Market Perception of Mutual Funds and ULIPS

Introduction

To save and invest arises from the fact that the time patterns of flow of income and expenditure
do not usually match. Most of us get our income monthly, but we spend daily. Even for those of
us who may be in business or profession our income does not come in exactly in keeping with
our expenditure. . That is the reason we use a Savings Account. Similarly the time pattern of
earning the time pattern of earning income during our lifetime does not always match the time
pattern of our expenditure during our lifetime. In the early carrier our expenditure is usually low;
as we set up a family and home it increases; it continues to increase as the family grows and its
requirements increase; it peaks at the time of children’s higher education and settling down in
life; and then it may decrease. The income normally increases steadily upto a certain age
retirement, say for instance), and then it may fall sharply. That’s where we use the Fixed Deposit
Account, for instance. In both these cases, because the time patterns of flow of our income and
expenditure do not match,, we need to carry purchasing power,, from when we have more of iit,,
to when we have less of it.
Investment is therefore used as storage of purchasing power, in the short term or long term. So e
have plenty of investment avenues available in the market such as, debentures, equity shares,
preference shares, commercial papers, certificate of deposits, etc. out of which the two most
important and the widely used investment avenues are the mutual funds and the ULIPS.
A mutual fund is a professionally managed type of collective investment scheme that pools
money from many investors and invests typically in investment securities (stocks, bonds, short-
term money market instruments, other mutual funds, other securities, and/or commodities such
as precious metals).

Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any
time varies according to the value of the underlying assets at the time. ULIP is life insurance
solution that provides for the benefits of protection and flexibility in investment. The investment
is denoted as units and is represented by the value that it has attained called as Net Asset Value
(NAV).

The survey was conducted to know about the market perception about the mutual funds and the
ULIPS as an investment alternative. 15 small investors or the common people were surveyed and
were asked their opinion about the two investment alternatives i.e. the Mutual Funds and the
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Market Perception of Mutual Funds and ULIPS

ULIPS. The purpose of this survey was to understand the customer’s perception of these
investment alternatives. The sampling technique used in this survey was a random sampling
technique wherein the respondents to the survey were selected randomly and were asked about
their opinion.

There were all together ten questions which were asked to the respondents which had no relation
to their personal affairs. Out of the fifteen respondents three of them were totally ignorant about
these two investment alternatives. They have mainly invested their savings in other investment
alternatives such as the bank deposits, post office savings, and etc. Out of this fifteen respondents
twelve respondents were aware of the mutual funds and the 75% of respondents i.e. nine
respondents have already invested their money in the mutual fund schemes. Out of the remaining
25% who have not invested in mutual funds almost 66.67% i.e. two are intending to invest in
mutual funds in the coming year and the one remaining does not wish to go for mutual funds.
And eleven out of fifteen has heard of ULIPS and almost 82% of the respondents have invested
their money in ULIPS. Out of remaining 18%, all of them are intending to invest in ULIPS in the
coming year as there is lot of scope for saving as well as the insurance factor is also attached to
it. Out of the respondents who have invested earlier nine respondents prefer buying mutual fund
schemes on their own and only two respondents’ wishes to go through an agent. Those who are
intending to invest in the coming year prefer buying mutual fund schemes by going through an
agent and the fair commission according to the respondents which can be paid to the agents
ranges from 0.5% -3%. But all the respondents investing in ULIPS prefer going through an agent
instead of buying on their own and the fair commission investors are willing to pay ranges from
0.5% - 3%.

When the respondents were asked about the difference between the two investment alternatives
i.e. the mutual fund and the ULIPS, most of them were agreed on a single point that ULIP is an
insurance scheme, mutual fund is not and only one respondent from the sample gave a different
reason that there are no charges to be paid for the mutual fund schemes but you have to pay
charges for ULIPS. When asked if they have some money to invest which potion they will
choose, most of them i.e. 9 out of 12 opted for investing in mutual funds and 2 of them wish to
invest in ULIPS and out of 12 respondents’ only one wish to invest in both the alternatives. The
main reason for investing in mutual funds given by most of the respondents is that it gives good

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Market Perception of Mutual Funds and ULIPS

returns and the other reasons given by them are they think they can take out their money any
time; some people invest in mutual funds because they do not want insurance. And the reason for
investing in ULIPS given by respondents is that it gives good returns and most of the people
invest in ULIPS because their agents have advised them. The last question of the survey was
regarding the rate of return an investor expect from the two investment alternatives and the rate
of return expected by respondents ranges from 6% - above 20%.

Conclusion

From the survey conducted it can be clearly seen that mutual funds as an investment alternative
is very popular among the retail investors. On the contrary only a part of the retail investors are
aware and familiar with ULIPS as an investment alternative. Being good investment alternative
ULIPS have not gained so much popularity compared to mutual funds. The insurance companies
should try to encourage the retail investors for investing in ULIPS by making them aware of the
merits of ULIPS.