CONTENTS

List of Tables i
List of Figures i-ii
List of Annexure ii
Executive Summary iii-vii

Chapter 1: About the Company 1-2

Chapter 2: About Unit Linked Insurance Products (ULIP) 3-4

Chapter 3: Introduction to the Present Study 5-7

Chapter 4: Research Methodology 8-11

Chapter 5: Analysis & Findings 12-38

Chapter 6: Major Findings 39-40

Chapter 7: Suggestions 41-42

Chapter 8: Conclusion 43-44

Bibliography

Annexure
1
 ABOUT THE COMPANY

1.1 Kotak Life Insurance

1.2 Kotak Life Insurance, Kankurgachi Branch

2
 ABOUT THE COMPANY

1.1 KOTAK LIFE INSURANCE

The Kotak Mahindra group is one of India’s leading banking and financial services
organizations, with offerings across personal financial services; commercial banking;
corporate and investment banking and markets; stock broking; asset management and
life insurance. The Kotak Group has over 1,300 offices, and services around 5.9 million
customer accounts across India. Kotak also has offices in London, New York, San
Francisco, Singapore, Dubai and Mauritius

Kotak Mahindra Old Mutual Life Insurance Ltd is a joint venture between Kotak
Mahindra Bank Ltd., its affiliates and Old Mutual plc. A company that combines its
international strengths and local advantages to offer its customers a wide range of
innovative life insurance products, helping them in taking important financial decisions
at every stage in life and stay financially independent. The company is one of the fastest
growing insurance companies in India and has shown remarkable growth since its
inception in 2001. Kotak Life Insurance employs around 5,565 people in its various
businesses and has 197 branches across 141 cities.

1.2 KOTAK LIFE INSURANCE KANKURGACHI BRANCH

Kotak Life Insurance, Kankurgachi Branch was set up on August, 2004. The present
Branch Manager is Mr Anupam Saikia. The staff consists of 4 Assistant Branch
Manager, 3 senior Sales Manager, 22 Sales Manager, 1 Trainer, 1 Marketing Manager,
1 Operating Manager and 1 Operating Executive. Kotak Life Insurance, Kankurgachi
Branch deals with tied products only which are about 20 in number.

3
ABOUT UNIT LINKED INSURANCE PRODUCTS (ULIP)

4
 UNIT LINKED INSURANCE PRODUCTS (ULIP)

A ULIP is a life insurance policy which provides a combination of life insurance

protection and investment. ULIPs contribute nearly 50% of the premium for some
insurers and more than 85% of the premium for some others.

A certain amount of the premium is adjusted towards the cost of the insurance cover
and some portion towards charges. The balance called the allocated premium, is
invested in a fund that the proposer chooses from among a set of options (equity funds,
debt funds, liquid funds, balanced funds, etc)

 The policyholder can pay additional premium for investment any time.
 Partial or total withdrawal is allowed.
 These policies are not entitled to any bonus.
 Policyholders can opt for a premium holiday.
 Policyholder can switch funds.
 Policyholders also allowed to make a lump sum additional contribution at any time.

As sound investment instrument, ULIPs take both risk and return potential into
account. By investing across several asset classes it adds diversification to help
manage risk. The underlying principle of asset allocation, therefore, lies on the fact
that when an investor diversifies across asset classes, he gives himself the margin
or flexibility to counter market uncertainties.

5
 INTRODUCTION TO THE PRESENT STUDY

3.1 Need for the Study

3.2 Objectives of the Study

3.3 Scope

3.4 Limitations

6
 INTRODUCTION TO THE PRESENT STUDY

3.1 NEED FOR THE STUDY

Traditionally, life protection was the role of insurance companies and investment was
that of Mutual Funds. But with the introduction of ULIPs the difference is slowly getting
blurred. So, this study is done by looking at the return on investment only and not
considering the insurance protection aspect of the ULIP Funds.

Many of the Companies are claiming that the returns by ULIP funds are better than non
ULIP funds. This study is done to measure the risk-return of ULIPs and Non- ULIPs and
to find out which category of funds actually gives a higher return. The other need is to
study the return given by ULIPs and Non ULIP funds in the two categories: Equity and
Debt.

ULIPs are the investment mode in which maximum of the people prefer to invest but
how many of the people understand about the functioning of ULIPs is a matter of
concern. As investments in ULIP funds are in its nascent stage in India, awareness
about the product is low. Due to high commission to the agents and aggressive
marketing by the companies, the mis-selling of ULIPs takes place.

3.2 OBJECTIVES OF THE STUDY

 To understand the Portfolio performance of ULIPs of Kotak Life.
 To make a Risk-Return Analysis of the ULIPs compared to Non-ULIPs.

3.3 SCOPE
The scope of the study was limited to the products of Kotak Life ULIPs and Kotak Non
ULIP funds but it could have been extended to get the scenario of the whole industry.
ULIPs accounts for a large percentage of the total sales of an insurance company. So it
is important to know more about the operation of ULIPs.

7
3.4 LIMITATIONS
 The information regarding the portfolio of the funds under Management is very difficult
to get and even the information which is available is not much useful.
 ULIPs are an investment instrument which is known for its transparency and
accessibility of information. But it is seen that important data necessary for investing in a
fund (like beta value of the funds) are not available.
 Since, all the data are from secondary sources, it is difficult to verify and asses the
authenticity of the information.

8
 RESEARCH METHODOLOGY

4.1 Objective

4.2 Sampling Plan

4.3 Sources of Data

9
 RESEARCH METHODOLOGY

4.1 OBJECTIVE

 To understand the Portfolio performance of ULIPs of Kotak Life

 To make a Risk-Return Analysis of the ULIPs compared to Non-ULIPs

4.2 RESEARCH PLAN

The study is exploratory in nature and is not known to the researcher if any such study
has been done in the past. The study is done using the historical NAV (Net Asset Value)
of both ULIP and Non-ULIP funds of Kotak Life Insurance.

To understand the Portfolio performance of ULIPs of Kotak Life, the funds of the Kotak
Life Insurance Company are selected and the historical NAVs are obtained for a period
of 5 years. The returns of each fund were found out for each year.
To calculate the return, the following formula was used-
Return = Rj – Ri / Ri * 100,
Where,
Ri = Return for the initial year
Rj = Return for the final year

Period of study: 30 June 2004 – 30 June 2009

The returns thus obtained were used to evaluate the performance of the ULIP funds.

For the comparison of ULIPs and Non-ULIPs on the basis of risk-return, the historical
NAVs of the funds for 3 years were taken. The funds of both were divided into different
categories. The funds with more than 55% exposure in equity are considered as “Equity
category” for both ULIPs and Non-ULIPs. And funds with less than 55% in exposure in
debt are considered as “Debt category”.
10
In the debt category, 3 ULIP funds and 3 non ULIP funds were considered to compare
the risk-return. The funds were selected arbitrarily.
Similarly, 2 ULIP funds and 2 non ULIP funds were selected to be compared in the
equity category.

To find out the risk of the selected funds, the standard deviation was calculated using
the formula:

Standard Deviation (σ) = , where

Xi = return of the fund in period i (i= 1, 2, 3…n)

X bar = arithmetic return
n = number of periods

To find out the return, the formula used was:

Return = Rj – Ri / Ri * 100, where
Ri = Return for the initial year
Rj = Return for the final year

Period of study: 30 June 2006 – 30 June 2009

4.3 SOURCES OF DATA

Secondary data:
To analyze the performance of ULIPs, the monthly Net Asset Values (NAV) of last five
years (30 June 2004 – 30 June 2009) of all the 14 funds of Kotak Life Insurance were
collected from the website of the company, Kotak Life Insurance.

11
For the risk-return analysis of ULIPs and Non ULIPs, the monthly Net Asset Values
(NAV) of last three years (30 June 2006 – 30 June 2009) was also obtained from the
Association of Mutual Funds of India (AMFI) website.

In addition, some necessary data were collected from various magazines, periodicals
and websites for the purpose of the study.

12
 ANALYSIS AND FINDINGS

5.1 Performance Analysis of ULIPS of Kotak Life Insurance

5.2 Risk Return Analysis of ULIPS and non ULIP funds

13
5.1 PERFORMANCE ANALYSIS OF ULIPS OF KOTAK LIFE INSURANCE

1. Aggressive Growth Fund: The Aggressive Growth Fund invests a very high
proportion of investment in Equity of around 94%. The fund aims for a high level
of capital growth by holding a significant portion in equities. It may experience
high levels of short term volatility.
From the table no. 5.1.1, for the year 1, the firm gives a decent return of 7.5% but
in the second year the fund is only able to manage a return of just 0.2% but for
the period of third year it is able to get a return of 13.40%. The return of 13.40%
is highest among all the ULIPs during the third year.
The Fund is very volatile as sometimes it gives the highest return and other times
it gives no return at all.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig 5.1.1: Aggressive Growth Fund

2. Dynamic Bond Fund: The fund aims to maximize investors return by actively
managing the assets and reacting quickly to any changes. It aims to preserve

14
 capital and minimize downside risk, with investment in debt and government
instruments. Returns will be in line with those of fixed interest instruments, and
may provide little protection against unexpected inflation increases. The fund
mainly invests in government backed secured funds with minimum risk.
From the table no 5.1.1, for the first year the fund manages to get a high return of
20.10%, in the second year the fund gives a return of 13.90% and in the third
year a return of 11.50% is given. For the fourth year it further falls down to 7.52%
but in the year 5 the fund gives a higher return of 7.72%. The fund for the period
of less than four years is falling but for a period longer than that the returns on
the fund increase.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig 5.1.2: Dynamic Bond Fund

3. Dynamic Balanced Fund: Aims for moderate growth by holding a diversified mix
of equities and fixed interest instruments. May also be susceptible to moderate
levels of shorter-term volatility. The fund has a good proportion invested in equity
therefore leading to a chance of higher return but also increasing the risk.

15
 From the table no 5.1.1, for the year 1, the fund gives return of 6%; second year
with a return of 2.60%, the return decreased but return is higher than that of
aggressive growth fund maybe because of lesser proportion of the portfolio is
invested in equity. It raises to 10.60% in the year 3, 14.28% for year 4 and for the
year 5 the fund further raises to 15.27%. Although the fund manages to give a
decent returns it’s still less than dynamic growth fund (which has a higher
proportion invested in equities than dynamic balanced fund).

The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig 5.1.3: Dynamic Balanced Fund

4. Dynamic Floor Fund: Aims to provide stable long term inflation beating growth
over the medium to longer term and defend capital against short term capital
shocks. Is likely to out-perform traditional balanced or equity funds during
sideways or falling markets and shadow the rising equity markets. The fund tries
to growth at a decent rate without taking excessive risk.

16
 From the table no. 5.1.1, the fund shows a trend of high return with 27.4% and
17.36% for year 1 and year 2 respectively, which is higher than other categories
with similar risk.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig 5.1.4: Dynamic Floor Fund

5. Dynamic Gilt Fund: The fund’s return gradually falls as the number of years
increases. The fund invests in government instruments and debt, with very less
risk but with a return comparable to fixed deposits and maybe slightly higher.
From the table no 5.1.1, for the year 1 the return is 17.17%, for year 2 the return
falls to 11.30%, year 3 the return is 9.20%, year 4 the return is 7.89% and for the
last year the return is 7.02%. The gilt firms are giving higher returns for shorter
duration of less than three years but in ULIPs, the minimum lock-in period is
three years. Therefore, investors should look into the trend over a period of time
greater than three years.

The Fund can be shown in the form of a graph with the NAV and Nifty.
17
 Fig. 5.1.5: Dynamic Gilt Fund

6. Dynamic Growth Fund: This fund is similar to that of aggressive growth but with
a lesser allocation in equity.
From the table no. 5.1.1, the fund from first year falls to a level less than zero in
the year 2 and then gradually keeps increasing. Again, in this fund also, the fund
gives a lower return during this period.
The Fund can be shown in the form of a graph with the NAV and Nifty.

18
 Fig.5.1.6 Dynamic Growth Fund
7. Dynamic Floating Rate Fund: The debt maturity period for this kind of fund is
less than three years. The fund is able to give a good return for short duration but
in the long run the returns decreases.
From the table no. 5.1.1, the return is decreasing as the number of year’s
increases that is during the year 1 the return was 9.60% to 6.29% in the year 5.
So, the short term debt market gives a lower return in the long run.
The Fund can be shown in the form of a graph with the NAV and Nifty.

19
 Fig. 5.1.7 Dynamic Floating Rate Fund

8. Guaranteed Balanced Fund: Aims for moderate growth by holding a diversified

mix of equities and fixed interest instruments with moderate levels of short-term
volatility.

From the table no. 5.1.1, for the year 1, the fund manages to gives a return of
19.40%, year 2 the return is 13.40% and in the year 3 the return is 11.40%. The
returns increase in the year 4 to 12.88% and even in the year 5 the returns
increase to 14.28%.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.8: Guaranteed Balanced Fund

9. Guaranteed bond fund: Aims to preserve capital and minimize downside risk,
with investment in debt and government instruments. Returns will be in line with
those of fixed interest instruments, and may provide little protection against
unexpected inflation increases.

20
 From the table no. 5.1.1, for the year 1 the fund gives a return of 13.30%, year 2
the return is 12.00% and for year 3 the return is 10.90%. And for the year 4 the
return is 9.60% and in year 5 its 8.61%. So, the fund return over a longer
duration is around 8-9% and the risk is less as the investment is mainly in debt
schemes. The investors looking for a steady return should consider this kind of
fund.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.9: Guaranteed bond fund

10. Guaranteed Gilt Fund: The fund invests in government security where the risk
very low and a decent return can be expected.
From the table no. 5.1.1, for the year 1 the return is 16.90%, year 2 its 10.80%
and in year 3 it is 9%. In the year 4 it further falls to 7.27% and continuing the
trend the fund goes down 6.29%. The return on the Gilt Fund is less than that of
bond funds but the risk factor is lowest among all the fund and this fund is for the
conservative investor how doesn’t want to take risk at all.
21
 The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig. 5.1.10: Guaranteed Gilt Fund

11. Guaranteed Growth Fund: The fund invest in mix of equity and debt but taking
a conservative approach in the investment so as to at least protect the capital.
From the table no. 4.1.1, the fund gives a negative return for year 1 and year 2 of
-0.80% and -1% respectively. But in the year 3 the return is 8.20% and year 4 its
13.15%. The fund in the year 5 gives a high return of 15.68%.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig. 5.1.11: Guaranteed Growth Fund

22
12. Guaranteed Money Market Funds: The fund invests completely in debt market
and risk is low.
From the table no 5.1.1, the fund gives a return of 9.6% in the year 1, 8.10% in
year 2, 7.9% in year 3. But in the year 4 the return increases to 9.08% and for
year 5 it is 10.06%. It can be seem that the fund value over the years fluctuates
a lot.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.12: Guaranteed Money Market Funds

13. Guaranteed Floating Fund: Aims to invest in short term debt market and its
safer to invest in guaranteed floating fund than in dynamic floating fund as the
guaranteed funds aim to protect the capital of the investor even if the returns are
low.

23
 From the table no. 5.1.1, the return for the year 1 is 4.5%, year 2 its 2, 70% and
in the year 3 the fund manages to give a decent return of 9.6%. But in the year 4
it falls down further to 7.8% and in the year 5 it decreases even more to 6.95%.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig. 5.1.13: Guaranteed Floating Fund

14. Pension Bond Fund: The fund is meant for people investing for a longer
duration maybe as a source of income after retirement.
From the table no. 5.1.1, for the year 1, the fund gives a return of 20.80%, year 2
it gives a return of
14.10% and in the year 3 the return is 11.60%. The return for year 4 and year 5
are not available as the fund was only introduced three years back.
The Fund can be shown in the form of a graph with the NAV and Nifty.

24
 Fig.5.1.14: Pension Bond Fund

15. Pension Growth Fund: The Fund is meant for investors investing for a longer
duration and for those who want a larger return over a longer duration. The data
for the fund is not available as the fund is recently introduced.

16. Pension Balanced fund: The Pension Balanced fund is meant for investors of a
long duration who are looking for a balance between risk and return.
From the table no. 5.1.1, the fund gives a return of 17.20% in the year, 12.20% in
the year 2, 9.80% in the year 3, 8.40% in the year 4 and 7.42% in the year 5. The
fund shows a continuous decrease in the return as the number of year’s
increases.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.15: Pension Balanced Fund

17. Pension Gilt Fund: The fund invests in government securities for a longer
duration of time so as to get return more than the inflation and protection of
capital is more important factor over return in this fund.

25
 From the table no. 5.1.1, the fund gives a return of 9.70% in the year 1, year 2
the return increases to 8.3%, then in the year 3 it falls slightly to 8.1%. In the year
4 it is 6.82% and in the year 5 the return is 6.40%. The fund shows a gradual
decease in the value of the fund over a period of time.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.16: Pension Gilt Fund

18. Pension Floating Rate Fund: The fund invests in debt market only and the
returns are similarly to that of the government securities.
From the table no. 5.1.1, the fund in the year 1 gives a return of 9.70%, year 2 it
gives a return of 8.30%. And the fund further falls down to 8.10% in the year 3
and in year 4 it is 6.82% and finally in the last year it reaches a low of 6.40%.
The Fund can be shown in the form of a graph with the NAV and Nifty.

26
 Fig.5.1.17: Pension Floating Rate Fund
19. Advantage Fund: The fund looks for growth by investing in equity markets.
From the table no. 5.1.1, for the year 1 the fund gives a return of 14.70% and in
the year 2 the fund gives 6.5% return. And finally the fund increases the return to
8.8%. The data for the year 4 and year 5 is not available as the fund was
introduced in three years back.
The Fund can be shown in the form of a graph with the NAV and Nifty.

27
 Fig.5.1.18: Advantage Fund

20. Advantage Plus Fund: The fund is similar to advantage fund but it has a slightly
more allocation in equity than advantage fund.
From the table no. 5.1.1, the fund gives a return of 14.60% and year 2 the return is
3.60% and finally in the year 3 the return is 6.5%. And finally the fund increases
the return to 8.8%. The data for the year 4 and year 5 is not available as the fund
was introduced in three years back. The fund gives slightly better return but the
risk is also high as it can be seen in the year 2.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.19: Advantage Plus Fund

21. Advantage Plus II: The fund is further improvement on the advantage plus fund
with more allocation in equity resulting in chance of higher return.
From the table no. 5.1.1, the fund in the year 1 gives a return of 14.10%, in year
2 gives a return of 3.6% and in year 3 gives a return of 6.30% which is lower than
the returns of Advantage Plus Fund. As the Advantage Plus Fund II has more in
exposure equity.
The Fund can be shown in the form of a graph with the NAV and Nifty.

28
 Fig.5.1.20: Advantage Plus II

22. Advantage Multiplier Fund: The fund is has slightly more allocation in debt than
equity. It has a high potential of grow in the longer duration
From the table no. 5.1.1, the fund gives a return of 13.80% in the year 1 and in the
year 2 the return is 3.10%. The return for the year 3 is only 6%.
The Fund can be shown in the form of a graph with the NAV and Nifty.

29
 Fig.5.1.21: Advantage Multiplier Fund

23. Advantage Multiplier Plus Fund: The fund is similar to Advantage Multiplier
Fund but slight changes in allocation.
From the table no. 5.1.1, the return for the year 1 is 13.80%, year 2 the return is
3.10 and in the year 3 the return is 6% which is similarly to Advantage Multiplier
Fund or slightly less.
The Fund can be shown in the form of a graph with the NAV and Nifty.

Fig.5.1.22: Advantage Multiplier Plus Fund

30
 Returns of Fund as on 30th June 2009 (in %)

Table 5.1.1: Portfolio Performance of ULIP funds of Kotak Life Insurance

31
 SL
NO FUND YEAR 5 YEAR 4 YEAR 3 YEAR 2 YEAR 1
1 Aggressive Growth Fund NA NA 13.4 0.2 7.5
2 Dynamic Bond Fund 8.7 8.5 11.5 13.9 20.1
3 Dynamic Balanced Fund 15.3 14.2 10.6 2.6 6.0
4 Dynamic Floor Fund NA NA NA 17.3 27.3
5 Dynamic Growth Fund 16.5 14.2 9.6 -1.3 2.1
6 Dynamic Gilt Fund 7.0 7.8 9.2 11.3 17.7
Dynamic Floating Rate
7 Fund 6.2 7.4 7.9 8.0 9.6
8 Guaranteed Balanced Fund 14.2 12.8 11.4 13.4 19.4
9 Guaranteed Bond Fund 8.6 9.6 10.9 12.0 13.3
10 Guaranteed Gilt Fund 6.2 7.2 9.0 10.8 16.9
Guaranteed Floating Rate
11 Fund 6.9 7.8 9.6 2.7 4.5
12 Guaranteed Growth Fund 15.6 13.1 8.2 -1.0 -0.8
Guaranteed Money Market
13 Fund 10.0 9.0 7.9 8.1 9.6
14 Pension Bond Fund NA NA 11.6 14.1 20.8
15 Pension growth NA NA NA NA NA
16 Pension Balanced Fund 14.6 13.4 9.9 3.2 4.6
17 Pension Gilt Fund 7.4 8.4 9.8 12.2 17.6
18 Pension Floating Rate Fund 6.4 6.8 8.1 8.3 9.7
19 Advantage NA NA 8.8 6.5 14.7
20 Advantage Plus NA NA 6.5 3.6 14.6
21 Advantage Plus II NA NA 6.1 3.6 14.3
22 Advantage Multiplier NA NA 6.4 3.1 14.1
23 Advantage Multiplier II NA NA 6.0 3.1 13.8
*NA- Not available

32
 FINDINGS

 For the year four and five, the returns of the five funds i.e. Dynamic Balanced
Fund, Dynamic Growth Fund, Guaranteed Balanced Fund, Guaranteed
Growth Fund and Pension Balanced Fund did exceptionally better than all the
funds considered for the study.

 All the balanced funds, like Dynamic Balanced and Pension Balanced were
able to give a higher return over the long term.

 Among all the funds in the five year period, the Dynamic Growth Fund gave
the highest return. And for the four year period the return of Dynamic
Balanced Fund was the highest.

 For the period of three years, some funds did exceptionally better than other
funds namely, Aggressive Growth Fund, Dynamic Balanced Fund,
Guaranteed Balanced Fund, Pension Bond Fund and Dynamic Bond Fund.
These funds have given an exceptionally higher return over all the ULIP
products of Kotak Life.

 The balanced fund like Dynamic Balanced Fund, Guaranteed Balanced Fund
and Pension Balanced Fund has again done well in the period of three years.
Balanced funds are continuously ranked among the funds giving higher
returns in the longer term.

 For the period of three years, Aggressive Growth Fund has outperformed all
the other funds.

 All Bond Funds for the period of three years were able to give very good
returns.

 For the period of two years, the funds which gave the best returns are
Dynamic Floor Fund, Dynamic Bond Fund, Guaranteed Balanced Fund,
Dynamic Gilt Fund and Pension Bond Fund have given an exceptionally
higher returns for the period of one year. And the Dynamic Floor Fund was
able to outperform all the Funds in this period.

33
 During the period of one year the funds which gave the higher return are
Dynamic Bond Fund, Dynamic Floor Fund, Guaranteed Balanced Fund,
Pension Bond Fund and Dynamic Gilt Fund have performed better than all
the others in the one year period.

 Dynamic Floor Fund has again outperformed all the funds for the one year
period. In fact, the fund has been giving the highest return from its inception.

 All the Floating Funds are giving a return of above 6% for the five year period
but in the short term the return is very good.

 Balanced funds were able to give a return of over 14% for the period of five
years. An investor who wants to invest for a period of five years should
consider these funds.

34
 5.2 RISK RETURN ANALYSIS OF ULIP AND NON ULIP FUNDS

Risk:
Although there is a difference in the specific definitions of risk and uncertainty, for our
purpose and in most financial literature, the two terms are used interchangeably. In fact,
one way to define risk is the uncertainty of future outcomes. An alternative definition
might be the probability of an adverse outcome. One of the best-known measures of
risk is the variance, or standard deviation of expected returns. It is a statistical measure
of the dispersion of returns around the expected value whereby a larger variance or
standard deviation indicates greater dispersion.

The idea is that the more disperse the expected returns, the greater the uncertainty of
future returns. Another measure of risk is the range of returns. It is assumed that a
larger range of expected returns, from the lowest to the highest return, means greater
uncertainty and risk regarding future expected returns. The variance, or standard
deviation, is a measure of the variation of possible rates of return from the expected rate
of return.
To find out the risk of the selected funds, the standard deviation was calculated using
the formula:

Standard Deviation (σ) =

Where,
Xi = return of the fund in period i (i= 1, 2, 3…n)
X bar = arithmetic return
n = number of periods

35
The risk is calculated using the standard deviation of all the NAVs of the Funds for the
period 30th June 2006 to 30th June 2009.
Return:
Return is the primary motivation force that drives investment. It represents the reward
for undertaking investment. Since the game investment is about return (after allowing
for risk), measurement of realized (historical) return is necessary to access how well the
Fund has done. In addition, historical returns are often used as an important input in
estimating future (prospective) returns. In ULIPs the return is the increase or decrease
in the unit of the ULIPs. And the NAV of the ULIP is considered to ascertain the return
that has been earned by the investor.

To calculate the return, the following formula was used-

Return = Rj – Ri / Ri * 100,
Where,
Ri = Return for the initial year
Rj = Return for the final year

The return is calculated using the above formula for the period 30th June 2006 to 30th
June 2009.

2
Comparison of the Risk and Return between ULIPs and NON-ULIPs

RISK RETURN

Fund NAME
Allocation ULIPS NON-ULIPS ULIPS NON-ULIPS
(Fund allocation in %)

Dynamic Growth Fund

5.14 9.60%
(Equity-55.59%)

Aggressive Growth Fund

5.69 13.40%
EQUITY (Equity-94.37%)
Kotak 30
16.41 12.33%
(Equity-96.34%)
Opportunity fund
8.47 14.08%
(Equity-94.71%)

Dynamic Bond (Debt-100%) 1.27 11.50%

Guaranteed bond
1.24 10.90%
(Debt-100%)
Guaranteed Gilt Fund (Debt-
1.12 9%
100%)
Flexi Debt Fund
0.92 8.13%
DEBT (Debt-100%)

Income Plus fund

0.63 3.07%
(Debt-100%)

Gilt investment fund

2.51 8.72%
(Debt-100%)

Table 5.2.1: Comparison of Risk and Return of ULIP and non ULIP funds
3
 FINDINGS

 Among the equity based ULIPs, Fund Dynamic Growth and Aggressive
Growth the difference in risk is just 0.45 but the difference in the returns is
3.80%. So, taking only risk and return it can be said that its better to invest in
aggressive Growth Fund.

 Among the equity based NON-ULIP Funds, Kotak 30 and Opportunity Fund
the Kotak 30 gives a return of 12.33% and with a very high risk of 16.41
whereas Opportunity Fund gives are turn of 14.08% but with a very low risk of
8.47. So, considering risk and return parameters Opportunity Fund should be
chosen over Kotak 30 as the firm gives more return with less risk.

 Taking all the equity based funds of both ULIPs and NON-ULIPs the
aggressive growth gives a high return of 13.40% and with a very low risk of
just 5.69. The investor should consider choosing Aggressive Growth Fund
over other Equity funds of both ULIP and NON-ULIP Funds.

 In the Debt Category, the scenario is different with ULIPs taking more risk
than the Mutual funds. And ULIPs are able to give a higher return then the
mutual funds.

 Among the Debt based ULIP funds three funds are considered, Dynamic
Bond, Guaranteed Bond and Guaranteed Gilt Funds are considered. And the
Dynamic Bond gives a return of 11.50% and with a risk of 1.27, Guaranteed
Bond gives a slightly less return of 10.90% but with a risk of 1.24 and the

4
 Guaranteed Gilt Fund gives a return of 9% and with the least risk of 1.12.
From the above three funds dynamic bond should be chosen. Although the
risk is high the return is more than the excess risk which the investor may
take. By taking a risk of 0.03 more the investor may increase his return by
0.60%. Dynamic bond should be chosen among the ULIP debt funds.

 Among the debt based Non-ULIPs, three funds are considered Flexi Debt
Fund, Income Plus Fund and Gilt Investment Fund taken for the study. Flexi
Debt Fund gives a return of 8.13% with a risk of 0.92. Income Plus Fund
gives a return of only 3.07% but the risk associated is 0.63 and Gilt
Investment Fund gives a return of 8.72% with a risk high risk of 2.51.

 The Flexi debt should be chosen among the Debt based Non-ULIPs as the
returns is higher than other funds and also the risk is also very low.

5
MAJOR FINDINGS

6
 MAJOR FINDINGS

 Balanced funds were able to give a return of over 14% for the period of five
years. An investor who wants to invest for a long term period like five years
should consider these funds.

 Dynamic Floor Fund has been giving the highest return from its inception.

 The equity Funds in the beginning tend to give very high return but as the
number of years increases the returns stabilizes to more sustainable levels.
And the investor should look at investing only in those funds which give a
stable and good return should be chosen over the funds which give high
return for a short as these funds are very risky.
 In case of equity based funds, risk of the ULIPs is far less than the Mutual
Funds but the returns of both the category are almost similar.
 But in case of Debt funds the ULIPs are taking more risk than the NON-ULIPs
and the return is also higher. ULIPs have lock-in period of three years so the
ULIPs can take more risk in than the Mutual Funds as if the mutual funds do
not perform well then the investor may invest somewhere else.
 For Equity based ULIP Funds Dynamic Growth Fund should be chosen based
on the risk and return analysis and for the Mutual fund, Opportunity Fund
should be considered as the return is higher and also the risk is lower. And
taking all the funds of the ULIPs and Mutual Funds, Aggressive Growth gives
the best return for the given risk.
 For Debt based ULIP Funds, Dynamic Bond Fund should be chosen based
on the risk and return analysis and for the Mutual fund, Flexi Debt Fund
should be considered as the return is higher and also the risk is lower. And
taking all the funds of the ULIPs and Mutual Funds, Dynamic Bond gives the
best return for the given risk.
 Taking both debt and equity of ULIPs and NON-ULIPs, Dynamic Bond may
be preferred over Aggressive growth because of higher Risk and the
difference in return is not much to justify the high risk.
7
SUGGESTIONS

8
 SUGGESTIONS

 More data about the Funds should be available as the data available is not
sufficient for investors to choose among the funds.
 The major portion of the equity investment in ULIPs and Mutual Fund is not
given and a detail of this investment is not available. The Company should
provide the details investment is important for the investor to make informed
decision.
 Integration of the networks of Kotak Life and Kotak Mutual Funds should be
done so as to facilitate the better utilization of the resources and wider choice
for the customer to choose.
 Aggressive Growth Fund is mainly an equity based fund and so the fund
should be sold to customers with higher risk appetite.
 The Dynamic Floor Funds reacts quickly to market conditions and the
investment amount is protected. For the investors who do not take active
participation in the management of their funds, Dynamic Floor Fund is an
ideal option.

9
CONCLUSION

10
 CONCLUSION

The investment in ULIPs can be considered as a tool for investment with an added
benefit of insurance. There are various ULIP fund options with varying degree of risk.
Based on the respective risk appetites, investors can choose their ULIP fund option.

The investor who wants to maximize the investment may invest in Dynamic funds.
Those investors who wants to preserve their capital amount and at the same time,
desires a moderate growth may invest in Guaranteed funds. Investors planning for their
retirement may invest in Pension funds.

The ULIP policyholders who do not have the time or knowledge to manage the funds
may consider investing in Dynamic Floor Funds. And for a long term investment,
Balanced Funds tends to give higher returns.

The returns of ULIP funds are higher compared to Non ULIP funds after adjusting risk.
One of the benefits of ULIPs is that investors can switch over to another fund option
based on the market condition. The return on ULIPs in the debt category is also higher
than that of Non ULIPs after adjusting risk.

Thus, we can conclude that the ULIPs of Kotak Life Insurance are giving better returns
as compared to Non ULIPs.

11
12
Dynamic Bond (DEBT)-ULIP FUNDS
Date NAV
30-Jun-09 15.324
29-May-09 15.182
29-Apr-09 15.223
31-Mar-09 14.688
27-Feb-09 14.688
30-Jan-09 14.542
31-Dec-08 14.692
28-Nov-08 13.37
31-Oct-08 13.166
30-Sep-08 12.959
29-Aug-08 12.856
31-Jul-08 12.715
30-Jun-08 12.755
30-May-08 12.898
30-Apr-08 12.837
31-Mar-08 12.808
29-Feb-08 12.794
31-Jan-08 12.788
31-Dec-07 12.626
30-Nov-07 12.455
31-Oct-07 12.396
28-Sep-07 12.257
31-Aug-07 12.142
31-Jul-07 12.2
29-Jun-07 11.805
31-May-07 11.672
30-Apr-07 11.554
31-Mar-07 11.497
28-Feb-07 11.412
31-Jan-07 11.457
30-Dec-06 11.414
30-Nov-06 11.411
31-Oct-06 11.346
29-Sep-06 11.286
31-Aug-06 11.216
31-Jul-06 11.139
30-Jun-06 11.05
Annexure 1: Dynamic Bond, Kotak Life Insurance.
13
RISK= 1.27

RETURN= 11.5%

Guaranteed bond (DEBT) - ULIP FUNDS

Date NAV
30-Jun-09 15.239
29-May-09 15.087
29-Apr-09 15.102
31-Mar-09 14.594
27-Feb-09 14.586
30-Jan-09 14.474
31-Dec-08 14.675
28-Nov-08 13.419
31-Oct-08 13.199
30-Sep-08 12.957
29-Aug-08 12.864
31-Jul-08 12.735
30-Jun-08 12.761
30-May-08 12.921
30-Apr-08 12.859
31-Mar-08 12.805
29-Feb-08 12.798
31-Jan-08 12.794
31-Dec-07 12.633
30-Nov-07 12.481
31-Oct-07 12.398
28-Sep-07 12.257
31-Aug-07 12.152
31-Jul-07 12.208
29-Jun-07 11.849
31-May-07 11.713
30-Apr-07 11.625
31-Mar-07 11.55
28-Feb-07 11.449
31-Jan-07 11.487
30-Dec-06 11.434
30-Nov-06 11.42
31-Oct-06 11.36
29-Sep-06 11.296
31-Aug-06 11.232
31-Jul-06 11.142

14
 30-Jun-06 11.04
Annexure 2: Guaranteed bond, Kotak Life Insurance.

RISK= 1.24

RETURN= 10.90%

Guaranteed Gilt Fund (DEBT) -ULIP FUNDS

Date NAV
30-Jun-09 14.701
29-May-09 14.691
29-Apr-09 14.845
31-Mar-09 14.218
27-Feb-09 14.407
30-Jan-09 14.52
31-Dec-08 15.297
28-Nov-08 13.772
31-Oct-08 13.393
30-Sep-08 12.811
29-Aug-08 12.708
31-Jul-08 12.535
30-Jun-08 12.577
30-May-08 12.778
30-Apr-08 12.74
31-Mar-08 12.73
29-Feb-08 12.89
31-Jan-08 12.889
31-Dec-07 12.635
30-Nov-07 12.48
31-Oct-07 12.419
28-Sep-07 12.31
31-Aug-07 12.23
31-Jul-07 12.233
31-May-07 11.871
30-Apr-07 11.774
31-Mar-07 11.733
28-Feb-07 11.682
31-Jan-07 11.672
30-Dec-06 11.668
30-Nov-06 11.658
31-Oct-06 11.595
29-Sep-06 11.55
31-Aug-06 11.466
31-Jul-06 11.397

15
 30-Jun-06 11.37
Annexure 3: Guaranteed Gilt Fund, Kotak

RISK= 1.12

RETURN=9%

Flexi Debt Fund (DEBT) – NON ULIP FUNDS

Date NAV
30/06/2009 13.92
29/05/2009 13.86
29/04/2009 13.81
31/03/2009 13.75
27/02/2009 13.67
30/01/2009 13.6
31/12/2008 13.51
28/11/2008 13.4
31/10/2008 13.31
29/09/2008 13.2
29/08/2008 13.1
31/07/2008 13.01
30/06/2008 12.91
30/05/2008 12.82
30/04/2008 12.73
31/03/2008 12.64
29/02/2008 12.55
31/01/2008 12.47
31/12/2007 12.38
30/11/2007 12.29
31/10/2007 12.21
28/09/2007 12.12
31/08/2007 12.05
31/07/2007 11.97
29/06/2007 11.89
31/05/2007 11.81
27/04/2007 11.71
30/03/2007 11.63
28/02/2007 11.55
31/01/2007 11.48
29/12/2006 11.41
30/11/2006 11.34
31/10/2006 11.27
29/09/2006 11.2

16
 31/08/2006 11.14
31/07/2006 11.07
30/06/2006 11.01
Annexure 4: Flexi Debt Fund, Kotak Non ULIP Funds.

RISK= 0.92

RETURN= 8.13%

Gilt investment fund (DEBT) –NON ULIP FUND

Date NAV
30-Jun-06 22.76
31-Jul-06 22.8243
31-Aug-06 23.1373
29-Sep-06 23.4656
31-Oct-06 23.5348
30-Nov-06 23.95
29-Dec-06 23.8091
31-Jan-07 23.6073
28-Feb-07 23.45
30-Mar-07 23.57
30-Apr-07 23.6
31-May-07 23.7355
29-Jun-07 23.742
31-Jul-07 24.1433
31-Aug-07 24.2103
28-Sep-07 24.2388
31-Oct-07 24.5039
30-Nov-07 24.6
31-Dec-07 25.086
31-Jan-08 26.0264
29-Feb-08 25.8217
31-Mar-08 25.3661
30-Apr-08 25.59
30-May-08 25.5193
30-Jun-08 25.3766
31-Jul-08 24.901
29-Aug-08 25.4909
29-Sep-08 25.6934
31-Oct-08 27.2658
28-Nov-08 27.9428
31-Dec-08 32.3034
30-Jan-09 30.08

17
 27-Feb-09 29.43
31-Mar-09 28.8313
29-Apr-09 30.3012
29-May-09 29.8608
30-Jun-09 29.9286
Annexure 5: Gilt investment fund, Kotak Non ULIP Funds.

RISK= 2.51

RETURN= 8.72%

Income Plus fund (DEBT) - NON-ULIP FUNDS

Date NAV
30/06/2009 13.66
29/05/2009 13.74
29/04/2009 13.16
31/03/2009 12.84
27/02/2009 12.87
30/01/2009 13.04
31/12/2008 13.29
28/11/2008 13.1
31/10/2008 13.1
29/09/2008 13.54
29/08/2008 13.79
31/07/2008 13.7
30/06/2008 13.65
30/05/2008 14.12
30/04/2008 14.23
31/03/2008 13.97
29/02/2008 14.38
31/01/2008 14.47
31/12/2007 14.98
30/11/2007 14.58
31/10/2007 14.45
28/09/2007 13.87
31/08/2007 13.51
31/07/2007 13.68
29/06/2007 13.4
31/05/2007 13.33
27/04/2007 13.12
30/03/2007 12.98
28/02/2007 12.96
31/01/2007 13.16

18
 29/12/2006 13.08
30/11/2006 13.01
31/10/2006 12.86
29/09/2006 12.75
31/08/2006 12.61
31/07/2006 12.45
30/06/2006 12.48
Annexure 6: Income Plus fund, Kotak Non ULIP Funds.

RISK= 0.63

RETURN= 3.07%

Dynamic Growth Fund (EQUITY) - ULIP FUNDS

Date NAV
30-Jun-09 28.599
29-May-09 28.423
29-Apr-09 25.274
31-Mar-09 23.201
27-Feb-09 22.38
30-Jan-09 23.028
31-Dec-08 23.606
28-Nov-08 22.014
31-Oct-08 22.786
30-Sep-08 27.379
29-Aug-08 29.993
31-Jul-08 29.52
30-Jun-08 28.018
30-May-08 33.253
30-Apr-08 34.546
31-Mar-08 31.894
29-Feb-08 35.672
1-Feb-08 36.62
31-Dec-07 41.17
30-Nov-07 38.638
31-Oct-07 38.589
28-Sep-07 33.665
31-Aug-07 30.457
31-Jul-07 30.887
29-Jun-07 29.369
31-May-07 28.86
27-Apr-07 27.322
31-Mar-07 26.139
19
 28-Feb-07 25.797
31-Jan-07 27.62
30-Dec-06 27.149
30-Nov-06 26.804
31-Oct-06 25.709
29-Sep-06 24.737
31-Aug-06 23.596
31-Jul-06 21.908
30-Jun-06 21.75
Annexure 7: Dynamic Growth Fund, Kotak Life Insurance.

RISK= 5.14

RETURN= 9.60%

Aggressive Growth Fund (EQUITY) - ULIP FUNDS

Date NAV
30-Jun-09 26.356
29-May-09 26.235
29-Apr-09 21.392
31-Mar-09 18.89
27-Feb-09 17.644
30-Jan-09 18.33
31-Dec-08 18.862
28-Nov-08 17.73
31-Oct-08 18.668
30-Sep-08 23.778
29-Aug-08 26.634
31-Jul-08 26.188
30-Jun-08 24.523
30-May-08 30.072
30-Apr-08 31.478
31-Mar-08 28.589
29-Feb-08 32.773
31-Jan-08 33.281
31-Dec-07 39.215
30-Nov-07 36.409
31-Oct-07 36.43
28-Sep-07 31.04
31-Aug-07 27.3
31-Jul-07 27.74
29-Jun-07 26.231
31-May-07 25.714

20
 30-Apr-07 24.111
31-Mar-07 22.778
28-Feb-07 22.404
31-Jan-07 24.378
30-Dec-06 23.904
30-Nov-06 23.449
31-Oct-06 22.187
29-Sep-06 21.246
31-Aug-06 20.051
31-Jul-06 18.274
30-Jun-06 18.07
Annexure 8: Aggressive Growth Fund

RISK= 5.69

RETURN= 13.40%

Kotak 30 (EQUITY)-NON-ULIP FUNDS

Date NAV
30/06/2009 76.16
29/05/2009 76.93
29/04/2009 61.7
31/03/2009 55.41
27/02/2009 52.71
30/01/2009 54.54
31/12/2008 56.53
28/11/2008 53.82
31/10/2008 55.67
30/09/2008 72.69
29/08/2008 80.1
31/07/2008 78.21
30/06/2008 74.18
30/05/2008 88.79
30/04/2008 92.26
31/03/2008 85.53
29/02/2008 97.6
31/01/2008 98.8
31/12/2007 113.84
30/11/2007 105.53
31/10/2007 104.28
28/09/2007 87.76
31/08/2007 78.3
31/07/2007 79.61
21
 29/06/2007 75.13
31/05/2007 73.55

Date NAV

27/04/2007 68.93
30/03/2007 65
28/02/2007 64.32
31/01/2007 70.11
29/12/2006 68.34
30/11/2006 67.45
31/10/2006 63.51
29/09/2006 61.13
31/08/2006 58.09
31/07/2006 53.37
30/06/2006 53.73
Annexure 9: Kotak 30, Kotak Non ULIP Funds.

RISK= 16.41

RETURN= 12.33%

Opportunity fund (EQUITY) - NON-ULIP FUNDS

22
 30/06/2009 33.59
29/05/2009 34.02
29/04/2009 25.31
31/03/2009 22.38
27/02/2009 21.23
30/01/2009 22.1
31/12/2008 23.42
28/11/2008 21.82
31/10/2008 22.33
30/09/2008 29.81
31/07/2008 33.98
30/06/2008 32.3
30/05/2008 39.96
30/04/2008 41.54
31/03/2008 37.72
29/02/2008 44.37
31/01/2008 45.8
31/12/2007 54.18
30/11/2007 47.63
31/10/2007 45.44
28/09/2007 37.8
31/08/2007 33.01
31/07/2007 33.78
29/06/2007 32.2
31/05/2007 31.44
27/04/2007 29.45
30/03/2007 27.94
28/02/2007 27.69
31/01/2007 29.35
29/12/2006 28.37
30/11/2006 27.77
31/10/2006 26.48
29/09/2006 25.49
31/08/2006 24.29
31/07/2006 22.45
30/06/2006 22.62
Annexure 10: Opportunity fund, Kotak Non ULIP Fund.

RISK= 8.47

RETURN= 14.08%

23