Professional Documents
Culture Documents
Submitted by
RAJEEV JOSEPH
REG.NO:08BA020
1st Year MBA
KARUNYA UNIVERSITY
I also declare that this report has not been submitted by me fully or partially
for the award of any degree, diploma, title, recognition or any other fellowship of
any other university before.
Place: Changanacherry
Initially, let me thank the almighty God for guiding me all through the project
work.
I express my deep and sincere gratitude to Ms. P.M. Anushia, Faculty guide for
providing the necessary assistance for the project.
I also owe my sincere thanks to all the staff in Bajaj Allianz Life Insurance
Company Ltd, Changanacherry branch, and the faculties of the Department of
Business Administration, KARUNYA UNIVERSITY for their valuable
guidance and suggestion in the preparation of this report and completing the
same successfully.
“A comparative Analysis of ULIP plans of Bajaj Allianz Life Insurance with mutual funds
in Changanacherry Branch” an analysis to be done be by Rajeev Joseph, student(MBA) of
Karunya University, Coimbatore.
Total Investment scenario is changing, in past people were not interested in investment because
there were no good options available for investment. Now there are many options available for
investment like life Insurance, Mutual fund, Equity market, Real estate, etc.
Today people want more services and more return on their investment. So, most of the insurance
companies are providing more value – added services with the basic insurance operation.
Another option for investment available is Mutual Fund. Mutual Funds are providing good
returns. So while investing people tend more to words mutual fund as they are providing more
returns than Insurance also, with a good investment portfolio. Mutual fund companies are
providing more liquidity.
The project was taken to know about, what are the main aspects in Bajaj Allianz Life Insurance
Company, and its USP (Unique Selling Preposition).Which gives it highest business and
customers. Customers always prefer to invest in a good option and in a company which is market
leader.
After survey and analysis I came to know that most of the people go for ULIP insurance policies
to cover the risk of life, and invest it in a good Portfolio but there is big portion of customers
have taken the policies to save the taxes. And people are aware about the tax benefits they get for
insurance policies. Therefore, while investing in any Investment option investor checks whether
his money is safe or not, Mutual funds provides good returns but investments are directly
exposed to risk. As in ULIP returns are related to stock market but they are having some
insurance benefit and IRDA regulates the investment.
Many people are getting the tax benefits in ULIP. In Mutual Fund they have to invest their
money in tax saving funds to get the tax benefit.
To make comparison of ULIP plans with Mutual funds in Bajaj Allianz Life Insurance Co. Ltd.
and to Create awareness about Unit Linked Insurance Plan (ULIP) Benefits. The overall goal of
this project was to create awareness about investments. The Above problem arises because every
life insurance company has their products having different positive and negative aspects.
Life Insurance is booming sector in today’s economy. So the responsibilities of the insurance
companies have been increased as compare to the past. Because in past people were taking
insurance policies for protection tool only. In present scenario insurance sector is providing more
services with the basic life insurance. Bajaj Allianz Life Insurance has number of products,
which gives the right way to save the money and earn good profit by invested premium. Today
people want more services and more return on their investment. So this insurance company is
providing more value – added services with the basic insurance operation.
By doing this type of study in this Insurance sector and looking at the vast scope and opportunity
to study this booming field of Life Insurance and the growing awareness among the public
regarding insuring their life through Life insurance policies as well as the growing contribution
of Insurance in GDP of country with the number of private players making entrance in this
booming industry of Insurance.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciations realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost.
To understand the reason for which customers prefer ULIP as one of the best insurance
investment mode rather than Mutual fund.
To find the significance difference between customers of different income with that of
investment mode.
LIMITATIONS
The middle class people do not know basic concept of ULIP so creating awareness is a
big challenge for me.
Narrow minded thinking of middle class people as investment is not their cup of tea.
Many customers are thinking that investment in share market is very risky. As ULIP and
Mutual fund both are related to share market.
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 Government's 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, OrientalInsurance Company and United India Insurance Company. These
were subsidiaries of the General Insurance Company (GIC).The general insurance business was
nationalized after the promulgation of General Insurance Business (Nationalizations) Act, 1972.
The post-nationalization general insurance business was undertaken by the General
Oriental Insurance Company Limited; New India Assurance Company Limited; National
Insurance Company Limited; and United India Insurance Company Limited.
Some of the important milestones in the life insurance business in India are:
1850:
1870:
:Bombay mutual life assurance society is the first Indian owned life insurer
1912:
The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928 :
:The Indian Insurance Companies Act enacted to enable the government to collect statistical
information about both life and non-life insurance businesses.
1938:
Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956:
245 Indian and foreign insurers and provident societies taken over by the central government and
nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution
of Rs. 5 Crore from the Government of India. The General insurance business in India, on the
other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.
1907:
The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of
general insurance of India.
1957 :
General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.
1968 :
The Insurance Act amended to regulate investments and set minimum solvency margins and
the Tariff Advisory Committee set up.
1972 :
The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance
business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into
four companies’ viz. the National Insurance Company Ltd., the New India Assurance Company
Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC
incorporated as a company.
1993: Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.
Malhotra- was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector.
1997 : Insurance regulator IRDA set up.
2000: IRDA starts giving licenses to private insurers:Kotak Life Insurance ,ICICI potential and
HDFC standard Life insurance are the first private insurers to sell a policy.
2001: Royal Sundaram Alliance first non life insurer to sell a policy 2002 Banks allowed to sell
insurance plans.
The insurance sector was opened up for private participation seven years ago. For years now,
the private players are active in the liberalized environment. The insurance market have
witnessed dynamic changes which includes presence of a fairly large number of insurers both life
and non-life segment. Most of the private insurance companies have formed joint venture
partnering well recognized foreign players across the globe.
ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company in India. 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.
Bajaj Allianz Life Insurance Co Ltd has 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%.
SBI Life Insurance Co Ltd 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 Total 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.
HDFC Standard Life Insurance Co Ltd with an 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 6 th among the
insurance companies and 5th amongst the private players.
Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to 2.11% in
2007-08.
Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total new
business generated was Rs 641.83 crore as against Rs 387.51 crore.
Kotak Mahindra Old Mutual Life Insurance Ltd 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
Here is the market share of various Life Insurance Companies in India at the end of FY2008.
LIC 48.1%
OM Kotak 1.9%
AVIVA 1.8%
MetLife 1.4%
With a huge population base and large untapped market, insurance industry is a big opportunity
area in India for national as well as foreign investors. India is the fifth largest life insurance
market in the emerging insurance economies globally and is growing at 32-34% annually. This
impressive growth in the market has been driven by liberalization, with new players significantly
enhancing product awareness and promoting consumer education and information. The strong
growth potential of the country has also made international players to look at the Indian
insurance market. Moreover, saturation of insurance markets in many developed economies has
made the Indian market more attractive for international insurance players
This research report will help the client to analyze the leading-edge opportunities critical to the
success of insurance industry in India. Based on this analysis, the report gives a future forecast of
the market that is intended as a rough guide to the direction in which the market is likely to
move.
Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by 2010-11.
Total non-life insurance premium is expected to increase at a CAGR of 25% for the
period spanning from 2008-09 to 2010-11.
With the entry of several low-cost airlines, along with fleet expansion by existing ones
and increasing corporate aircraft ownership, the Indian aviation insurance market is all set
to boom in a big way in coming years.
Home insurance segment is set to achieve a 100% growth as financial institutions have
made home insurance obligatory for housing loan approvals.
Health insurance is poised to become the second largest business for non-life insurers
after motor insurance in next three years.
COMPANY PROFILE
Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance
Company and Bajaj Finserv.
Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in
the world,managing assets worth over a Trillion(Over INR 55,00,000 Crores).Allianz SE has
over 115 years of financial experience and is present in over 70 countries around the world.
At Bajaj Allianz Life Insurance, customer delight is the guiding principle. Their business
philosophy is to ensure excellent insurance and investment solutions by offering customized
products, supported by the best technology.
VISION
MISSION
As a responsible, customer focused market leader, we will strive to understand the insurance needs of the
consumers and translate it into affordable products that deliver value for money.
Accelerated Growth
As on 31st March 2009, Bajaj Allianz General Insurance maintained its premier position in the
industry by achieving growth as well as profitability. The company garnered a premium income
of Rs. 2866 crore, achieving a growth of 11 % over the last year. Bajaj Allianz has made a profit
before tax of Rs. 149.8 crore and has become the only private insurer to cross the Rs.100 crore
mark in profit before tax in the last two years. The profit after tax was Rs.95 crores, which is also
the highest by any private insurer. The company ranked second (after LIC) in number of policies
sold in 2007-08, with total market share of 7.36%.
The Gross Written Premiums (GWP) for the nine months ended on 31st Dec 2008, is Rs 6726
crores as compared to Rs 5219 crores in the corresponding period of the previous year - growth
of 29%. New Business premium for the nine months ended on 31st Dec 2008 is Rs. 3003 crores
as compared to Rs. 3780 crores in the corresponding period of previous year.
Commission on new business premium, which was 27% during nine months ended on 31st Dec
2007, came down to 20% during the current period.
Operating expenses came down to 20% of GWP for the current period of nine months ended on
31st Dec 2008 as compared to 26% for the corresponding period of previous year.
The Company posted a profit of Rs 364 lacs for the period ended 31st Dec 2008 as compared to a
profit of Rs 5358 lacs in the corresponding period of the previous year. The policyholder surplus
Number of policies underwritten during the nine months ended 31st Dec 2008 were 18,08,495
(corresponding period of the previous year 23,62,496). Policies in force as on 31 st Dec 2008 is
around 70 lacs. The company ranked second (after LIC) in number of policies sold in 2007-08,
with total market share of 7.36%.
The share capital (including share premium) is Rs. 1211 crores as on 31st December 2008. The
solvency as on 31 st Dec 2008 stands at 261% (required solvency is 150%). During the period
ended 31st Dec 2008, no additional capital has been infused. Despite challenging environment,
the company has been able to not only reduce commission but also operating expenses. The
solvency margin of the company continues to be very strong.
As on 31st Dec 2008, the Company employed on roll 22,129 staff as against 20,764 staff at 31st
March 2008.The Company operates out of 1,138 offices as on 31 Dec 2008.
Traditional plan
Invest gain
Cash gain
Child gain
Retirement Solutions
Swarna visranthi
New unit gain easy pension plus
Health Plan
Care first
Health care
Term Plan
Risk care
Term care
(ULIP)
A unit linked insurance policy is one in which the customer is provided with a life insurance
cover and the premium paid is invested in either debt or equity products or a combination of the
two. In other words, it enables the buyer to secure some protection for his family in the event of
his untimely death and at the same time provides him an opportunity to earn a return on his
premium paid. In the event of the insured person's untimely death, his nominees would normally
receive an amount that is the higher of the sum assured (insurance cover) or the value of the units
(investments).However, there are some schemes in which the policyholder receives the sum
assured plus the value of the investments.
Every insurance company has four to five ULIPs with varying investment options, charges and
conditions for withdrawals and surrender. Moreover, schemes have been tailored to suit different
customer profiles and, in that sense, offer a great deal of choice.
The advantage of ULIP is that since the investments are made for long periods, the chances of
earning a decent return are high.
Just as in the case of mutual funds, buyers who are risk averse can buy into debt schemes while
those who have an appetite for risk can opt for balanced or equity schemes. However, the charges
paid in these schemes in terms of the entry load, administrative fees, underwriting fees, buying
and selling charges and asset management charges are fairly high and vary from insurer to
insurer in the quantum as also in the manner in which they are charged.
Tax benefits
The premiums paid for ULIPs are eligible for tax rebates under section 80 which allows a a
maximum of Rs. 1,00,000 premiums paid for taxable income below Rs 8,50,000 and Proceeds
Key features
Premiums paid can be single, regular or variable. The payment period too can be regular or
variable. The risk cover (insurance cover) can be increased or decreased.As in all insurance
policies, the risk charge (mortality rate) varies with age. However, for an individual the risk
charge is always based on the age of the policyholder in the year of commencement of the policy.
These charges are normally deducted on a monthly basis from the unit value. For instance, if
there is an increase in the value of units due to market conditions, the sum at risk (sum assured
less the value of investments) reduces and so the risk charges are lower. The maturity benefit is
not typically a fixed amount and the maturity period can be advanced (early withdrawal) or
extended.
Investments can be made in gilt funds (government securities), balanced funds (part debt, part
equity), money-market funds; growth funds (equities) or bonds (corporate bonds).
The policyholder can switch between schemes (for instance, balanced to debt or gilt to equity).
The investment risk is transferred to the policyholder.The maturity benefit is the net asset value
of the units. The value would be high or low depending on the market conditions during the
period of the policy and the performance of the fund manager.
Thus there is no capital protection on maturity unless the scheme specially provides for it. There
could be policies that allow the policyholder to remain invested beyond the maturity period in the
event of the maturity value not being satisfactory.
First-year charges: Usually, a minimum of 15 per cent. However, high premiums attract lower
charges and vice versa. Charges can be as high as 70 per cent if the scheme affords a lot of
Administration charges: This ranges between Rs 15 per month to Rs 60 per month and is levied
by cancellation of units and also depends on the nature of the scheme.
Asset management fees: Fund management charges vary from 0.6 per cent to 0.75 per cent for a
money market fund, and around 1.5 per cent for an equity-oriented scheme. Fund management
expenses and the brokerage are built into the daily net asset value.
Switching charges: Some insurers allow four free switches in every year but link it to a
minimum amount. Others allow just one free switch in each year and charge Rs 100 for every
subsequent switch. Some insurers don't charge anything.
Top-ups: Usually attracts 1 per cent of the top-up amount. Top-up normally goes directly into
your investment account (units) unless you specifically ask for an increase in the risk cover.
Surrender value of units: Insurers levy certain charges if the policy is surrendered prematurely.
This levy varies between insurers and could be around 75 per cent in the first year, 60 per cent in
the second year, 40 per cent in the third year and nil after the fourth year.
Fund performance: You could check out the performance of similar schemes (balanced with
balanced; equity with equity) across insurance companies.
Look at NAV performance over a period of at least two to three years. This can only give you
some indication about the credibility of the fund manager because past performance is no
guarantee to future returns, especially in insurance products where the emphasis is on long-term
performance (10 years or more).
Since insurance is a product, which entails a long-term commitment on the part of the insurer, it
is important not to go only by the features or the cost advantages of schemes but by the parentage
of the insurer as well.
Retire unhurt
Pension plans are essentially tailored to meet old age financial requirements. But there are certain
advantages in joining a pension plan.
First of all, contribution to pension funds upto Rs 10,000 is eligible for tax deduction under
section 80CCC. In other words, your pension contribution will get deducted from your taxable
income.
So if you are in the top tax bracket, liable to pay to a 30.6 per cent tax, then your tax savings will
be that much.
All life insurance companies offer pension products - both conventional and unit-linked. In both
cases you pay a certain premium amount for a specified length of time.
Usually, the minimum entry age is 18 years and the maximum age is 60 years. You can choose to
pay the premium for five to 30 years. When the policy matures, you receive one-third of the
value of the accumulated amount as a lump-sum payment.
For the remaining, you can buy annuities either from the existing insurer or any other insurer.
While in a conventional scheme, your money is managed through the insurer's pooled investment
account and you are entitled to bonuses every year, in a ULIP you receive the value of the
investment in your individual account.
In a ULIP you have the flexibility to choose between a conservative scheme or an aggressive
scheme with high allocation to equities. Pension policy imposes huge penalties for early
termination.
Sara is a thirty-year old who wants a product that will give him market-linked returns as well as a
life cover. He wants to invest Rs 50,000 a year for 10 years in an equity-based scheme. Based on
this premium, the sum assured works out to Rs 532,000, the exact amount of premium being Rs
50,032.
Based on the current NAV of the plan that Sara chooses to invest in, he is allotted units in the
scheme. Then, units equivalent to the charges are deducted from his portfolio.
The charges in the first year include a 14 per cent sales charge, an administration charge (7 per
cent for the first Rs 20,000 and 3 per cent for the remaining Rs 30,000) and underwriting charges,
which are deducted monthly.
Besides, mortality charges or the charges for the life cover are also deducted. For the remaining
nine years a 3.5 per cent sales charge and an administrative charge of 4 per cent (for the first Rs
20,000 and 2 per cent for the remaining Rs 30,000) are levied in addition to mortality charges.
Fund management fee of 1.5 per cent (equity) and brokerage are also charged. This cost is built
into the calculation of net asset value.
On maturity - that is, after 10 years - Sara would receive the sum assured of Rs 532,000 or the
market value of the units whichever is higher.
Assuming the growth rate in the market value of the units to be 6 per cent per annum Sara would
receive Rs 581,500; assuming the growth rate in the market value of the units to be 10 per cent,
Sara would receive Rs 7,24,400.
In case of Sara's untimely death at the end of the ninth year, his beneficiaries would receive the
sum assured of Rs 532,000 or the market value of the units whichever is higher. Assuming the
growth rate in the market value of units is 6 per cent per annum, the value of investment would
be Rs 510,200.
Assuming a growth rate of 10 per cent per annum, the value of units at the end of the ninth year
would be Rs 621,900. Hence, the beneficiaries would get Rs 621,900.
Can easily rebalance your risk between equity and debt without any tax implications.
Best suited for medium risk taking individuals who wish to invest in equity and debt
funds (at least 40% or higher exposure to debt). No additional tax burden for those
investing mainly in debt unlike in MFs.
ULIPS as the name suggests are directly linked with the investments made by the insured.
Though he does not have a direct say in this but he does offer his choice in the form of
investment.
With stock markets soaring high a few months back, ULIPs were offering a good rate of return,
but now with a sudden downfall of the stocks, ULIPs are bound to become negative investments.
At present, a policy-holder cannot understand the growth of his investments vis-à-vis other funds
in the market, since there is no benchmark to measure one fund against the other. Usually a
policy-holder could ask his investment in a ULIP to be, for example, 55 per cent in equity and 45
per cent in debt. These components can be mixed according to his risk-taking ability. An
investor, therefore, would have to look at quarterly statements, where the fund would be
compared with benchmarks. However, this may not be a true representation of the NAV, as the
ULIP could be a mix of debt, liquid and equity investments.
The reality is that most of the ULIPs take more than 5 years to break even. Policies where the
costs are 65 per cent and upwards have not even recovered the principal despite the strongest bull
market we have ever witnessed.
A mutual fund is simply a financial intermediary that allows a group of investors to pool their
money together with a predetermined investment objective. The mutual fund will have a fund
manager who is responsible for investing the pooled money into specific securities (usually
stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the
mutual fund and become a shareholder of the fund.
Mutual funds are one of the best investments ever created because they are very cost efficient and
very easy to invest in (you don't have to figure out which stocks or bonds to buy).
By pooling money together in a mutual fund, investors can purchase stocks or bonds with much
lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual
funds is diversification.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciation realized is shared by its unit holders in proportion to the number of units
owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a relatively
low cost. The flow chart below describes broadly the working of a mutual fund.
1. Professional Management: You avail of the services of experienced and skilled professionals
who are backed by a dedicated investment research team which analyses the performance and
prospects of companies and selects suitable investments to achieve the objectives of the scheme.
2. Diversification: Mutual Funds invest in a number of companies across a broad cross section
of industries and sectors. This diversification reduces the risk because seldom do all stocks
decline at the same time and in the same proportion.You achieve this diversification through a
Mutual Fund with far less money than you can do on your own.
4. Return Potential: Over a medium to longterm, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.
5. LowCosts: Mutual Funds are a relatively less expensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage, custodial and other
fees translate into lower costs for investors.
6. Liquidity: In open-ended schemes, you can get your money back promptly at AssetValue
(NAV) related prices from the Mutual Fund itself.With close-ended schemes, you can sell your
units on a stock exchange at the prevailing market price or avail of the facility of repurchase
through Mutual Funds at NAV related prices which some close-ended and interval schemes
offer you periodically.
7. Transparency: You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager’s investment strategy and outlook.
9. Choice of Schemes: Mutual Funds offer a variety of schemes to suit your varying needs
over a lifetime.
10. Well Regulated: All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors.The operations
of Mutual Funds are regularly monitored by SEBI.
· No Guarantees: No investment is risk free. If the entire stock market declines in value, the
value of mutual fund shares will go down as well, no matter how balanced the portfolio.
Investors encounter fewer risks when they invest in mutual funds than when they buy and sell
stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing
money.
· Fees and commissions: All funds charge administrative fees to cover their day-to-day
expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial
consultants, or financial planners. Even if you don't use a broker or other financial adviser, you
will pay a sales commission if you buy shares in a Load Fund.
· Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to
70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will
pay taxes on the income you receive, even if you reinvest the money you made.
· Management risk: When you invest in a mutual fund, you depend on the fund's manager to
make the right decisions regarding the fund's portfolio. If the manager does not perform as well
as you had hoped, you might not make as much money on your investment as you expected. Of
course, if you invest in Index Funds, you forego management risk, because these funds do not
employ managers.
A measurement of an option position or premium in relation to the underlying instrument. In
mutual fund also there is certain amount of risk-return factor associated according to the
investment option these are as follows,
RISK RETURN
I. Closed-end or Open-end
Open-end Funds: An open-end fund is one that has units available for sale and repurchase at all
time. An investor can buy or redeem units from the fund itself at a price based on the Net Asset
Value (NAV) per unit.
Close-end Funds: A close ended fund makes a one-time sale of a fixed number of unit. It does
not allow investors to buy or redeem units directly from the funds. However, to provide liquidity
to investors many closed-end funds get themselves listed on stock exchange. Funds do offer
“buy-back of funds/units” thus offering another avenue for liquidity to closed-end fund investor.
II. Load vs. No Load: Marketing of a new mutual fund scheme involves initial expense.
These expenses may be recovered from the investors in different ways at different times. Three
usual ways in which a fund’s sales expenses may be recovered from the investors are:
1. At the time of investor’s entry into the fund/scheme, by deducting a specific amount from his
initial contribution: front-end or entry load.
2. By charging the fund/scheme with a fixed amount each year, during the stated number of
years: deferred load.
3. At the time of the investor’s exit from the fund/scheme, by deducting a specific amount from
the redemption proceeds payable to the investor: back end or exit load These charges made by
the fund managers to the investors to cover distribution/sales/marketing expenses are often called
“loads”. Funds that charge front-end, back-end or deferred loads are called load funds. Funds that
make no such charges or loads for sales expenses are called no-load funds.
In India, SEBI has defined a “load” as the one-time fee payable by the investor to allow the fund
to meet initial issue expenses including brokers’/agents’/distributors’ commissions, advertising
and marketing expenses.
III. Tax-exempt vs. Non-Tax exempt Funds: Generally, when a fund invests in tax-
exempt securities, it is called a tax-exempt fund. In India, after the 1999 Union Government
Budget, all of the dividend income received from any of the mutual funds is tax-free in the hands
of the investors. However, funds other than Equity Funds have to pay a distribution tax, before
distributing income to investors. In other words, equity mutual fund schemes are tax-exempt
investment avenues, while other funds are taxable for distributable income.
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Once we have reviewed the fund classes, we are ready to discuss more specific fund types. Funds
are generally distinguished from each other by their investment objectives and types of securities
they invest in.
Mutual funds may invest in equities, bonds or other fixed income securities, or short-term money
market securities. So we have Equity, Bonds and Money Market Funds. All of them invest in
financial assets. But there are funds that invest in physical assets. For example, we may have
Gold or other Precious Metal Funds, or Real Estate Funds.
Investors and hence the mutual funds pursue different objectives while investing. Thus,
Income Funds invest to generate regular income, and less for capital appreciation.
Value Funds invest in equities that are considered under-valued today, whose value will be
unlocked in the future.
The nature of a fund’s portfolio and its investment objective imply different levels of risk
undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a greater
risk of capital loss than a Debt Fund that seeks to protect the capital while looking for income.
Money Market Funds are exposed to less risk than even the For internal use by Training
Department of Prudential ICICI Mutual Fund Bond Funds, since they invest in short-term fixed
income securities, as compared to longer-term portfolios of Bond Funds.
Money Market Funds: Lowest rung in the order of risk level, Money Market Funds invest in
securities of a short-term nature, which generally means securities of less than one-year maturity.
Gilt Funds: Gilts are government securities with medium to long-term maturities, typically of
over one year (under one-year instruments being money market securities).
Debt Funds (or Income Funds): Next in the order of risk level, we have the general category
Debt Funds. Debt funds invest in debt instruments issued not only by governments, but also by
private companies, banks and financial institutions and other entities such as infrastructure
companies/utilities.
Diversifies Debt Funds: A debt fund that invests in all available types of debt securities, issued
by entities across all industries and sectors is a properly diversified debt fund. A diversified debt
fund is less risky than a narrow-focus fund that invests in debt securities of a particular sector or
industry.
High yield Debt Funds: There are funds which seek to obtain higher interest rates by investing
in debt instruments that are considered “below investment grade”. e.g. Junk Bond Funds.
Assured Return Funds – an Indian Variant: The SEBI permits only those funds whose
sponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investors have
some lock-in period.
Fixed Term Plan Series – Another Indian Variant: These are essentially closed-end. These
plans do not generally offer guaranteed returns. This scheme is for short-term investors who
otherwise place money as fixed term bank deposits or inter corporate bonds.
Equity Fund: As investors move from Debt Fund category to Equity Funds,
No guarantee returns
High potential for growth of capital
b) Growth Fund
i) Sector Funds
Technology Fund
Pharmaceutical Fund
FMCG Fund
ii) Offshore Funds
A fund that seeks to invest only in equities, except for a very small portion in liquid money
market securities, bur is not focused on any one or few sectors or shares, may be termed a
diversified equity fund. While exposed to all equity price risks, diversified equity funds seek to
reduce the sector or stock specific risks through diversification.
Investment in these schemes entitles the investor to claim an income tax rebate, but usually has a
lock-in period before the end of which funds cannot be withdrawn.
An index fund tracks the performance of a specific stock market index. The objective is to match
the performance of the stock market by tracking an index that represents the overall market. The
funds invest in share that constitute the index and in the same proportion on the index.
Value Funds try to seek out fundamentally sound companies whose shares are currently under-
prices in the market. Value Funds will add only those shares to their portfolios that are selling at
low price-earnings ratios, low market to book value ratios and are undervalued by other
yardsticks. Fund concentrate on future growth prospect having good potential.
There are equity funds that can be designed to give the investor a high level of current income
along with some steady capital appreciation, investing mainly in shares of companies with high
dividend yields.
Hybrid Funds – Quasi Equity/Quasi Debt: Many mutual funds mix these (money
market, debt and equity) different types of securities in their portfolios. Such funds are
termed “hybrid funds” as they have a dual equity/bond focus.
Commodity Funds: While all of the debt/equity/money market funds invest in financial
assets, the mutual fund vehicle is suited for investment in any other- for examples-
physical assets.
Real Estate Funds: Specialized Real Estate Funds would invest in Real Estate directly,
or may fund real estate developers, or lend to them, or buy shares of housing finance
companies or may even buy their securities assets.
Following are the different products and services Offered by Mutual Fund
Companies
Gilt Funds
Index Funds
Sectoral Funds
Thematic Funds
Commodity Funds
Hybrid Funds
There are several ways for investment and disinvestments in mutual funds such as :
Value Averaging
Dividend option
Investors will receive dividends from the mutual fund , as an and when dividends
are declared.
REGULATORS IN INDIA
SEBI - The capital markets regulators also regulates the mutual funds in India. SEBI
requires all mutual funds to be registered with them. SEBI issues guidelines for all mutual
funds operations - investment, accounts, expenses etc.
RBI as supervisor of banks owned mutual funds - As banks in India came under the
regulatory jurisdiction of RBI, bank owned funds to be under supervision of RBI and
SEBI.
RBI as supervisor of Money Market Mutual Funds - RBI has supervisory responsibility
over all entities that operate in the money markets. Hence in the past Money Market
Mutual Funds scheme of Mutual funds had to be abide by policies laid down by RBI.
Recently, it has been decided that Money Market Mutual Funds of registered mutual funds will
be regulated by SEBI through SEBI (Mutual Fund) Regulations 1996.
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in
terms of their structure and functioning. As is the cases with mutual funds, investors in ULIPs are
allotted units by the insurance company and a net asset value (NAV) is declared for the same on
a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to the ones
found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to
name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance
component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs
2. Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales
and marketing, administration among others are subject to pre-determined upper limits as
prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on
a recurring basis for all their expenses; any expense above the prescribed limit is borne by the
fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is
applicable). Entry loads are charged at the timing of making an investment while the exit load is
charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with no upper
limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development
Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP
offerings. The only restraint placed is that insurers are required to notify the regulator of all the
expenses that will be charged on their ULIP offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate into
lower amounts being invested and a smaller corpus being accumulated.
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit
most fund houses do so on a monthly basis. Investors get the opportunity to see where their
monies are being invested and how they have been managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our
interactions with leading insurers we came across divergent views on this issue.
Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the
lack of transparency in ULIP investments could be a cause for concern considering that the
amount invested in insurance policies is essentially meant to provide for contingencies and for
long-term needs like retirement; regular portfolio disclosures on the other hand can enable
investors to make timely investment decisions.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from
the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift investments
across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are
allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP
investor's equity component has appreciated, he can book profits by simply transferring the
requisite amount to a debt-oriented plan.
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds
good, irrespective of the nature of the plan chosen by the investor. On the other hand in the
mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked
savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example
diversified equity funds, balanced funds), if the investments are held for a period over 12 months,
the gains are tax free; conversely investments sold within a 12-month period attract short-term
capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term
capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have their
unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in
both offerings and make informed decisions.
Mr.Madhu T, made a study on ‘ULIPs hold edge over mutual funds’.The findings shows that
distributors would push unit linked insurance plans (ULIPs) to earn better commission . ULIPs
offer attractive frontend commissions to agents. However, independent financial advisors believe
that though there is a possibility of some distributors favoring ULIPs in the short term, the new
directive would be beneficial for both the industry and investors in the long run.(Mr.Madhu T,
The Economic Times,June2009).
Mr.Deepak Shenoy ,in his article ‘Comparing ULIP returns to Mutual Funds’, he reveals
that, over the last three years, their growth mutual fund has given better returns than the
"MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investor’s Blog, August
2006).
Mr.Murthaza and Sony, in their article ‘An Overview on ULIP’, This article is an initiative from
Bajaj Allianz to create better understanding of ULIPs and its benefits so that investors can avail
maximum returns from their investments.
Mr.Bernz Jayma P, made a study on ‘Mutual Fund disadvantages’. He suggested that ,’If you're
new to stock market investing you may have heard that mutual funds would be a good way for
DATA INTERPRETATION
AND
ANALYSIS
Gender
Cumulative
Frequency Percent Valid Percent Percent
Marital
Cumulative
Frequency Percent Valid Percent Percent
(C) Age:
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
The graph shows that majority of the sample respondents were in the age group of 40-50 yrs
ie,34%, 12% were in the age group of 20-30 yrs & 28% of them were 30-40 yrs, 22% were in the
age group of 50-60 yrs and 4% were in the age group of 60-70 yrs.
(D) Occupation:
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
The graph shows that majority of the policy holders are working in the Government sector
i.e.36% , 28% of them are engaged in Private service, 22% of them are business field, 6% of
them are NRIs and 8% of them are engaged other works.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
The graph shows that 46% of the policy holders get a salary of 2-4 lakhs, 38% of the policy
holders get a salary of below 2 lakhs, 12% of the policy holders get a salary of 4-6 lakhs, 3 of the
policy holders get a salary below 2 lakhs and 4% of them above 6-8 lakhs.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From the sample of 50 customers, 54% of the customers are strongly agree that the agents or
brokers helps them to make investment decision, 26% of the customers point out their friends
take part in the investment decision. And 10% customers reveal that the financial journals helps
them, Remaining 6% is from consultants, and 4% selects television as the source.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
54% customers agree that the tax benefit is influence them to buy policy ,28% looks
the rate of return what they will earn, variety of products from the company attracts 8%
customers, and high reputation of the company attracts 6% of the customers, and remaining 4%
pointing out the attractive schemes.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 56% of the customers invest money in bank deposit, 26% in
insurance sector,12% in mutual fund, then 4% in both insurance and mutual fund,and remaining
2% in stock market.
4. According to you who among the following life insurance company is best.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,54% customers select Bajaj Allianz is the best insurance
company, and 22% customers choose SBI Life,10% select HDFC,8% for Tata AIG and
remaining 6% stands for Aviva life insurance company.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,74% customers thinks that the products offered by Bajaj Allianz
Life insurance co. is good,4% thinks its excellent,18% of them select Bajaj Allianz products are
fair, and remaining 4% not satisfied with our products.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 66% agree, 4% of them strongly supporting that fact, and 16%
has no opinion about it. And 4% strongly disagreed, remaining 10% also disagree with
investment in ULIP.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 64% of the customers agree, ,28% of them strongly support
it,4% customers didn’t say anything, and remaining 4% disagree with that fact. So we can see
that most of the Customers choose ULIP because of insurance coverage.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,26% of the customers agree with that fact,6% of the customers
strongly support it,and 28% customers have no idea about it.And remaining 10% disagreed,out of
this 10%, 4% strongly disagreed with it.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,54% of the customers thinks that mutual funds are more risky
than ULIP products,34% strongly agree with this statement.8% customers have no opinion about
it,and remaining 4% disagree with it.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
62% of the customers agree with ULIP have advantage over mutual fund statement.24%
customers strongly agree with this fact. And 4% of customers not supporting the statement. And
remaining 10% have no opinion about it.
11. Do you think the safety factor is important in your investment in ULIP.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,52% customers agree,8% strongly agree,30% customers were
disagree with that fact,6% strongly disagree, and remaining 4% have no opinion about safety
factor is important in the investment of ULIP.
Liquidity
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, majority of the customers disagree i.e. 60%, 14% strongly
disagree with that fact. And 6% strongly agree,10% agree,and remaining 10% neither agree nor
disagree with that statement.
Rate of return
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly agree
with that fact. And 24% disagree,16% strongly disagree, and remaining 6% neither agree nor
disagree with that statement
Tax savings
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly agree
with that fact. And 32% disagree,4% strongly disagree, and remaining 10% neither agree nor
disagree with that statement
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, majority of the customers disagree i.e. 46%, 8% strongly
disagree with that fact. And 16% strongly agree,16% agree, and remaining 14% neither agree nor
disagree with that statement
Advertisement
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 22%agree, 18% strongly agree with that fact. And 10%
disagree,12% strongly disagree, and remaining 38% neither agree nor disagree with that
statement.
Safety
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers,8% customers agree,4% strongly agree,60% customers were
disagree with that fact 12% strongly disagree, and remaining 16% have no opinion about safety
factor is important in the investment of mutual fund.
Liquidity
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 38%, 14% strongly agree
with that fact. And 12% disagree,6% strongly disagree, and remaining 30% neither agree nor
disagree with that statement.
Rate of return
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 30% disagree, 10% strongly disagree with that fact. And 14%
agree,4% strongly agree, and remaining 42% neither agree nor disagree with that statement.
Tax savings
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 24% disagree, 12% strongly disagree with that fact. And 12%
agree,6% strongly agree, and remaining 46% neither agree nor disagree with that statement.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 44% agree, 12% strongly agree with that fact. And 14%
disagree, and remaining 30% neither agree nor disagree with that statement.
Advertisement
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
From a sample of 50 customers, 8% strongly agree,32% agree with that fact. And 8% strongly
disagree,4% disagree, and remaining 24% neither agree nor disagree with that statement.
Cumulative
Frequency Percent Valid Percent Percent
INTERPRETATION :
46% of the customers express their satisfaction level with Bajaj Allianz service. They Strongly
agree with the statement, 30% customers also agree with it. And 12% have neutral situation. And
remaining 12% not satisfied with Bajaj Allianz.
CORRELATIONS
Correlations
Reason for
choosing ULIPs
I would like to because of
invest money in insurance
ULIP. coverage.
N 50 50
INTERPRETATION:
The above table shows that the reason for choosing ULIPs because of insurance
coverage is 0.000 which shows that there is a relationship between investment of
ULIP and insurance coverage.We can choose alternate hypothesis because the
significant value is less than 0.005.Hence it is very clear that most of the customers
choosing ULIP product because which provide insurance coverage over their
investment. So we can conclude that most of the customers prefer ULIP products
than Mutual funds because of insurance coverage.
H1: There is a relationship between the investment pattern and annual income
of the customers.
T-Test
Group Statistics
F Sig. t
I would like to invest money Equal variances assumed 1.428 .247 .451
in ULIP.
Equal variances not assumed 1.424
I would like to invest money Equal variances assumed 3.956 .061 -.914
in mutual funds.
Equal variances not assumed -2.882
INTERPRETATION:
The above table shows the significance value of the relationship between
investment pattern and annual income is 0.247 for ULIP and 0.061 for Mutual
Funds.Which shows that there is no relationship between the investment pattern
and annual income level of the customers.We can choose Null hypothesis because
the significant value is greater than 0.005.Hence it is very clear that the income
level does not take part in the investment decision.It may be change the premium of
the policy,but not the decision.
Awareness of ULIP is increasing as more number of private players are entering in life
insurance industry.
Mutual Fund is also getting more and more famous in Indian market as many private
companies innovating new funds as the investors demand.
ULIP differentiate from Mutual fund in respect of Insurance cover.
Investors in Bajaj Allianz Life ULIP will be getting the advantage of life insurance cover.
People are turning towords the ULIP as a good investment option but as ULIP is in its
starting phase so customers are preferring only big brands.
Mutual fund is having good growth but many customers from rural areas don’t have any
knowledge about Mutual fund.They think it is very risky.
Even investors from cities like Changanacherry don’t have that much of Knowledge
about fund selection they all are depend on Brokers.
People in Changanacherry are investing in only good branded companies as they don’t
believe on other financial companies for taking ULIP.
There is a need for insurers to undertake a demand audit in order to understand what the
policyholder wants and needs.
Deriving the right feedback from customers and bringing out innovative products which
cater to customer demands will go a long way in tapping the market potential of the
insurance and Mutual fund sector.
For Bajaj Allianz Life Insurance They should go for creating more awareness about its
ULIP as now also people are just investing because Bajaj is India’s most Known and
Favorite brand in past.
Bajaj Allianz should go for innovating more and more products and improving the
distribution channels as per the area of sales.
REFERENCE:
1) Research Methodology, C.R Kothari, 2nd edition
WEBSITE
www.irdaindia.gov
www.bajajallianzlife.co.in
www.quickmba.com
www.amfindia.com
www.mba.com
www.articlebase.com
PERSONNAL INFORMATION
1. Name:
2. Gender:
3. Marital status:
4. Age:
(e) 60-70
5. Occupation:
(e) Others
6. Annual Income:
(e) Consultants