³A Study of awareness of Financial Planning among customers in context of investment in Traditional Market and Insurance´


Submitted towards the partial fulfillment for award of degree of Master of Business Administration (M.B.A)
Under the guidance of:

Submitted by


Savita Gupta


Roll No.





































Till few years ago one could easily see the monopoly observed by the Life Insurance Corporation of India (L.I.C.) in the insurance sector in India. As the result of which Insurance was considered merely as tool for protection against the financial losses that may arise due the occurrence of a certain miss happening in the family (i.e. death of the bread earner of the family. But with the formation of I.R.D.A. (Insurance Regulatory and Development Authority) and emergence of the private players in the market, insurance has become a vital tool for Financial Planning. Not only these private players have offered a very stiff competition to the L.I.C. but also they have improved the quality of the services offered by these companies. But the question which is still unanswered is about the awareness of financial planning. Are we really aware of emergence of insurance as the tool of financial planning? How will these private companies differentiate there products from traditional investment instruments like Mutual and Equity shares? What is the future of these products?


The Objective of the study is to determine the extent of awareness of financial planning in India and the understanding of insurance among the masses. The Scope of the study involves 

To understand the concept of financial planning. To advice people to invest in the Unit Linked Products of HDFC Standard Life Insurance Co. 

To compare traditional investment instruments (Mutual Funds etc. ) with investment in Insurance. 

To analyze various Unit Linked Plans offered by HDFC Standard Life Insurance Company.


The method for collecting information will be an extensive one. Researcher conduct market surveys and collect information by the use of following source.     Door to door free financial consultancy service . Internet sources News Papers Magazines

The information has been collected from both primary and secondary sources. In case of primary sources the information was retrieved directly from the concerned people and the authorities. Door to door free financial consultancy service will be done with the view of collecting information and generating leads and prospects for the products of HDFC SLIC.

Since Secondary data information published by others and companies & were easily available and not much effort was required in obtaining that information


The General insurance business in India. the first general insurance company established in the year 1850 in Calcutta by the British. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more riskier for coverage. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. It was the first company to charge same premium for both Indian and non-Indian lives. can trace its roots to the Triton (Tital) Insurance Company Limited. The Oriental Assurance Company was established in 1880. The Bombay Mutual Life Insurance Society started its business in 1870. Several frauds during 20's and 30's sullied insurance business in India. 6 . Indian companies strengthened their hold on this business but despite the growth that was witnessed. on the other hand. insurance remained an urban phenomenon. The insurance business grew at a faster pace after independence. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912.HISTORY OF INSURANCE The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. By 1938 there were 176 insurance companies.

These were subsidiaries of the General Insurance Company (GIC). 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. New India Assurance Company.The Government of India in 1956. nearly 107 insurers were amalgamated and grouped into four companies. brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. 7 . Oriental Insurance Company and United India Insurance Company. With this.National Insurance Company. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization.

8 .  The Oriental Insurance Company Limited  The New India Assurance Company Limited. namely (with effect from Dec'2000.  National Insurance Company Limited  United India Insurance Company Limited. these subsidiaries have been de-linked from the parent company and made as independent insurance companies. a National Reinsurer) GIC had four subsidiary companies.INDIAN INSURANCE INDUSTRY Insurers Prior to 23rd Oct 2000 Insurance industry in India. comprised mainly two players: the state insurers: Life Insurers: Life Insurance Corporation of India (LIC) General Insurers: General Insurance Corporation of India (GIC) (with effect from Dec'2000.

2000 HDFC Standard Life Insurance Company Ltd.2001 ING Vysya Life Insurance Company Private Limited 9 116 03.2001 Birla Sun Life Insurance Company Ltd. 8 114 02.02. 4 107 10.08.2001 Tata AIG Life Insurance Company Ltd.No.08.11.Private Life Insurers: S. Ltd.2000 Max New York Life Insurance Co. 9 . Ltd. 7 111 30.01.08. Registration Number Date of Reg. 3 105 24.2000 ICICI Prudential Life Insurance Company Ltd.2001 Bajaj Allianz Life Insurance Company Limited 10 117 06.03. 6 110 12. 2 104 15.11.01. Name of the Company 1 101 23.2001 SBI Life Insurance Company Limited .10.2001 Metlife India Insurance Company Pvt.2001 Kotak Mahindra Old Mutual Life Insurance Limited 5 109 31.

11.01. 13 127 06. 14 128 17. Ltd. Both the promoters are well known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry insurer all important factors to consider when choosing your 10 . which offers a range of individual and group insurance solutions.). India s leading housing finance institution and one of the subsidiaries of Standard Life plc.2004 Sahara India Insurance Company Ltd.2002 AMP Sanmar Life Insurance Company Limited. is one of India s leading private life insurance companies.02. INTRODUCTION OF VARIOUS INSURANCE COMPANIES HDFC Standard Life Insurance Company Ltd. India Pvt.* 12 122 14. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.11 121 03. leading providers of financial services in the United Kingdom.2002 Aviva Life Insurance Co.2005 Shriram Life Insurance Company Ltd.05.

New York Life: New York Life has grown to be a fortune 100 company and an expert in life insurance. Max India: Max India Limited is a multi-business corporation that has business interests in telecom services.Max New York Life Insurance Co. Thereafter. It is also the service oriented businesses of healthcare. it continued to introduce a series of firsts a disability benefit clause in 1920. electronic components and specialty products. and complete customer care on the Web in 1998.Today New York Life has over US $ 138 billion in assets under management and over 30. In 1894.000 agents and employees worldwide. The October 2000 Fortune Survey named New York Life amongst the top three most admired life and health insurance companies worldwide. Ltd. life insurance and information technology. New York Life pioneered the then unheard-of concept of insuring women at the same rate as men. It was first insurance company to offer casf dividends to policy owners. With over 3 million policy holders. New York Life is a leading provider of insurance in a host of countries world wide 11 . unemployment insurance in 1992. bulk pharmaceuticals.

The MetLife companies are a leader in group benefits that serve 88 of the top one hundred FORTUNE 500®* companies. a leading international financial services group headquartered in the United Kingdom. and technology-backed service experience.ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank.ICICI Prudential's equity base stands at Rs.S. and aims to differentiate itself through customized need based selling. MetLife was incorporated in 2001. WAY2WEALTH. 12 . The MetLife companies are also ranked #1 in group life and #1 in commercial dental in the U. MINI MUTHOOTHU. a premier financial powerhouse and Prudential plc. 11. GEOJIT SECURITIES. and provide benefits to 37 million employees and family members through its plans sponsors in the U. simple and innovative products. The partners of MetLife are: KARVY. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority.S.85 billion with ICICI Bank and Prudential plc holding 74% and 26% stake respectively. In India. to tread its path to build financial freedom for everyone.

Allianz Group is one of the world's leading insurers and financial services providers. The Company has a customer base of over 3. and Bajaj Auto. Allianz Group provides its more than 60 million customers worldwide with a comprehensive range of services in the areas of Property and Casualty Insurance. one of the biggest 2 and 3 wheeler manufacturers in the world. Life and Health Insurance. Ambuja Cements Limited.product It also distributes products in close cooperation with the ING Vysya Bank network. Asset Management and Banking. Founded in 1890 in Berlin.000 employees. Bajaj Allianz Life Insurance Co.00. Allianz AG.000 & is headquartered at Bangalore. Allianz is now present in over 70 countries with almost 174. is a joint venture between two leading conglomerates.Allianz AG. Gujarat. one of the world's largest insurance companies. Enam Group. Equity partners: ING Group. At the top of the international group is the holding company. 13 . Exide Industries Limited. with its head office in Munich. Ltd.ING Vysya Life Insurance Company Private Limited (the Company) entered the private life insurance industry in India in September 2001.

In India. SBI Life Insurance is a joint venture between the State Bank of India and Cardif SA of France. 14 . Aviva has a joint venture with Dabur. one of India's oldest. Dabur is the country's leading producer of traditional healthcare products. SBI owns 74% of the total capital and Cardif the remaining26%.Aviva is UK s largest and the world s fifth largest insurance Group. With a history dating back to 1696. In accordance with the government regulations Aviva holds a 26 per cent stake in the joint venture and the Dabur group holds the balance 74 per cent share. SBI Life Insurance is registered with an authorised capital of Rs 500 crore and a paid up capital of Rs 350 crores. Along with its 7 Associate Banks. Aviva has a long history dating back to 1834. State Bank of India enjoys the largest banking franchise in India. In India.000 branches across the country. At the time of nationalisation it was the largest foreign insurer in India in terms of the compensation paid. Aviva has a 35 million-customer base worldwide. and largest Group of companies. SBI Group has the unrivalled strength of over 14. It has more than £332 billion of assets under management. A professionally managed company. the largest in the world.

It is led by its Chairman . Cardif is a vibrant insurance company specialising in personal lines such as long-term savings. the United States.. Sun Life Financial Inc. is a leading player in the life insurance market in Canada. 15 . Sun Life Financial Inc.. had assets under management of over US$343 billion. protection products and creditor insurance. China and Bermuda. BNP is one of the oldest foreign banks with a presence in India dating back to 1860.Cardif is a wholly owned subsidiary of BNP Paribas. which is The Euro Zoneâ s leading Bank. 53400 crores (as on 31st March 2006). Aditya Birla Nuvo. Some of the key organisations within the group are Hindalco. the Philippines. offers a formidable protection for your future.Mr. Hong Kong. as on 31st March. Sun Life Financial Inc. 33000 crores with a market capitalisation of Rs. a leading international financial services organisation. It has over 72000 employees across all its units worldwide. It has 9 branches in the metros and other major towns in the country. Kumar Mangalam Birla. etc.The Aditya Birla Group has a turnover close to Rs.2006. the United Kingdom. one of the largest business houses in India and Sun Life Financial Inc. Birla Sun Life Insurance Company Limited is a joint venture between The Aditya Birla Group. including Canada. and its partners today have operations in key markets worldwide. The local knowledge of the Aditya Birla Group combined with the expertise of Sun Life Financial Inc. Japan. India. Grasim. Indonesia.

How ever the company came into existence after buying 100%stake in AMP Sanmar Life Insurance Company Ltd. Since the SBI is a bank.2004. 16 .11. The State Bank of India(SBI) announced a joint venture partnership with Cardif SA of France (the insurance arm of BNP Paribas Bank).Current State of Play Starting in early 2000. It thus becomes the only purely domestic company to be granted a license to operate in the insurance sector. First. (17. Sahara group came to the Insurance industry on 06. The latest group to receive an outright charter for operating a life insurance company is Shriram Life Insurance Company Ltd. All of the private companies had foreign partners in life business. Sahara would be the only company to enter the Indian life insurance market without any foreign partner. the Reserve Bank of India (RBI) needed to clear the participation of the SBI because banks are allowed to enter other businesses on a ³case by case´ basis.2005). Thus. It would become the first Non-Bank Financial Company to operate in the life insurance sector. the Insurance Regulatory and Development Authority started granting charters to private life and general insurance companies. Almost all general insurance companies also have foreign partners. Second. it operates the largest Non-Bank Financial Company in India. Sahara¶s entry is notable for two reasons.02. One such charter was very special. Reliance Group also jumped into the insurance sector with a name of Reliance Life Insurance some months back. the SBI became the test case.

3 -0.29 0.91 0.37 2.08 ICICI PRUDENTIAL BIRLA SUN LIFE ING VYSYA BAJAJ ALLIANZ 4.21 1.79 0.19 0.Market share for premiums: life market NAME OF THE PLAYER MARKET SHARE (%) 2003-2004 2005-2006 Growth % LIC 87.16 0.26 0.02 1.9 0.87 5.16 SBI LIFE HDFC STANDARD LIFE TATA AIG MAX NEW YORK LIFE 0.90 0.10 17 .10 0.2 0.43 1.22 82.15 1.09 AVIVA AMP SANMAR 0.63 2.33 0.36 1.46 0.81 1.03 1.89 1.66 0.80 1.35 0.56 0.


16 2.21 1.16 0.37 0.33 0.03 0.8 0.22 50 100 MARKET SHARE (%) Growth % MARKET SHARE (%) 2005-2006 MARKET SHARE (%) 20032004 M AX IN SU BI R IP RU IC IC -50 G LI C DE N TI AL LA N LI FE AL SB VY LI IL AN SY IF E Z A H DF C BA JA J ST AN DA RD LI FE TA TA N 0 19 .9 1.1 0.26 0.89 1.1 0.02 0.43 -0.46 0.91 1.3 87.36 1.63 4.9 0.29 1.87 0.79 0.09 0.56 1.2 5.MARKET SHARE AND GROWTH PERCENTAGE NM AR AM P SA AV IV LI FE YO R EW AI G K A 0.15 0.19 1.08 82.66 2.81 1.35 0.

ITS GROUP COMPANIES ARE: 1. HDFC Realty Limited 6. HDFC IS A HIGHLY DIVERSIFIED GROUP. HDFC Asset Management Company Limited 5.). Both the promoters are well known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry all important factors to consider when choosing your insurer. is one of India s leading private life insurance companies. which offers a range of individual and group insurance solutions. leading providers of financial services in the United Kingdom. HDFC Limited 2.COMPANY S PROFILE HDFC Standard Life Insurance Company Ltd. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd. India s leading housing finance institution and one of the subsidiaries of Standard Life plc. HDFC Bank Limited 3. HDFC Securities Limited 4. CIBIL 20 .

New premium income 2003 :Rs.HDFC STANDARD LIFE INSURANCE COMPANY LTD. Standard Life currently has assets exceeding over £70 billion under its management and has the distinction of being accorded "AAA" rating consequently for the past six years by Standard & Poor. 707836 Crores.K.Scotland (U. Standard Life.) Assets under management over Rs 707836 crores (£ 89. It is the name which is working as one of the best private insurance company in insurance sector. Some Facts about the Company Founded in 1825. The company expanded in the 19th century from its original Edinburgh premises. which has been in the life insurance business for the past 175 years. opening offices in other towns and acquiring other similar businesses. 76277 Crores. Head Office:Edinburgh.It got the certificate of registration on 23rd October. 21 . HDFC Standard Life Insurance Company Ltd was incorporated on 14th August 2000. Standard Life Standard Life is Europe's largest mutual life assurance company. Mutual Life Insurance Company since 1925. Largest mutual life insurance company in Europe.2 bn) Total assets under management : Rs. is a modern company surviving quite a few changes since selling its first policy in 1825.

AA2 rated by Standard & Poor s and Moody s. Towards the end of the year 1999. in January 2000 an expert taem from U. in January 1995.It was clear from the out set that both companies shared similar values and benefits and a strong relationship quickly formed. The mutual fund aws launched on 20th July 2000. THE PARTNERSHIP HDFC and Standard Life came together for a possible joint venture. Therefore. to enter the Life Insurance market. In a further development Standar Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. First entry in India-1847. Last claim settled in 1997-Madhya Pradesh. joined hands with a hand picked taem from HDFC to form a core project team based in Mumbai Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank.K. 22 . the opening of the market looked very promising and both companies agreed the time as the right time to move the operation to the next level.

Their ambition since October was the only life insurance company to be granted the certificate of registration. HDFC are the main share holders in HDFC Standard Life Insurance Co.1995 and 1996 Most competitive Indian company by Euro money 1997 One of the 5 best Indian Boards by Business Today -1997 Best presented accounts 1994-95 and 1996-97 (3rd place) . LTD. The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited.over 11 times (8 years in a row)  1999 IMC Ramakrishna Bajaj National Quality Award in the service category 23 .INCORPORATION OF HDFC STANDARD LIFE INSURANCE CO. Ltd.in the SAARC region by the South Asian Federation of Accounts in the financial sector category  Rated as one of the best companies in India for strategy & management and investor relations by Asia money 1998  Excellence in service industry by the Indian Institute of Marketing Management & Top Management Club (Pune) -1998  Shield for the best presented accounts for banks and financial institutions . With 76% and Standard Life owns 24% AWARDS AND ACCOLADES     India s best managed company by Asia money magazine .

) C. Ramon House. Suresh Mahalingam Mr. & M. (HDFC SLIC) G. Deepak Satawalekar Mr. Mumbai-400020. ORGANISATIONAL HEADS y y y y y y Chairman(HDFC Ltd. Dilip Gazarao Mr. Satish Soni HEAD OFFICE: HDFC Standard Life Insurance Company Limited. CII-EXIM Bank Commendation Certificate for commitment to Total Quality Management 2000   Asia money declared HDFC as the second best managed company in India 2001 Euro money identified HDFC as one of Asia s top 10 best managed companies in the finance sector 2001  Rated as the Best Non-Banking Financial Company in Asia by Institutional Investor Research Group. 24 .E.D. Deepak Parekh Mr. Frederick D Souza Mr.M.O. Sales Head Retail Sales National sales training Manager Regional Manager : : : : : : Mr. 169 Bacbay Reclamation.


Life insurance is a contract for the payment of a sum of money to the person assured (or failing him/her. 26 . 2. 3. It is done on the cost of sacrifice of present consumption of that part of money. To supplement income. To earn returns. in consideration of a sum of money(premium). the insurer(insurance company) Agrees/undertakes. To protect and increase capital. What Is Investment? Investment may be said as keeping a sum of money aside from the present savings with the view of earning returns on it. to make good the loss suffered by the insured against a specified risk such as fire and any other similar contingency or compensate the insured/beneficiaries on the happening of a specified event such as accident or death. Why Invest?  Financial reasons 1. In a contract of insurance.WHAT IS INSURANCE? Insurance is pooling of risks. to the person entitled to receive the same) on the happening of the event insured against.

b. Commercial Banks Thrift Institutions Other Financial Institutions: a. f. To provide for contingencies. Non Financial reasons To have money for important events. b. Insurance Companies Securities firms and investment banks Mutual funds Finance companies Pension funds 27 . c. d. 1. Where one can invest? Securities Market: a. e. e. c. d. 2. b. Money Market Bond Market Mortgage Market Stock Market Foreign Exchange Market Derivatives Securities Market Depository Institutions: a.

What Is Risk? When we use the word Risk. The loss or damage may be related to financial loss or non financial loss. Meaning and definition of Risks: The entire modern world process has to face numerous risks and uncertainties. The risk may mean that there is a possibility of loss or damage. as in private life. loss or damage. 28 . The concept of risk may explained as the possibility of unfavorable results from any occurrence. we mean either an event which leads to a variations from the most likely outcome in either direction (e.g. Thus in business. because greatest hazards in life is to risk nothing. Risks arise due to uncertainties in regard to cost. It may or may not happen. To live is to risk dying To hope is to risk despair To try is to risk failure But risks must be taken. the risk of structure collapsing) or the probability of occurrence of such an event. there are dangers and risks of every kind.

mountain climbing is risky. Risk taking is relative. Gamblers shoot in the dark. responsible risk taking is based on knowledge.Methods of handling Risks: The following methods are usually adopted for handling risks     Prevention of risks (or) Avoiding of risks. but to the trained person it is not irresponsible risk taking. Reduction of risks. but don t gamble . Risk takers move ahead with their eyes open. It s a universal concept that with higher returns. confidence and competence-factors that give you the courage to act while facing fear. The one who takes more risk is ought to get more returns. 29 . Acceptance of risks Spreading of risks. The concept of risk varies from person to person and can be a result of training. training careful study. One can say take risk. MORE RISK means MORE RETRURN. higher is the risk. The concept is true everywhere from daily life situations to more complex investment situations. Shifting of risks (or) Transferring of risks. To both a trained mountain climber and a novice.

In short one can say that risk must be taken in a well calculated manner. but distributing the money in different stocks. The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA s online service for issue and renewal of licenses to agents. other should compensate for it. THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in the Parliament in December 1999. So that if one fetches the loss. Risk can never be avoided. The IRDA since its formation as a statutory body in April 2000 has stuck to its schedule of framing regulations and registering the private sector insurance companies. it can only be minimized by diversifying it. 30 . Diversification can de done by not investing in a single stock. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations.


Can fulfill immediate and long term needs. What Financial Planning can do for you?      Better your life style. Fulfill your business/personal ambition. funds for medical treatment. retirement and vacation abroad. 32 . They use their knowledge and skill in the field of Financial Planning to develop. children's marriage and education. Who Is A Financial Planner? Financial planners determine their client's short.People don t plan to fail. implement and monitor the financial plan. The financial goals may involve buying a home or a car. preserve and maximize your wealth In short Financial Planning is all about your life. Can create. which is tailor-made to the client's needs. they fail to plan. aspirations and situation." What is Financial Planning? Financial planning is the process of establishing personal and financial goals of an individual and his/her family and meeting them through proper management of his/her personal finance. Plan for after retirement. medium and long-term aspirations.

cash flows. analysing and evaluating the client's financial status. gathering client data. investments.A financial planner is an expert in establishing and defining the client-planner relationship. implementing the financial planning recommendations and monitoring the financial planning recommendations. stocks. debt and risk management. Using this process financial planner can help his clients work out where they want to be financially what needs to be done to be there. 33 . developing and presenting financial planning recommendations and/or alternatives. taxation. retirement and other components of personal finance. insurance. Financial planner specifically gives his analysis and advice on personal financial statements. trusts.


Insurance reimburses people for covered losses in the event of an unfortunate occurrence such as an illness. But if you don't know exactly what your life insurance policy covers or have only glanced at your employer-provided health and disability insurance policies. you're neglecting an important aspect of your financial plan. an illness. and cars. Indeed. a health care policy from an employer. or the death of a loved one.What Role Should Insurance Play in Your Financial Plan? Insurance is one of life's necessities and probably the least-understood financial product. 35 . many Indians have insurance in one form or another. or death. You may save money in your pension and other investments and have capital in your home. many financial planners argue that you should have an adequate insurance safety net in place before considering investment strategies. such as disability insurance. At the same time. as important as pensions and personal investments. and help to reduce anxiety for society at large. insurance is an investment in your future. computers. accident. or personal insurance to protect property such as homes. it can encourage prevention and safety measures. Until something happens. But even if younever submit a claim. such as a car accident. As a mechanism against loss of income and a means of safeguarding assets. These coverages may include public coverage. provide investment capital. lend money. paying for insurance may seem like buying something you'll never use.

and insurers around the world have developed equity-linked contracts tomeet this challenge. Policyholders want to enjoy the benefits of equity investment in conjunction with insurance protection. In the last 3 years (which marked private sector entry and interest rates decline in the economy) insurers are exploring the hereto untapped area of Unit Linked Insurance (ULI) in which the policyholders decide on fund management while getting insurance protection. The public has become aware of investment opportunities outside the insurance sector. Insurance business in the country has traditionally been dominated by endowment policies. in 1957. In Canada.S. Equity-linked insurance appears to have been introduced first in the Netherlands in 1953.K. 2001 by Life Insurance Corporationof India and majority of the private insurance companies have joined the fray soon after. The first linked policy from insurer s stable was introduced in February. Germany introduced equity-linked endowment insurance recently. Unit Trust of India introduced Unit Linked Insurance Product (ULIP) in 1971 with limited risk coverage. equity linked policies have been issued since 1967. In India. Policyholders now have a variety of unit linked individual insurance and pension products under single premium and / or non-single premium payment modes with various 36 . Sale of money back and term insurance policies has gained momentum in early nineties. The linked business has spread to the U.Equity Linked Insurance Insurance markets around the world are changing. particularly in mutual fund type investment. andspread to the U. in late 70 s.

Linked group insurance products are also available.  Easy liquidity through partial withdrawals. loans and surrenders. returns.199 linked policies were sold and premium of Rs. 2. Investment performance and charges are the two main components determining the level of return and would be the deciding factor for drawing the customers into this nascent.  The policy also offers facility for asset reallocation and portfolio rebalancing. The salient features of the unit linked insurance products are:  Investment options ranging from 100% in liquid.5233. investment oriented market.riders attached. As per the data compiled by the IRDA. risk and other service related issues. Another feature of the product is complete transparency whereby expenses interalia mortality charges are disclosed. 2003.04 crores) for the 9-month period ended December.. 37 . Evaluation of these products is primarily on three aspects viz.4 crores were collected (Sum assured Rs.45. risk free investment to 100% in equity fund are available for the policyholders to choose suitable options for them. The last section identifies the issues and suggestions for regulation.545. This article takes a closer and critical look at the charges of unit linked insurance products (section 2) and their impact on return to policyholder (section 3).  There is also flexibility with regard to risk coverage and premium payment.

y Endowment Plan by not withdrawing for many years and create tax-free wealth till you retire. 38 . or Pension Plan by withdrawing every month after you retire. to provide the best customized solution. marriage expenses or Whole-Life Plan by not withdrawing at all till 70 or 80 years of age.What makes ULIPs a total financial planning package? y y y y y y y Potential for Superior returns by switching between Equity & Debt Anytime Liquidity No Long Term Commitments Flexible Insurance Cover 100% Tax Free Returns on Withdrawals & Maturity Why some insurance advisors still promote traditional plans only? Traditional plans are simple to sell and are easily accepted by customers due to its presence all these years. or Children s Plan by withdrawing funds for higher studies. ULIPs need understanding of Equity and Debt markets and indepth knowledge of various competitive investment products and insurance plans too. Some advisors may be looking at that too! So. Besides. or y y y y Money-Back Plan by withdrawing as and when you require funds. your ULIP can be made to work as an . Commissions are higher in traditional plans.


I have laid stress on comparing them thoroughly so that a clear cut image can be made. While comparing insurance we talk about Unit Linked Insurance Products because Traditional insurance products can not be compared to opportunities available in share market . bond market. Government bonds and securities.Why not invest in Traditional Market? Whenever insurance is compared to investment in traditional market .the thing which comes first to our mind is how insurance is better investment instrument as compared to traditional market. Foreign exchange market etc. The ULIPs are very frequently compared with Mutual funds. Mutual Funds. The reason is their resemblance with each other as far as their design and funds are concerned. Due to similarities of ULIPs and Mutual funds. 40 .

 Help of brokers is easily available.  Easy liquidity. Disadvantages:  Lack of expertise can cause huge losses. 41 .  No protection from any miss happening.  Investors must have complete knowledge of the market.  Speculations can be fruitful sometimes.  Influenced by greed of some people.Investment in Share market: Advantages:  High rate of returns.  Wide range of options available to the Investors.  Substantial amount of money is required to invest in the market.  Very high risk.  Investments made are not flexible.

Investment in Government bonds and securities: Advantages:  Very low risk promises safe investments.  No big deal of expertise is required.  Liquidity is not easy.  Tax benefits up to certain limit. 42 .  Better rate of interest then banks.  No hedge against inflation. Disadvantages:  Very low returns.  No options for Investors.  Less flexible.

According to the IRDA. Investors welcome these products as they provide capital appreciation even as the yields on government securities have fallen below 6 per cent. balanced and equity funds. clear. government securities. you can choose to invest your premiums in debt. Besides all the advantages they offer to the customers. Unit-linked products are exempted from tax and they provide life insurance. then a major portion of your premiums will be invested in 43 . unit-linked plans also lead to an efficient utilisation of capital. They can be viewed as a combination of insurance and mutual funds. Unit-linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. bonds. the majority of your premiums will get invested in debt securities like gilts and bonds. If you opt for a unit-linked endowment policy. The number of units that a customer would get would depend on the unit price when he pays his premium. et cetera) and computed from the net asset value. The advantage of unit-linked plans is that they are simple. The daily unit price is based on the market value of the underlying assets (equities. balanced or equity plans. a company offering unit-linked plans must give the investor an option to choose among debt. If you choose equity. which has made the insurers slash payouts. Being transparent the policyholder gets the entire upside on the performance of his fund. and easy to understand. If you choose a debt plan.Investment in Mutual fund Vs Investment in ULIPS Are unit-linked insurance plans good? Most insurers in the year 2004 have started offering at least a few unit-linked plans.

At this stage. However. Even if one views insurance as a long-term commitment. This is especially so if one also believes that current market values (stock valuations) are relatively low. 44 . as one approaches retirement the quantum of returns should be subordinated to capital preservation. investments based on performance over such a short time span may not be appropriate. the buzzing market could lead to windfall returns. So if you are opting for a plan that invests primarily in equity. investing in a plan that has an equity tilt may not be a good idea. say when one is 25. at least in the plan's initial stages. one can afford to take the risk associated with equities.the equity market. If one invests in a unit-linked pension plan early on. However. should the buzz die down. Considering that unit-linked plans are relatively new launches. their short history does not permit an assessment of how they will perform in different phases of the stock market. investors could be left stung. The ideal time to buy a unit-linked plan is when one can expect long-term growth ahead. The plan you choose would depend on your risk profile and your investment need.

However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs. diversified equity funds. As is the case with mutual funds. balanced funds and debt funds to name a few.ULIPs Vs Mutual Funds: Who's better? Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain. i. 45 . ULIPs can be termed as mutual fund schemes with an insurance component.e. 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. Generally speaking.

This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. 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). 1. The minimum investment amounts are laid out by the fund house. In ULIPs. determining the premium paid is often the starting point for the investment activity. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route. making premium payments on an annual. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested. quarterly or monthly basis.How ULIPs can make you RICH! Despite the seemingly comparable structures there are various factors wherein the two differ. Mode of investment/ investment amounts Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons.e. The freedom to modify 46 . In this article we evaluate the two avenues on certain common parameters and find out how they measure up. i. half-yearly. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure.

either is applicable). expenses charged for various activities like fund management. i. 47 . Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator. 2.5% per annum on a recurring basis for all their expenses.e.premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts. 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. sales and marketing. Expenses In mutual fund investments. the Insurance Regulatory and Development Authority. administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. any expense above the prescribed limit is borne by the fund house and not the investors. Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. For example equity-oriented funds can charge their investors a maximum of 2. Similarly funds also charge their investors entry and exit loads (in most cases. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings.

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 As was stated earlier. 3. the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. There is lack of consensus on whether ULIPs are required to disclose their portfolios. For example plans that invest their entire corpus in equities (diversified equity 48 .Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. Some insurance companies do declare their portfolios on a monthly/quarterly basis. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory. albeit most fund houses do so on a monthly basis. During our interactions with leading insurers we came across divergent views on this issue. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. Portfolio disclosure Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses". offerings in both the mutual funds segment and ULIPs segment are largely comparable.

Flexibility in altering the asset allocation As was stated earlier. he can book profits by simply transferring the requisite amount to a debt-oriented plan. For example plans that invest their entire corpus in equities (diversified equity funds). for example in a bull market when the ULIP investor's equity component has appreciated. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house. a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). he could have to bear an exit load and/or entry load. 49 .funds). offerings in both the mutual funds segment and ULIPs segment are largely comparable. 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. This can prove to be very useful for investors. Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. 4.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds. This can prove to be very useful for investors. irrespective of the nature of the plan chosen by the investor. he could have to bear an exit load and/or entry load. conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. 50 . a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). This holds good. balanced funds). 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. On the other hand in the mutual funds domain. if the investments are held for a period over 12 months. for example in a bull market when the ULIP investor's equity component has appreciated. only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. 5. he can book profits by simply transferring the requisite amount to a debt-oriented plan. Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. the gains are tax free. Tax benefits ULIP investments qualify for deductions under Section 80C of the Income Tax Act.If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house.

As always. Depite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. debt-oriented funds attract a long-term capital gains tax @ 10%. it is vital for investors to be aware of the nuances in both offerings and make informed decisions 51 .Similarly. while a short-term capital gain is taxed at the investor's marginal tax rate.

While some insurers claim that disclosing portfolios on a quarterly basis is mandatory.ULIPs vs Mutual Funds. by the expenses investment amounts are determined by the fund house determined insurance pper limits for expenses chargeable to investors have been set by the regulator Expenses Portfolio disclosure Modifying allocation company Not mandatory* Quarterly disclosures are mandatory asset Generally permitted for free or at a Entry/exit loads have to be borne by the nominal cost investor Section 80 benefits are available Section 80 investments benefits are available only Tax benefits on all on investments in tax-saving funds * There is lack of consensus on whether ULIPs are required to disclose their portfolios. Head to Head ULIPs Investment amounts Mutual Funds Determined by the investor and Minimum can be modified as well No upper limits. others state that there is no legal obligation to do so 52 .

Asset accumulation such as buying a house or a car. but with the emergence and popularity of Unit Linked Insurance products. Protection from any miss happening. One can see that insurance is a better choice while making investment decisions because of features like: 1. How ever the awareness of financial planning among the consumers is still low but with the increase in purchasing power of the customers and 53 . Better returns 3. Planning for their retirement. Securing their children s education 4.2% of the insurable population in India possessing Life insurance. the country has a vast potential which has been left untapped now. Equity. The need of the hour is recognize the power of the Financial Planning. most of the people used to invest in traditional market (i. Mutual funds. Research indicates that Indians have four basic financial needs during their life time: 1. Bonds. Government securities and bonds etc.e. Protecting their family 3. Tax savings 2. Till some years back.CONCLUSION Life Insurance is now being regarded as a versatile financial planning tool.). 2. the mindset has changed. India being a country of vast population of over one billion with only 33. One who can draw out a well defined financial plan according to his needs would expect good returns from the market in the long run.

Thus insurance industry has tremendous growth opportunities provided that it meets the expectations of the customers. 54 .with coming up of new innovative products customers have started to plan for their financial needs and in coming years the awareness is expected to increase. The changing products of insurance with changing needs of the customers can be a major cause for the growth of the insurance industry.

Right customer identification and thus segmentation which needs to be accurate. distribution and marketing. 55 . After sales services should be improved Claim settlement etc.    Customer should be informed beforehand about the fluctuating returns from the market.RECOMMENDATIONS    Need to innovate and use differentiated strategies in sales.    The quality of the sales force should be improved. The population residing in the rural areas must be prompted to invest in Insurance products. should be made less harassing. Distribution channel should be made more efficient. The edge of the ULIPs over the products like mutual funds and investment in equities should be appropriately promoted and should be made known to the people.

4. remained 3. As the Unit Linked plans are market dependent and have certain amount of risk associated with them. Lack of awareness among people about insurance as a investment product the cause for not getting proper responses from some of the people. 2. Thus they do not furnish correct information in the questionnaire filled by them 56 . people do not easily trust them. Lack of financial assistance caused the study to be limited over a confined area. Aggressive sales strategy of Private insurance players may cause inconvenience to some people.CHALLENGES AND LIMITATIONS 1.

M. New Delhi. Kothari.com 57 . 2003. Principles and Practices of Insurance. 4.New York. Bajajallianzlife.hdfcinsurance. 2nd edition. Anthony & Cornett.com www..com www.myiris. Mc Graw Hill/Irwin an imprint of the Mc Graw Hill Companies.. 2. Internet sites: 1. Saunders. 2. Peraswamy. 7.com www. Quantitative Techniques.R.com www.metlife. Financial Markets and Institutions-A Modern Perspective. 3rd edition.. 6.thehindu. 8. 2004. Financial services. Millon.indiacore.com www. Ltd.Bibliography Books Reffered: 1. 5. 3.moneycontrol.. 1984. C. 2nd edition ( International edition). Khan. Marcia..Himalaya Publishing house 2003. www.com www. 4. 1st edition. Inc.Y. P.com www. Vikas Publishing House Pvt. TATA McGraw Hill Publishing Company Ltd.personalfn. 3. New Delhi.

Tapen. An Analysis of the Evolution of Insurance in India.com www. www. 11.google.com Research papers: Sinha.The University of Nottingham. 12.9. CRIS Discussion Paper Series III. 10.sbi-insurance. 58 . 2005.com www.ingvysya.com www.tata-aig-life.

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