MANAGEMENT RESEARCH PROJECT

ON

Unit Linked Insurance Plans as Investment Vehicle in India

_

Pre and Post the Global Meltdown

BY

SANDEEP N 06 BS 3073 ICFAI BUSINESS SCHOOL, BANGALORE

REPORT
ON

Unit Linked Insurance Plans as Investment Vehicle in India _ Pre and Post the Global Meltdown

BY

SANDEEP N 06 BS 3073

A report submitted in partial fulfillment of the requirements of PGDBA Program of ICFAI Business School

FACULTY GUIDE

PROF. OMPRAKASH

ACKNOWLEDGEMENT

I hereby take this opportunity to thank all those who have helped me some way or the other in the successful completion of this project.

I express my deep sense of indebtedness to my institute ICFAI Business School for giving me the unique opportunity of pursuing this Summer Internship Project.

I would also like to take this opportunity to thank my faculty guide Prof. Omprakash, Professor, ICFAI Business School, Bangalore for his constant and close guidance, positive encouragement, constructive suggestions and thought provoking discussions throughout the project which went a long way in guiding my efforts towards the right direction.

I would also like to thank my friends who helped me during my project.

Sandeep N 06 BS 3073 ICFAI BUSINESS SCHOOL

TABLE OF CONTENT

SR. NO. ABSTRACT 1 1.1 1.2 1.3 1.4 2 3 4 5 6 6.1 6.2 7 8 9 10 11 12 13 14 INTRODUCTION

TOPIC

PAGE ii 1 1 1 1 1 1-2 3 5 6 9 9 9 10-11 11 12-18 18-20 20-21 22 23-24 25

INTRODUCTION TO THE PROJECT PURPOSE & SCOPE OF THE PROJECT SOURCE OF DATA & COLLECTION METHOD LIMITATIONS OF THE STUDY

HISTORY OF INSURANCE LIFE INSURANCE CURRENT SCENARIO OF INSURANCE SECTOR CURRENT STATISTICAL HIGHLIGHTS INSURANCE AS AN INVESTMENT
UNIT LINKED ENDOWMENT POLICIES UNITIZED WITH PROFIT ENDOWMENT POLICIES

ULIP (UNIT LINKED INSURANCE POLICIES) ULIP vs MUTUAL FUND MAJOR ULIPs IN MARKET CRITICISM OF ULIPs CHOOSING THE RIGHT ULIPs OBSERVATIONS REFERENCES GLOSSARY

ABSTRACT

So far the Indian insurance sector has been seen as a financial tool with low returns and attached with few death or other benefits. Insurance was being seen as the premier investment avenue. With the impeccable growth in the equity market and investors growing confidence in the market, before the meltdown, the industry was growing immensely. Unlike other Investments these two forms of Investments were giving high return with relatively low risk of loosing money in the long term investments. Individuals have become more educated and had started to understand the need of insurance for risk aversion. The insurance companies had also started to innovate by coming up with insurance plans that not only protect one from risk but also acts as an investment opportunity ready to be used.

But post the global meltdown, the returns and the risk coverage factors of ULIPs are questioned and most of the plans under the pressure of redemption. As India looks forward to mitigate the risks arose from the global meltdown, followed by the fear of recession, the insurance companies and mutual fund power-houses are in a race to get the bigger pie of the investments of Indian investors. No doubt, this period of financial instability and economic unpredictability would provide opportunities for the evolvement of more financial and insurance-linked products for the Indian investors.

ii

1. INTRODUCTION
1.1 INTRODUCTION TO THE PROJECT

The project deals with the analysis of the Insurance sector in India. The project would include looking at the major players in the insurance sector and their Unit Linked Insurance Plans. The data is collected through the secondary research [journals/articles] about the players in the market and do an analysis on the data collected. This analysis would be used to identify the major players and their performance.

1.2 PURPOSE & SCOPE OF THE PROJECT

As an investment option we would look at the various products in the insurance sector that are used as a form of investment for their future needs. The study would include the products that have been successful in this regard and try to see the performance of these products. It would also include study on where these funds are being deployed to generate the returns.

1.3 SOURCE OF DATA & COLLECTION METHOD

The data was collected from secondary sources including magazines, journals, online databases, industry reports, company websites, news and media sites.

1.4 LIMITATIONS OF THE STUDY

The major limitations could be:

Data available may not be accurate at times. Time constraints. Data cost could act as a hindrance.

2. HISTORY OF INSURANCE SECTOR IN INDIA

The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can trace its roots to the Triton (Tital) Insurance Company Limited, the first general insurance company established in the year 1850 in Calcutta by the British. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912. Several frauds during 20s and 30s sullied insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization. This was in conformity with the Governments chosen path of State lead planning and development.

The (non-life) insurance business continued to thrive with the private sector till 1972. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies- National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC). The Government of India liberalized the insurance sector in 19th April 2000, with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Committee.

The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.

3. LIFE INSURANCE

Traditionally, Life insurance was defined as follows: Life insurance is a contract binding a life insurance company to compensate a beneficiary for the death of a person insured. If the insured dies the company will provide cash payment to the beneficiary. Life insurance is used to protect the economic value of a human life with regards to those who may be financially dependent upon it. However with changing times, insurance has become one of the most significant tools of investment. Today life insurance provides a wide range of services and is an effective hedge against premature death, disability or loss of income earning capability.

Broadly speaking, a well-planned customized life insurance policy should be able to provide the policyholder or the beneficiary thereto with the following:

1) 2) 3) 4) 5) 6)

Final expenses resulting from death Guaranteed maintenance of lifestyle Replacement of income Mortgage or liquidation payments Costs of education (dependants) Continuity & security of interests

REASONS FOR THE NEED OF LIFE INSURANCE

The need for life insurance comes from the need to safeguard ones family. Today insurance has become even more important due to the disintegration of the prevalent joint family system, a system in which a number of generations co-existed in harmony, a system in which a sense of financial security was always there as there were more earning members.

Times have changed and the nuclear family has emerged. Apart from other pitfalls of a nuclear family, a high sense of insecurity is observed in it today besides, the family has shrunk. Needs are increasing with time and fulfillment of these needs is a big question mark.

How could one be able to satisfy all those needs? Better lifestyle, good education, desired house, decent marriage of children etc. But again one just cannot fritter away all his/her earnings. One needs to save a part of it for the future too - a wise decision.

This is where the need for life insurance arises. Factors such as fewer numbers of earning members, stress, pollution, increased competition, higher ambitions etc are some of the reasons why insurance has gained importance and where insurance plays a successful role.

Insurance provides a sense of security to the income earner as also to the family. Buying insurance frees the individual from unnecessary financial burden that can otherwise make him spend sleepless nights. The individual has a sense of consolation that he has something to fall back on.

The major life insurance policies are:

1. 2. 3. 4. 5. 6. 7. 8. 9.

Endowment Policy Whole Life Policy Term Life Policy Money-back Policy Joint Life Policy Group Insurance Policy Loan Cover Term Assurance Policy Pension Plan or Annuities Unit Linked Insurance Plan

The life insurance companies in India are as follows:-

PUBLIC SECTOR

1.

Life Insurance Corporation of India

PRIVATE SECTOR

1. 2. 3.

Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited

4. 5. 6. 7. 8. 9.

ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited

10. TATA AIG Life Insurance Company Limited 11. AMP Sanmar Assurance Company Limited 12. Dabur CGU Life Insurance Co. Pvt. Limited 13. Bharti Axa Life Insurance Co. Ltd. 14. Shriram Life Insurance Co. Ltd. 15. Sahara Life Insurance Co. Ltd.

4. CURRENT SCENARIO OF THE INSURANCE SECTOR IN INDIA

1. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company.

There is a proposal to increase this limit to 49 percent.

2.

Nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life

insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This it is an indicator that growth potential for the insurance sector is immense.

3.

The last seven years has seen growth in the order of 20-25% plus in the Insurance sector as compared to the

10-15% before the privatization.

4.

The current insurance penetration levels are 5.1%.

5.

The average annual growth rate since the reforms is 130% in the life insurance sector and it has had CAGR

of 40% plus. 6. But since the global financial crisis, the insurance industry has started looking dangerously close to mutual

funds in many respects. For example, insurance companies have bundled investment products along with insurance covers for the past few years and the lead strategy has been about investments.

5. STATISTICAL HIGHLIGHTS OF LIFE INSURANCE SECTOR

% MARKET SHARE IN LIFE INSURANCE SECTOR (October 2008)

Life Insurance Corporation of India

LIC still remains the largest life insurance company accounting for 64% market share. Its share, however, has dropped from 74% a year before, mainly owing to entry of private players with innovative products and better sales force. LIC experienced growth of only 5% during 2007-08 in new business premium. It had an estimated 1.1 million licensed agents, with the private insurers adding another 900,000. Total sales stood at Rs 10,797.1 crore during April-July as against new sales of Rs 14,186.04 crore in the corresponding period last financial year. This is was mainly due to slowdown in economy and crash of stock market. Also, private companies are eating the share of LIC by introducing innovative products.

ICICI Prudential

It experienced growth of 58% in new business premium, accounting for increase in market share to 8.93% in 2007-08 from 6.97% in 2006-07. Total premium collected increased to Rs 8,305.80 crore from Rs 5,254.64 in 2006-07. Total number of policies sold went up by 49%, from 1,960,034 to 2,913,606 in 2007-08, with a market share of 5.73%.Renewal premium had gone up by 101% to Rs.5,526 crore from Rs 2,751 crore. The company has 950 urban and 1,000 non-urban branches across the country.

Bajaj Insurance

Total new business premium collected by was Rs 6,491.70 crore in 2007-08. The company reported a growth of 52% and its market share went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after LIC) in number of policies sold in 2007-08, with total market share of 7.36%. Bajaj Allianz Life has a strong distribution network across the country with over 1000 branches spread over 950 towns.

SBI Life Insurance

State Bank of India has a 74% equity stake and the balance 26% is held by French firm Cardif SA in SBI Life insurance. The company broke even in March 2006. Its the fifth year of operations. SBI Life leveraged the 14,000-odd bank branches of its parent SBI to push insurance policies. Total market share of the company increased from 3.14% in 2006-07 to 5.15% in 2007-08, making it the 4th largest company in India. However, in terms of new number of policies sold, the company ranked 6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in 2007-08, an increase of 87% over last year.

Reliance Life Insurance Co Ltd

Reliance Life has sold maximum number of new group non-single policies in 2007-08. It experienced a phenomenal growth of 196% in 2008. Total new business premium collected was Rs 2,792.76 crore and its market share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business premium and 4th in number of new policies sold in 2007-08. RLIC has been one of the fast gainers in market share in new business premium amongst the private players. It has crossed 1.7 Million policies in just two years of operations, after its takeover of AMP Sanmar business. The number of policies sold in the year 2007-08 stood at 10.74 lakh as against 4.51 lakh in the previous year. In a short span of time, the company accomplished a large distribution set-up by opening 600 branches in 10 months, taking the overall branch network to above 740.

HDFC Standard Life Insurance Co Ltd

HDFC Standard Life has increased its depth in existing markets by increasing its financial consultant strength from 74,000 as on March 31, 2007 to 1,45,000 as on March 31, 2008. The Company generated new business premium income of Rs 2,680 crore in FY2007-08, registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6th among the insurance companies and 5th amongst the private players.

Birla Sun Life Insurance Co Ltd

It is a joint venture between the Aditya Birla Group and Sun Life Financial Inc of Canada for asset

management, life insurance and wealth management businesses. The Aditya Birla Group holds 74% and Sun Life Financial holds the rest 26% in the company. The company reported growth of 157.18% for the first four months of the current fiscal year. For year 2007-08 growth in new business collection was 122.60%. With this growth rate, market share of the company increased from 1.22% to 2.11% in 2007-08. The company moved to the 7th position in 2007-08 from 8the a year before, pushing down Max New York Life insurance company. During 2007-08, an additional capital of over Rs 550 crore had been infused in various trenches by the company. With this growth rate, the company is expected to break even by 2010, its ninth year of operations.

Max New York Life Insurance Co Ltd

The company reported growth of 73% in 2007-08. Total new business generated was Rs 641.83 crore as against Rs 387.51 crore. The company was pushed down to the 8th position from 7th in 2007-08. Market share of the company increased from 1.17% to 1.71%. Its performance has been very moderate as compared to other private companies. New business premium from April July was Rs 641.83 crore. This is an increase of 66% over the same period last year. The company plans to increase its capital base to Rs 3,600 crore from Rs 1,200 crore at Present.

Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Mahindra Old Mutual Life Insurance is a joint venture between Kotak Mahindra Bank, its affiliates and UK-based financial services firm Old Mutual plc. For the fiscal 2007-08, the company reported growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19% in 2007-08. Last year the company doubled its branch network to 150 from 74. The company is planning to increase this figure to 210 by end of this fiscal. Promoter of company - Kotak Mahindra Bank -- plans to expand to 250 branches from the existing count of 185 in the next year.

Aviva Life Insurance Company India Ltd

Aviva Life is a joint venture between FMCG major Dabur and the UK-based Aviva Plc. Growth in new insurance premium was mere 0.81% from April July 2008 against the same period last year. Performance of company was very moderate last year also with reporting growth in new business of only 46%. Total premium was Rs 1,059.08 crore in 2007-08 as against Rs 724.03 crore in 2006-07. Market share of the company was 1.13% in 2007-08. The company ranking dropped to 10th in 2007-08 from 9th last year. It has presence in more than 3,000 locations across India via 221 branches and close to 40 bancassurance partnerships. Aviva Life Insurance plans to increase its capital base by Rs 344 crore.

6. INSURANCE AS INVESTMENT
Insurance provides an investor with a vehicle whereby money invested now provides a future return usually at a known date. The major products that act as an investment are in the life insurance domain. The life insurance products contain along with elements of investment like regular saving, capital formation & return of capital also additional return.

There are a wide variety of life insurance policies available. Some simply provide a sum of money if the life assured dies before set date but nothing if he survives while others act as savings vehicle.

Endowment policies act as investment/savings while single premium bonds are pure investment although the protection aspect is very less in it. The various forms of endowment policies include:-

1. Without profit endowment policies 2. With profit endowment policies 3. Unit linked endowment policies 4. Unitized with profit endowment policies

The major investors concerned with investment in insurance are:-

1. Basic Rate tax payers (risk averse) 2. Higher Rate tax payers (risk taking)

6.1 UNIT LINKED ENDOWMENT POLICIES

In this type of Life Insurance policy your monthly premiums are used to buy units in a fund or funds run by professional managers. Like unit trusts, the price of these units can go up and down, so the value of the endowment can consistently change. The sum payable on maturity of a unit-linked endowment policy depends on the performance of the underlying fund. This is best suited for category one type of investor.

6.2 UNITIZED WITH PROFIT ENDOWMENT POLICIES

It is a mixture of the unit-linked and with-profits endowments. Like the unit-linked endowment your monthly premiums are used to buy units in a fund, or funds. Unlike the unit-linked endowment, the value of the units cannot fall, once an increase has been made. These are safer than unit linked policies but generate less gain compared to the unit linked policies. This is best suited for category two type of investor.

7. ULIPs
We will look at ULIPs (Unit Linked Insurance Policies) in detail. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs.

They have a great similarity with mutual funds in terms of functioning and structure. Barring the insurance element there is nothing differentiating mutual funds from ULIPs. 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 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 policys 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 ones convenience clearly gives ULIP investors an edge over their MF counterparts.

These ULIPs are valued based on their Net Asset Values i.e. the net value of investment in the funds where the premium of insurance is invested to generate returns. In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges. The rest is used to invest in a fund that invests money in stocks or bonds. The policyholders share in the fund is represented by the number of units whose value is determined by the total value of all the investments made by the fund divided by the number of units.

ULIPs are more transparent as compared to with profits insurance policies and in this the investor can himself choose the assets into which his funds are invested. These make them a much better choice compared to with profits insurance policies.

Major guidelines for ULIP

1. Minimum lock-in period of three years

2. Provision for reasonable insurance cover, with a linkage to the premium payment during the term of the contract, along with availability of the greater part of the targeted sum at the longer end.

3. Standard method must be used across the industry for computation of net asset value (NAV).

The performance of these plans has also been quite impressive with the recent figures revealing that the private insurers have acquired a business of Rs 4,768 crore whereas LIC managed to obtain Rs 2,758.6 crore. The performance of stock market especially in the last few months has made ULIPS all the more popular. It is the only option that lets you to be a part of the stock market and at the same time offers insurance cover.

8. ULIPS VS MUTUAL FUNDS

Some of the comparison points between ULIPs and mutual funds with respect to the major parameters are given below.

PARAMETER OF COMPARISON Investment amounts

ULIP Determined by the investor and can be modified as well No upper limits, expenses determined by the insurance company

MUTUAL FUND Minimum investment amounts are determined by the fund house Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory Entry/exit loads have to be borne by the investor Section 80C benefits are available only on investments in tax-saving funds

Expenses

Portfolio disclosure

Not mandatory Generally permitted for free or at a nominal cost Section 80C benefits are available on all ULIP investments

Modifying asset allocation

Tax benefits

The key difference is that in ULIP investment amounts are decided by the investor itself which means he is getting higher responsibility of his own money. Secondly tax benefits are available in all ULIPs as compared to mutual funds.

9. MAJOR ULIPS IN MARKET

a. Up to 100% Equity (as on 20th May 2008)

Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Scheme Name Aviva Easy Life Plus - Unit Linked Aviva Life Bond - Unit Linked Aviva Life Bond 5 Growth - Unit Linked Aviva Life Long - Unit Linked Aviva Life Saver - Unit Linked Aviva Save Guard Growth - Unit Linked Aviva Young Achiever - Unit Linked Bajaj Allianz Unit Gain - Equity Plan Bajaj Allianz Unit Gain- Equity Gain Plan Bajaj Allianz Unit Gain Pension - Equity Plus Bajaj Allianz Unit Gain Pension-Equity Index Plus Bajaj Allianz Unit Gain Plus - Equity Index Bajaj Allianz Unit Gain Plus- Equity Plus Bharti Axa Future Confident Grow Money Bharti Axa Future Confident II Grow Money Bharti Axa Wealth Confident Grow Money Birla Individual Life - Magnifier HDFC Unit Linked Endowment Growth Plan ICICI Pru Life Time Maximier (Growth) Plan ICICI Pru Life Time Pension Growth # ICICI Pru LT Pension II - Growth Fund ICICI Pru Premier Maximiser (Growth) II Plan OM Kotak Aggressive Growth Plan OM Kotak Growth Plan SBI Life Unit Plus Growth Fund Average Maximum Minimum

Equity (%) 0-85% 0-85% 0-85% 0-85% 0-85% 0-85% 0-85% 100% 100% 85-100% 100% 85-100% 85-100% 85-100% 85-100% 85-100% 50-90% 100% 75-100% 75-100% 75-100% 75-100% 75-100% 75-100% 75-100%

Latest NAV 33.15 33.15 30.86 33.15 33.15 30.86 33.15 23.94 29.59 26.75 26.59 30.42 30.56 14.63 14.63 14.63 24.18 66.30 58.27 58.41 33.08 31.69 31.23 32.42 23.58

6 Months Return -2.07 -2.07 -6.05 -2.07 -2.07 -6.05 -2.07 -8.54 -11.12 -8.06 -12.32 -7.85 -11.81 -9.96 -9.96 -9.96 -8.67 -10.34 -8.38 -8.07 -7.65 -8.04 -9.60 -5.56 39.77 -7.43 45.16 -12.32

1 Year Return 8.87 8.87 13.15 8.87 8.87 13.15 8.87 17.86 12.08 19.09 11.28 19.61 12.16 15.78 15.78 15.78 19.73 15.98 22.06 21.38 22.47 22.92 23.43 18.60 47.28 15.69 47.28 8.87

Since Inception CAGR 22.32 22.27 29.22 22.27 22.27 30.72 18.17 22.23 32.18 22.92 19.95 33.70 33.86 24.32 24.32 24.32 26.31 28.40 30.64 33.87 34.39 32.97 29.80 27.15 40.46 27.02 40.46 18.17

b. Up to 60% Equity (as on 20th May 2008)

Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Scheme Name Aviva Life Bond 5 Balanced - Unit Linked Aviva Pension Plus - Unit Linked Aviva Save Guard Balanced - Unit Linked Bajaj Allianz Unit Gain - Balanced Fund Bajaj Allianz Unit Gain Pension - Balanced Plus Bajaj Allianz Unit Gain Plus - Balanced Plus Bharti Axa Future Confident Save n Grow Money Bharti Axa Future Confident II Save n Grow Money Bharti Axa Wealth Confident Save n Grow Money Birla Group Life - Growth Fund Birla Group Life - Growth Fund (NAV 0%) Birla Individual Life - Creator HDFC Unit Linked Endowment Balanced Plan ICICI Prudential Superannuation Growth OM Kotak Balanced Plan SBI Life Unit Plus Balanced Fund Average Maximum Minimum

Equity (%) 0-45% 0-45% 0-45% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-60% 60% 60%

Latest NAV 33.15 25.14 33.15 16.66 17.64 18.67 12.77 12.77 12.77 32.90 34.35 18.41 41.49 24.56 26.14 16.72

6 Months Return -2.07 -1.50 -2.07 -3.63 -2.95 -3.10 -2.29 -2.29 -2.29 0.30 0.80 -0.88 -3.84 -1.48 -3.80 27.25 -2.07 27.25 -3.84

1 Year Return 8.87 10.44 8.87 13.79 14.39 14.16 12.69 12.69 12.69 22.51 23.74 19.81 12.93 19.11 16.07 40.62 14.85 40.62 8.87

Since Inception CAGR 16.12 19.11 16.73 12.46 12.94 17.70 15.02 15.02 15.02 19.77 19.75 15.28 16.86 18.83 21.36 22.88 16.80 22.88 12.46

c. Up to 40% Equity (as on 20th May 2008)

Scheme # 1 2 3 4 5 6 7 8 9 10

Scheme Name Birla Group Life - Stable Fund Birla Group Life - Stable Fund (NAV 0%) Birla Individual Life - Enhancer Birla Individual Pension - Enrich HDFC Unit Linked Endowment Defensive ICICI Pru Life Time Balancer Plan ICICI Pru Life Time Pension Balanced Plan ICICI Pru LT Pension II - Balanced Fund ICICI Pru Premier Life-Balancer II ICICI Pru Superannuation Balanced Average Maximum Minimum

Equity (%) 20-35% 20-35% 20-35% 20-35% 15-30% 0-40% 0-40% 0-40% 0-40% 0-40%

Latest NAV 29.58 30.56 26.54 19.84 32.04 27.72 26.17 18.69 18.12 17.86

6 Months Return -1.37 -0.85 -1.62 -0.37 -0.47 -1.28 -0.34 0.32 -0.66 1.94 -0.47 1.94 -1.62

1 Year Return 13.00 14.18 11.95 14.52 10.87 14.40 14.83 16.30 15.78 12.75 13.86 16.30 10.87

Since Inception CAGR 15.70 13.52 14.72 13.24 10.57 16.72 17.24 16.71 15.82 11.78 14.60 17.24 10.57

d. Up to 20% Equity (as on 20th May 2008)

Scheme # 1 2 3 4 5 6 7 8 9 10

Scheme Name Aviva Life Bond 5 Secure - Unit Linked Aviva Save Guard Secure - Unit Linked Aviva Treasure Plus - Unit Linked Birla Group Life - Secure Fund Birla Group Life - Secure Fund (NAV 0%) Birla Individual Life - Builder Birla Individual Life - Protector Birla Individual Pension - Growth Birla Individual Pension - Nourish ICICI Pru Life Time Protector Plan Average Maximum Minimum

Equity (%) 0-20% 0-20% 0-20% 0-20% 0-20% 0-20% 0-10% 0-20% 0-10% 0-10%

Latest NAV 14.11 14.11 14.11 22.05 22.99 21.06 17.59 16.42 14.42 16.45

6 Months Return 2.44 2.44 2.44 2.40 2.89 1.21 2.48 1.25 2.60 3.29 2.34 3.29 1.21

1 Year Return 9.71 9.71 9.71 14.22 15.34 12.14 10.99 12.64 11.08 8.69 11.42 15.34 8.69

Since Inception CAGR 8.32 8.48 8.32 8.18 8.12 10.98 7.74 9.19 6.49 7.84 8.37 10.98 6.49

e. Liquid Funds

Scheme # 1 2 3 4 5 6 7

Scheme Name Bajaj Allianz Unit Gain - Cash Plan Bajaj Allianz Unit Gain Pension - Cash Plus Bajaj Allianz Unit Gain Plus - Cash Plus HDFC Unit Linked Endowment Liquid Plan ICICI Pru Life Time Pension Short Term Plan ICICI Pru Premier Life Preserver (STP) OM Kotak Money Market Plan Average Maximum Minimum

Equity (%) 0% 0% 0% 0% 0% 0% 0%

Latest NAV 12.31 12.91 12.97 26.26 13.01 13.08 14.20

6 Months Return 3.80 4.90 4.61 4.77 4.14 4.34 5.19 4.54 5.19 3.80

1 Year Return 8.58 10.87 10.07 9.76 9.26 9.27 10.36 9.74 10.87 8.58

Since Inception CAGR 4.90 5.83 7.03 6.34 4.45 6.86 7.42 6.12 7.42 4.45

f. Pure Debt Funds

Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Scheme Name Aviva Easy Life Plus - uwp Aviva Life Bond - uwp Aviva Life Long - uwp Aviva Life Saver - uwp Aviva Pension Plus - uwp Aviva Young Achiever - uwp Bajaj Allianz Unit Gain - Debt Plan Bajaj Allianz Unit Gain Pension - Debt Plus Bajaj Allianz Unit Gain Plus - Debt Plus Birla Group Life - Bond Birla Group Life - Fixed Interest (NAV 0%) Birla Group Life - Fixed Interest Fund Birla Group Life - Floating Rate Fund Birla Group Life - Gilt Fund HDFC Unit Linked Endowment Secure Plan ICICI Pru Group Gratuity Capital Guarantee Fund ICICI Pru LT Pension II - Income Fund ICICI Pru LT Pension Income Plan ICICI Pru Premier Life Protector II ICICI Pru Superannuation Income ICICI Pru Superannuation Short Term Debt OM Kotak Bond Plan

Equity (%) -

Latest NAV 13.21 13.21 13.21 13.21 12.91 13.21 11.60 12.53 12.20 12.09 13.91 13.26 12.31 11.33 24.36 12.98 14.81 12.36 12.35 13.53 13.56 12.92

6 Months Return 2.55 2.55 2.55 2.55 2.80 2.55 3.05 3.83 3.94 5.56 3.89 3.39 3.68 1.83 3.52 4.06 3.52 4.02 3.69 3.25 3.87 3.98

1 Year Return 4.97 4.97 4.97 4.97 5.48 4.97 8.43 10.13 10.10 13.53 11.61 10.52 7.63 6.23 9.40 9.92 9.02 9.63 9.53 8.89 9.41 10.70

Since Inception CAGR 3.12 4.78 4.78 4.78 4.95 4.54 3.48 4.93 5.32 4.70 4.37 4.15 6.01 3.11 4.38 5.13 6.71 5.38 5.35 5.98 6.02 6.04

23 24

OM Kotak Floating Rate Plan OM Kotak Gilt Plan Average Maximum Minimum

12.45 12.81

3.32 2.86 3.55 5.78 1.83

6.90 8.22 8.34 13.53 4.97

5.14 5.12 4.99 6.71 3.11

10. CRITICISMS OF ULIPs

One area where unit-linked plans come in for widespread criticism relates to the expenses that insurers charge under three broad heads: mortality charges (which goes towards paying for your insurance cover), general expenses (agents' commissions and underwriting costs), and fund management costs.

In this competitive scenario the question arises whether Investors should opt for ULIP. Firstly, investors need to understand that a ULIP is a bundled product of their investment and their insurance proceeds. So if a person has a ULIP invest in equities, then he is exposing his life insurance as well as his invested surplus to the various risks and uncertainty of equity market. While it is sensible to let invested assets get an equity favor, the same cannot be predicted about his life insurance, which to a large extent is very scarce.

Secondly a ULIP policyholder has the option to invest in a variety funds, depending on his risk profile. If he does not have the mind to invest in equity, he can choose a debt or balanced fund. However, the structure of a ULIP takes care of quite a bit of the uncertainty in the markets. Insurance companies understand the need to give insurance seekers the flexibility to rethink their investment strategy in view of market conditions. It is the

investors to make the right switch they need to track markets actively and be well informed, which is actually the job of the investment advisor/consultant.

Although given the present market condition, any market-influenced investment seems like a huge risk. Why then, is ULIP still a safe bet?

Returns: ULIPs allow an investor to maximize returns by choosing a hundred percent investment in equity (subject to market conditions). Similarly, one can choose to invest only in debt. Therefore, depending upon the market condition one can choose a investment portfolio that gives maximum returns. Also, a ULIP policy offers the option of free switches (up to 4) every year. So anytime in the year, one can change the balance of investments between debt and equity.

Long term investment: The benefit of a ULIP is that it can be used as a short-term as well as long term investment. Depending upon the market conditions, one can either withdraw the money invested or continue for a longer period. At the present moment, it would be sensible to continue the investment (even at low returns) because if nothing, the policy offers life cover. Besides, given the free switches, an investor can always choose a heavy percentage of debt and keep the policy alive until the market conditions even out.

Lock-in period: Most ULIPs come with a 3-year lock-in period. This, at the present moment is a blessing in disguise. It means that even if the market is down sliding and returns are low, given three years time this would have evened out to give you good returns.

Tax benefits: Of course, ULIP isn't the only investment that gives you tax benefits. However, the advantage of a ULIP is that the returns from ULIP (upon maturity and also on withdrawals) are 100% tax free. So, one can use it as an endowment policy and only cash in upon maturity, thereby enjoying tax-free wealth.

Surrendering charges: ULIPs score heavily over traditional insurance policies on surrendering charges. If at the end of three years, you want to surrender your policy, you will receive hundred percent of your investment, despite investing in a debt fund. A traditional policy, on the other hand has several deductions on account of hidden charges.

Flexibility: If you take a regular insurance cover, it does not give you the option to increase your sum assured at a later date. However, with a ULIP you can increase your risk cover at any point in your policy period

Terms of payment: ULIPs function much like Mutual funds when it comes to payment of premium. With a ULIP policy, one can choose to not pay premium at the end of three years and still get risk cover benefits for the policy period (However, mortality charges will be adjusted to the present duration of investment). But this is not a luxury

one can afford with an insurance policy. Regular insurance policies will lapse if there is delay or non-payment of premium in any year of the term.

Liquidity: ULIPs, like Mutual Funds are highly liquid unlike their traditional insurance counterparts. A regular insurance cover, unless it's a money-back policy, doesn't give you returns during the policy period. A ULIP, on the other hand (subject to minimum corpus) allows you to make withdrawals as long as you maintain the minimal balance.

All-in-one: A Unit Linked Insurance policy is flexible, liquid and does not require long-term commitment. Hence, it allows anyone who has invested in one to use it as either a money-back policy (withdrawing as and when there's requirement) or an endowment policy (to enjoy tax-free wealth upon maturity) or a pension plan (by withdrawing every month after you retire) or even as a Children's plan. This makes ULIP a comprehensive solution to long as well as short-term investors

Capital Guarantee: There are several insurance companies that offer ULIPs with capital guarantee. So, even if there is a market slide, an investor will at the very least recover all the money invested in the policy. This is a huge advantage over other equity investments (ELSS or SIP funds) where the returns are entirely dependent upon market conditions.

11. CHOOSING THE RIGHT ULIP

Understand the concept of ULIPs thoroughly - Do your homework well and read as much as you can about ULIPs as you can before investing. Read the literature available on ULIPs on the web sites and brochures circulated by insurance companies. This will help you know the benefits and structure of the ULIP.

Focus on your requirements and risk profile - Identify a plan that is best suited for you keeping in mind your risk appetite. In case you have a high-risk appetite, opt for a more aggressive fund option (an option that invests higher percentage in equities) and vice versa.

Understand the peculiarities of the plan - Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, fund management charges and mortality charges.

Examine the performance of the plan - Compare the performance of the plan with benchmark indices like BSE Sensex or Nifty in the past two or three years to get a better idea about the performance. Ensure that you can

easily get information about your NAV when you need it. Thoroughly understand the flexibility and redemption conditions of an ULIP.

Understand the charges levied on the product - Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, the fund management charges and mortality charges. You not only need to understand the charges in the first year but also through the term of the policy.

Compare ULIP products of different insurance companies - Compare products of different insurance companies in terms of premium payments, cost structure, performance of the scheme (equity as well as debt schemes), additional facilities such as top-up premium and free switch between different fund options, flexibility in terms of increasing or decreasing protection, reporting structure and flexibility in redemption.

Know about the Company - Last but not least, insure with a brand you can trust to honor its commitment and service in accordance to your requirements.

12. OBSERVATIONS
1. The above description of insurance as an investment tool shows that it has a good mixture of investment and protection.

2.

The mix of options provided include low-risk low-return and high-risk high-return options that can be pursued by the investor.

3.

The mix shows the more risky options and the less risky options which allow the investor to choose the fund that he wants to invest in.

4.

The overhead charges have a major role to play in the amount that is finally used for the investment. This is because the total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.

5.

The more risky options have shown higher percentage change as compared to the less risky ones over the last one year.

6.

Most of them have had a negative return over the last year owing to the weak performance of the equity market.

7.

Since the returns of certain funds are linked to market performance one must clearly understand that past performance of the investment funds do not indicate the future performance of the same.

8.

As the premium paid in ULIPs are subject to investment risks associated with capital markets the insured is responsible for his/her decisions.

9.

Since the risk is high due to the equity market exposure it is more favorable for the investor close to retirement to avoid the equity option of the ULIP.

10.

Investor needs and his risk profile should determine the funds that he should invest in so as to gain maximum benefit out of it.

11.

Assess the funds on parameters of type of fund (equity, debt and balanced), top-ups, free switches, charges (FMC, mortality etc.).

13. REFERENCES
Information was mainly gathered from: 1. Company websites; 3. Press releases; 5. Books & Journals. 2. News, Events; 4. Online journals & articles;

WEB SITES

The following website search engines, media sites & online journals were referred to gather information for this project. SEARCH ENGINE SITES:

1. 2. 3. 4.

http://wikipedia.org http://google.com http://investopedia.com www.finance.yahoo.com

COMPANY WEBSITES

1. 2. 3. 4. 5. 6. 7.

http://www.licindia.com http://www.irda.org http://www.ibef.org http://www.allianzbajaj.co.in http://www.birlasunlife.com http://www.metlife.com http://www.tata-aig.com

NEWS & MEDIA SITES: 1. http://moneycontrol.com

2. 3. 4.

http://rediff.com http://in.finance.yahoo.com http://outlookmoney.com

ARTICLES URL: 1. 2. 3. 4. 5. 6. 7. http://en.wikipedia.org/wiki/Insurance http://www.economywatch.com/indianeconomy/indian-insurance-sector.html http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan002873.pdf http://www.iloveindia.com/finance/insurance/index.html http://sify.com/finance/insurance/fullstory.php?id=14054015 http://in.rediff.com/money/2005/dec/15perfin1.htm http://in.messages.yahoo.com/Business/Investments/Insurance/threadview

BOOKS & JOURNALS

1.

Insurance Principles & Practice, M. N. Mishra, Faculty Of Commerce, Benaras Hindu University

2.

Insurance Chronicle, Icfai Publication

3.

Personal Financial Planning-Icfai

14. GLOSSARY
Annuity: A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitants lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow the payments to begin within about a year of purchase. Beneficiary: The person named by the owner of the policy to receive the life insurance proceeds upon the death of the insured. Claim: An insurance contract is a promise to pay certain sums under certain conditions. Making a claim is invoking that promise and if it is in accordance with what is set out in the contract then it is admissible and can be payable if all other terms and conditions in the contract are met. Cover continuance option: An option that ensures that your policy continues in case you are unable to pay premium, any time after payment of first three years premium. Endowment Policy: A life insurance policy that pays out a lump sum after specific period of time or on the death of the policy holder. Group Life Insurance: A number of lives insured on the one policy. A multi life policy. In-force Business: The total premium amount of a book of business that is active and in effect at any specific period in time. Insurance: A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium. Insured or Insured Life: The person on whose life the policy is issued In-force Business: The total premium amount of a book of business that is active and in effect at any specific period in time. Keyman Insurance: A policy to cover death of a businesss key employee. It pays out a lump sum that is designed to cover the costs of finding and training a replacement as well as covering any loss of profitability. Morbidity: The probability of disability of a life or group of lives. Mortality: The probability of death of a typical person at various ages in a given group of people Nominee: Person authorized by policy holder to receive policy money Non-participating policy: Non participating policy is also known as a without profit or non-par policy. The policy owner does not share in any divisible surplus made by the life insurance company. Thus, there are policies, which do not share in, any policyholder dividends declared by the company. Participating policies: A participating policy is also known as a with-profits or par policy. A participating policy charges a higher premium than a non-participating policy. In return, the policy owner shares in the life insurance companys divisible surplus, in the form of bonus allotted to the policy. The bonus is allotted in addition to the guaranteed sum assured. Thus these are policies where the policyholder participates in the surplus generated by the insurer.

Regular premium policy: A regular premium contract is a contract where the policyholder accepts to pay a premium at regular intervals over a number of years. It is also known as recurring or annual premium contract. Renewal Premiums: Premiums that are payable after the initial premium and that are a condition for the continuation of the policy. Rider: Additional or supplementary benefits that are bought together with a main life policy on the same file and are combined for the purposes of collecting one premium. They ride on and are considered as part of the main policy. They could be added, amended or deleted from the main policy, ant time, subject to risk assessment. Details and the terms and conditions of the benefits are clearly indicated in the main policy document. Single premium policy: A single premium contract involves the payment of one premium at inception with no obligation for the policyholder to make subsequent, additional payments. Sum Assured: is the amount payable on occurrence of the specified event for which the policy is taken, such as death or completion of term. Surrender value: The amount of money that will be paid to a policy holder if they discontinue a policy before it matures. Switch: An option which enables you to transfer your money from one fund to another. Term Insurance: Policy under which the benefit is payable only if the life insured dies before a specified age or date. Top Up: Any additional premium payment over & above regular premium Unit linked policy: An unbundled policy where investment benefits are expressed in units, each representing a share in an investment portfolio. The unit price fluctuates with market-values and allows for investment income.