Mutual Fund 2

ULIP 3

FUTURE PREFERENCE

Mutual Fund 40%

ULIP 60%

Low income group generally prefer investing annually as their income is low & they cant invest monthly, they save less. Also, as their income is low they prefer high or moderate risk because they give higher returns. This income group mostly prefer saving & investing for emergencies as their professional life,in most cases, has just started.

FOR THE Income Group of 21000-40000 How oftenly do you invest? Weekly Monthly 1

Quarterly 4

Half Yearly

Yearly 10

More than a yearly 1

Investment Frequency
More than A yearly 6% Monthly 6% Quarterly 25%

Yearly 63%

What do you prefer Low Risk Low Return 2

Moderate Risk Moderate Return 14

High Risk High Return

PREFERENCE
Low Risk Low Return 13%

Moderate Risk Moderate Return 87%

Reasons for Investment Child Education Childs Marriage 1 4

Retirement 8

Emergency Purpose 4

Investment Reasons
9 No. of Respondents 8 7 6 5 4 3 2 1 0 Child Education Childs Marriage Retirement Emergency Purpose 1 4 4 8

Where Have you Invested Mutual Fund Fixed Deposit 6 5

Real Estate 3

ULIP 6

Investment Avenues
6 No. of Respondents 5 4 3 2 1 0 3 6 5 6

Mutual Fund

Fixed Deposit

Real Estate

ULIP

Which one you prefer in Future? Mutual Fund 12

ULIP 4

ULIP 25%

Mutual Fund 75%

Middle income group normally invest annually as they save less as their income is moderate & they cant invest monthly,also they prefer little riskier investements to ensure higher returns. These income people save for the future security and hence invest mostly in mutual funds as MFs are moderatly risky, also they make their families secure & hence invest in insurance ULIP in our case.

FOR THE Income Group of 41000-60000 How oftenly do you invest? Weekly Monthly 6 1

Quarterly

Half Yearly

Yearly 1

More than a yearly

Investment Frequency
Yearly 13% Monthly 13%

Weekly 74%

What do you prefer Low Risk Low Return

Moderate Risk Moderate Return 5

High Risk High Return 3

PREFERENCE

High Risk Righ Return 38%

Moderate Risk Moderate Return 62%

Reasons for Investment Child Education Childs Marriage 3

Retirement 2

Emergency Purpose 3

Investment Reasons
3.5 No. of Respondents 3 2.5 2 1.5 1 0.5 0 Childs Marriage Retirement Emergency Purpose 2 3 3

Where Have you Invested Mutual Fund Fixed Deposit 2 2

Real Estate 3

ULIP 7

Investment Avenues
7 No. of Respondents 6 5 4 3 2 1 0 Mutual Fund Fixed Deposit Real Estate ULIP 2 2 3 7

Which one you prefer in Future? Mutual Fund 2

ULIP 6

FUTURE FREFERENCE
Mutual Fund 25%

ULIP 75%

High income group mostly invest weekly with high or medium level of uncertainity as they can afford as they have higher income level. This group is the mostly saves for emergencies & invest in ULIPS as make their future secured as this group is mostly middle aged group.

FOR THE Income Group of Above 61000 How oftenly do you invest? Weekly Monthly 9 7

Quarterly 4

Half Yearly 1

Yearly

More than a yearly

Investment Frequency
Half Yearly 5%

Quarterly 19%

Monthly 33%

Weekly 43%

What do you prefer Low Risk Low Return

Moderate Risk Moderate Return 7

High Risk High Return 14

PREFERENCE
Moderate Risk Moderate Return 33%

High Risk Righ Return 67%

Reasons for Investment Child Education Childs Marriage 11 9

Retirement 2

Emergency Purpose 9

Investment Reasons
12 No. of Respondents 10 8 6 4 2 0 Child Education Childs Marriage Retirement Emergency Purpose 2 11 9 9

Where Have you Invested Mutual Fund Fixed Deposit 4 1

Real Estate 19

ULIP 20

Investment Avenues
20 18 No. of Respondents 16 14 12 10 8 6 4 2 0 Mutual Fund 4 1 Fixed Deposit Real Estate ULIP 19 20

Which one you prefer in Future? Mutual Fund 4

ULIP 17

FUTURE FREFERENCE

Mutual Fund 19%

ULIP 81%

High income group invest weekly with high & moderate risks as they can afford with the major purpose of child marriage as these are the people mostly middle aged or above. These people invest in real estate & ULIPs, real estate particularly are normally for long term investers & this group can afford long term investements as they dont need regular source of income.

FOR THE OCCUPATION (BUSINESS) How oftenly do you invest? Weekly Monthly 12 2

Quarterly 5

Half Yearly

Yearly 5

More than a yearly 2

Investment Frequency

More than A Yearly 8% Yearly 19%

Monthly 8%

Quarterly 19%

Weekly 46%

What do you prefer Low Risk Low Return 3

Moderate Risk Moderate Return 11

High Risk High Return 13

PREFERENCE
Low Risk Low Return 11%

High Risk Righ Return 48%

Moderate Risk Moderate Return 41%

Reasons for Investment Child Education Childs Marriage 5 7

Retirement 2

Emergency Purpose 15

Investment Reasons
16 No. of Respondents 14 12 10 8 6 4 2 0 Child Education Childs Marriage Retirement Emergency Purpose 5 2 7 15

Where Have you Invested Mutual Fund Fixed Deposit 14 6

Real Estate 14

ULIP 19

Investment Avenues
20 18 No. of Respondents 16 14 12 10 8 6 4 2 0 Mutual Fund Fixed Deposit Real Estate ULIP 6 14 14 19

Which one you prefer in Future? Mutual Fund 9

ULIP 18

FUTURE FREFERENCE

Mutual Fund 33%

ULIP 67%

As the business class people have comparatively high level of risk taking ability these people operate in short term & hence invest weekly, as in short term comparatively the uncertainity level is higher than in long term. This group least hesitate in taking higher level of risk The main purpose is emergencies as these people operate in higher risk.

FOR THE OCCUPATION (SERVICE) How oftenly do you invest? Weekly Monthly 3 6

Quarterly 2

Half Yearly 1

Yearly 9

More than a yearly 1

Investment Frequency
More than A Yearly Half Yearly 5% 5%

Monthly 27%

Yearly 40% Quarterly 9%

Weekly 14%

What do you prefer Low Risk Low Return 1

Moderate Risk Moderate Return 15

High Risk High Return 6

PREFERENCE
Low Risk Low Return 5%

High Risk Righ Return 27%

Moderate Risk Moderate Return 68%

Reasons for Investment Child Education Childs Marriage 7 9

Retirement 8

Emergency Purpose 4

Investment Reasons
10 9 8 7 6 5 4 3 2 1 0 9 8 7

No. of Respondents

Child Education

Childs Marriage

Retirement

Emergency Purpose

Where Have you Invested Mutual Fund Fixed Deposit 7 4

Real Estate 10

ULIP 14

Investment Avenues
14 No. of Respondents 12 10 8 6 4 2 0 Mutual Fund Fixed Deposit Real Estate ULIP 4 7 10 14

Which one you prefer in Future? Mutual Fund 11

ULIP 11

FUTURE FREFERENCE

ULIP 50%

Mutual Fund 50%

Service class people is the most rational class they take low level of risks as they cant afford to loose as mainly their income level is low hence they invest annually with risks not too high nor too low. These people save & invest sto make their & their families future secured.

Conclusion

CONCLUSION
ULIPs form an attractive investment avenue and have a lot of potential for growth. However the major hindrance observed has been the lack of awareness regarding the same. From the survey we can conclude safely that the age group between 20-30 years shows the maximum inclination towards ULIPs as a future investment avenue. It constitutes a popular choice among them even in the present portfolio with real estate being the other preferred choice. Even in other segments, its largely due to lack of adequate information and resulting confidence in the product, conventional instruments are being preferred. Aggressive marketing and mass awareness programmes need to be conducted to realize the actual potential of this product.

RECOMMENDATION S

RECOMMENDATIONS
1. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon.

But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several Since advantages policyholder can over premiums be mutual come out fund at managers. intervals, evenly.

regular more

investments

planned

Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

2. Another major obstacle that was faced during the project was public unawareness regarding ULIPS. So first and foremost its important to undertake steps to create an awareness for the same. To this end, following steps can be initiated: Advertisement Campaignsaggressive marketing strategies

should be adopted with a special be made use of for the same.

focus on educating the Indian

masses about the benefits of ULIPs both TV as well as radio can

Road Shows this can be another means of reaching target market effectively as pockets or areas could be identified where demand and market for ULIP would be increase for instance in

urban areas, people may be more willing and open to this new concept than the rural areas. Hoardings and bill boards this forms a very effective means of mass communications. Attractive and informative bill boards can be designed and located at strategic locations at strategic locations like markets, highways and other busy roads.

Train agents and the

staff: educate and train agents and the

staff who actually have an interface with the customers about all the aspects of the ULIPs and equip then with solutions to all the FAQs. They should be instructed to pitch for the product to every prospective customer by providing financial motivation to them as well. Various in house competitions could be organized means of stimulating enthusiasm among the employs. Financial employees, incentivesin order to motivate the agents and as a

financial incentives

could also be provided with

higher rewards for ULIPs in comparison to FDs and general insurance policies. Non financial incentives like certificates and other forms of recognition can also be provided to the staff. 3. A better alternative to a ULIP is a combination of low-cost term insurance and a good equity mutual fund. Term insurance provides coverage for a specified period, and is amongst the cheapest insurance products. Its no-frills design only covers your life for a fixed period. Combining it with an equity, balanced or debt mutual fund gives you the benefits of a ULIP at a much lower cost. In the end, your long-term returns are higher.

Limitations of the project

Limitations of the project

The completion of the project saw the following limitations: The scope of the study was limited to a small sample size across Delhi NCR Region. Awareness regarding ULIPs wasnt so widespread. Hence people were not very responsive towards the project.

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY
Unit Linked Insurance Plans and the Mutual Funds are the needs of the present world as we can see that in the todays scenario people have both, the resources and the way to use it. Investment is not a new term; as it has got a long history. In the present time there are several sectors in which people are easily ready to invest their hard earned money. And this is the only reason why financial sector is growing like anything. MUTUAL FUNDS Mutual Fund is an instrument of investing money. One of the options is to invest the money in stock market. But a common investor is not informed and competent enough to understand the intricacies of stock market. This is where mutual funds come to the rescue.

ULIP (UNIT LINKED INSURANCE PLANS) Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the value of the underlying assets at the time. ULIP provides multiple benefits to the consumer. The benefits include: Life protection Investment and Savings Flexibility Adjustable Life Cover Investment Options Transparency Options to take additional cover against Death due to accident Disability Critical Illness Surgeries Liquidity Tax planning The objective of the project was to analyze the market trend that what attitude does a customer bears when he or she thinks about the investment. This project concentrated on the best mode of investment as both Mutual Funds and ULIP are becoming very famous and selling like hot cakes in the financial market. But the

customer always thinks that which one is the better one and why he or she should invest in this particular plan.

ULIPs are life insurance plans whose returns are linked to the stock markets. ULIP returns fluctuate with the ups and downs in the stock market. Mutual Fund are collective investment vehicles that pool resources of various investors and invests these resources in a diversified portfolio comprising of stocks, bonds or money market instruments. Although both these products are somewhat different in their working but more or less the fund pooled in both of them are invested similarly. With the advent of Unit Linked Insurance Plans, the life insurance products have changed from being only a life cover product to an investment vehicle with built-in features of life insurance and tax benefits. Indian market offers a huge scope for ULIPs as a product since even today its largely under insured and with general income level on a rise every one is looking for investment avenues. However awareness regarding this instrument is really poor and hence efforts need to be made to bring it to the forefront. Traditional avenues like LIC policies and FDs still form the favored destination for investments.

REFERENC ES & ANNEXUS E

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-fundsvs-mutual-fund.html

www.maxnewyorklife.com

ANNEXURE:

a) TABLES

PERFORMANCE OF VARIOUS FUNDS

COMPARISON OF ULIP FUNDS Returns (%)

Scheme ICICI Prudential ICICI Prudential ICICI Prudential ICICI Prudential TATA AIG TATA AIG TATA AIG TATA AIG Bajaj Allianz Unit Gain Plus Bajaj Allianz Unit Gain Plus Bajaj Allianz Unit Gain Plus Bajaj Allianz Unit Gain Plus Bajaj Allianz Unit Gain Plus Bajaj Allianz Unit Gain Plus

FUND OPTION Balancer Maximiser Preserver Protector Liquid Growth Balanced Equity

Launch Date 16-Nov-01 16-Nov-01 17-May-04 16-Nov-01 2-Mar-04 2-Mar-04 2-Mar-04 2-Mar-04

Since inception 17.51 30.7 5.17 9.05 3.18 19.7 12.06 30.91

Debt Plus Cash Plus Balanced Plus Equity Index Equity Plus Equity Midcap Plus

22-Jul-04 22-Jul-04 22-Jul-04 22-Jul-04 22-Jul-04 9-Mar-05

2.76 4.99 16.47 32.22 48.16 38.25

LIC Bima Plus LIC Bima Plus LIC Bima Plus HDFC Standard Life HDFC Standard Life HDFC Standard Life HDFC Standard Life HDFC Standard Life

Secure Balanced Risk Secure Liquid Defensive Balanced Growth

12-Feb-01 12-Feb-01 12-Feb-01 2-Jan-04 2-Jan-04 2-Jan-04 2-Jan-04 2-Jan-04

12.15 14.21 19.04 0.93 4.33 6.97 13.55 23.48

Birla Sun Individual Life Birla Sun Individual Life Birla Sun Individual Life Birla Sun Individual Life Birla Sun Individual Life

Protector

22-Mar-01

1.49

Builder

22-Mar-01

13.2

Enhancer

22-Mar-01

19.7

Creator

23-Feb-04

7.54

Magnifier

12-Aug-04

25.26

SBI Horizon SBI Horizon

Bond Equity

10-Jan-05 10-Jan-05

6.08 47.3

Kotak Life Safe Investment Plan Kotak Life Safe Investment Plan Kotak Life Safe Investment Plan Kotak Life Safe Investment Plan Kotak Life Safe Investment Plan Max New York Max New York Max New York

Gilt

20-Jun-03

4.21

Bond Growth Balanced Aggressive Growth Secure Conservative Balanced

20-Jun-03 20-Jun-03 20-Jun-03 13-Sep-04 15-Oct-04 15-Oct-04 15-Oct-04

3.18 28.25 21.41 30.77 5.27 18.3 10.93

Max New York Max New York

Growth Preserver

15-Oct-04 10-Feb-05

31.61 4.36

Source: Outlook Money Jan. 15,2006

Performance Comparison of Mutual Funds Equity Linked Savings Scheme - A special product offered by mutual funds. These schemes invest in equity i.e shares and generally have a lock-in period of three years.

Equity-linked Savings Schemes NAV Rank Scheme (Rs)1 Launch Date 1-Yr Returns (%) 3-Yr 5-Yr Since inception RAR2 (%)

SBI Magnum Tax Gain 93

48.43

31-Mar-93

99.7

92.04

32.19

19.27

8.1

HDFC LT Advantage Pru ICICI Taxplan

87.24

27-Dec-00

57.05

75.91

49.5

49.52

93.93

9-Aug-99

70.96

79.47

43.76

36.75

7.4

Birla Equity Plan HDFC Taxsaver

53.33

16-Feb-99

57.14

71.75

35.37

33.93

7.3

139.28

31-Mar-96

77.78

79.4

44.14

45.42

7.3

Birla Taxplan 98a

187.29

1-Dec-97

59.68

72.74

38.83

40.96

Sundaram Taxsaver

26.12

22-Nov-99

62.58

68.14

36.03

26.52

5.6

Principal Tax Savings

74.72

31-Mar-96

47.38

57.33

31.8

21.99

5.2

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) GRAPHS

R
60

50

nce Inception)

The ULIP Fund performance comparison across categories shows that Bajaj Allianz Unit Gain Plus Equity Plus Fund has given

40

30

the best return of 48.16 % (CAGR) against the benchmark Annualized return of 36.26 %. This fund was rated the No.1 Performing Fund with highest return of 48.16 % since inception, by the Outlook Money Magazine, January 15, 2006 issue. The Bajaj Allianz Equity Mid cap Plus Fund was rated the 3rd Best Performing Fund by the same institution.

RET
25

20

15 RETURN(Since Inception) 10

RETURN (Since Inception) 10 12 14 6 8

QUESTIONNAIRE
NAME: __________________ AGE: ________________ GENDER: M F

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 Real Estate ULIP Govt securities & certificates

Mutual Funds Bonds

Shares

15. Which is the most important parameter for you while selecting the mode of investment? High returns Safety Liquidity Tax free proceeds Flexibility Transparency

16. What is the primary reason which prompts you to invest? Building cash reserves Tax benefits Future security To supplement income Others (Specify)

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 Others

ICICI

Kotak Mahindra

19. Have you opted for ULIP? If yes, then of which of the following: Bajaj Allianz KMLI ICICI Prudential Max New York HDFC Standard Life 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 Half Yearly Yearly 22. What do you prefer? Low risk low return. Moderate risk moderate return. High risk high return Reason for investment: Child Education Retirement 23. Where have you invested?

Quarterly More Than a Year

Childs Marriage Emergency Purpose

MUTUAL FUND ULIP

FIXED DEPOSIT REAL ESTATE

24. Which one do you prefer in future? MUTUAL FUND ULIP.