Unit Linked Insurance Plans as Investment Vehicle in India

Pre and Post the Global Meltdown





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


SANDEEP N 06 BS 3073

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




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

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

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

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



As India looks forward to mitigate the risks arose from the global meltdown. the insurance companies and mutual fund power-houses are in a race to get the bigger pie of the investments of Indian investors. this period of financial instability and economic unpredictability would provide opportunities for the evolvement of more financial and insurance-linked products for the Indian investors. Insurance was being seen as the premier investment avenue. followed by the fear of recession.ABSTRACT So far the Indian insurance sector has been seen as a financial tool with low returns and attached with few death or other benefits. before the meltdown. Individuals have become more educated and had started to understand the need of insurance for risk aversion. The insurance companies had also started to innovate by coming up with insurance plans that not only protect one from risk but also acts as an investment opportunity ready to be used. No doubt. Unlike other Investments these two forms of Investments were giving high return with relatively low risk of loosing money in the long term investments. But post the global meltdown. With the impeccable growth in the equity market and investors’ growing confidence in the market. the industry was growing immensely. the returns and the risk coverage factors of ULIPs are questioned and most of the plans under the pressure of redemption. ii .

Data cost could act as a hindrance. The data is collected through the secondary research [journals/articles] about the players in the market and do an analysis on the data collected. news and media sites.1. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage. HISTORY OF INSURANCE SECTOR IN INDIA The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. journals.3 SOURCE OF DATA & COLLECTION METHOD The data was collected from secondary sources including magazines. 1.4 LIMITATIONS OF THE STUDY The major limitations could be: • • • Data available may not be accurate at times. Time constraints.1 INTRODUCTION TO THE PROJECT The project deals with the analysis of the Insurance sector in India. The study would include the products that have been successful in this regard and try to see the performance of these products. 1. . company websites. online databases. industry reports. This analysis would be used to identify the major players and their performance. It would also include study on where these funds are being deployed to generate the returns. INTRODUCTION 1.2 PURPOSE & SCOPE OF THE PROJECT As an investment option we would look at the various products in the insurance sector that are used as a form of investment for their future needs. 1. The project would include looking at the major players in the insurance sector and their Unit Linked Insurance Plans. 2.

Their operations were restricted to organized trade and industry in large cities. With this. with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. Under the current guidelines. Indian companies strengthened their hold on this business but despite the growth that was witnessed. brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. the first general insurance company established in the year 1850 in Calcutta by the British. The Government of India in 1956. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies. can trace its roots to the Triton (Tital) Insurance Company Limited. The general insurance industry was nationalized in 1972. This was in conformity with the Government’s chosen path of State lead planning and development. .The Bombay Mutual Life Insurance Society started its business in 1870. The (non-life) insurance business continued to thrive with the private sector till 1972. on the other hand. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over insurance business. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912. lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. New India Assurance Company. Oriental Insurance Company and United India Insurance Company.National Insurance Company. These were subsidiaries of the General Insurance Company (GIC). The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Several frauds during 20’s and 30’s sullied insurance business in India. By 1938 there were 176 insurance companies. The Oriental Assurance Company was established in 1880. There is a proposal to increase this limit to 49 percent. The Government of India liberalized the insurance sector in 19th April 2000. The insurance business grew at a faster pace after independence. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. The General insurance business in India. It was the first company to charge same premium for both Indian and non-Indian lives. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Committee. nearly 107 insurers were amalgamated and grouped into four companies. insurance remained an urban phenomenon. Nationalization was justified on the grounds that it would create much needed funds for rapid industrialization. there is a 26 percent equity cap for foreign partners in an insurance company.

Apart from other pitfalls of a nuclear family. Life insurance was defined as follows: Life insurance is a contract binding a life insurance company to compensate a beneficiary for the death of a person insured. However with changing times. Times have changed and the nuclear family has emerged. a well-planned customized life insurance policy should be able to provide the policyholder or the beneficiary thereto with the following: 1) 2) 3) 4) 5) 6) Final expenses resulting from death Guaranteed maintenance of lifestyle Replacement of income Mortgage or liquidation payments Costs of education (dependants) Continuity & security of interests REASONS FOR THE NEED OF LIFE INSURANCE The need for life insurance comes from the need to safeguard one’s family. .3. Life insurance is used to protect the economic value of a human life with regards to those who may be financially dependent upon it. a system in which a sense of financial security was always there as there were more earning members. Needs are increasing with time and fulfillment of these needs is a big question mark. disability or loss of income earning capability. a system in which a number of generations co-existed in harmony. Today life insurance provides a wide range of services and is an effective hedge against premature death. Broadly speaking. the family has shrunk. a high sense of insecurity is observed in it today besides. insurance has become one of the most significant tools of investment. Today insurance has become even more important due to the disintegration of the prevalent joint family system. LIFE INSURANCE Traditionally. If the insured dies the company will provide cash payment to the beneficiary.

6. stress. The major life insurance policies are: 1. 4. pollution. decent marriage of children etc. 8. increased competition. 9. But again one just cannot fritter away all his/her earnings. 7. Limited . Life Insurance Corporation of India PRIVATE SECTOR 1.How could one be able to satisfy all those needs? Better lifestyle. 2. Endowment Policy Whole Life Policy Term Life Policy Money-back Policy Joint Life Policy Group Insurance Policy Loan Cover Term Assurance Policy Pension Plan or Annuities Unit Linked Insurance Plan The life insurance companies in India are as follows:- PUBLIC SECTOR 1. desired house. This is where the need for life insurance arises. 5. 3. Factors such as fewer numbers of earning members. 2. The individual has a sense of consolation that he has something to fall back on. Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. 3. higher ambitions etc are some of the reasons why insurance has gained importance and where insurance plays a successful role.a wise decision. Buying insurance frees the individual from unnecessary financial burden that can otherwise make him spend sleepless nights. Insurance provides a sense of security to the income earner as also to the family. good education. One needs to save a part of it for the future too .

There is a proposal to increase this limit to 49 percent. 4. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. SBI Life Insurance Company Limited 10. ICICI Prudential Life Insurance Co. 7. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. Ltd. Pvt. Under the current guidelines. 9. the insurance industry has started looking dangerously close to mutual funds in many respects. 5. This it is an indicator that growth potential for the insurance sector is immense. The current insurance penetration levels are 5. 6. Dabur CGU Life Insurance Co. 6. CURRENT SCENARIO OF THE INSURANCE SECTOR IN INDIA 1. But since the global financial crisis.1%. Bharti Axa Life Insurance Co. Sahara Life Insurance Co.4. Nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. AMP Sanmar Assurance Company Limited 12. 2. Ltd. For example. The average annual growth rate since the reforms is 130% in the life insurance sector and it has had CAGR of 40% plus. Limited 13. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. The last seven years has seen growth in the order of 20-25% plus in the Insurance sector as compared to the 10-15% before the privatization. there is a 26 percent equity cap for foreign partners in an insurance company. Ltd. 4. . TATA AIG Life Insurance Company Limited 11. 3. Ltd. 5. 8. 14. Shriram Life Insurance Co. insurance companies have bundled investment products along with insurance covers for the past few years and the lead strategy has been about investments. 15.

from 1. with the private insurers adding another 900. LIC experienced growth of only 5% during 2007-08 in new business premium.526 crore from Rs 2. The company has 950 urban and 1.5. has dropped from 74% a year before.034 to 2. accounting for increase in market share to 8. private companies are eating the share of LIC by introducing innovative products.751 crore.960.04 crore in the corresponding period last financial year. with a market share of 5.80 crore from Rs 5.Renewal premium had gone up by 101% to Rs. Total number of policies sold went up by 49%.305. Total premium collected increased to Rs 8.606 in 2007-08.97% in 2006-07.1 crore during April-July as against new sales of Rs 14. Its share. mainly owing to entry of private players with innovative products and better sales force. .000 non-urban branches across the country.64 in 2006-07. Also. Total sales stood at Rs 10.186.797.913.254.1 million licensed agents.5. however. This is was mainly due to slowdown in economy and crash of stock market.73%.93% in 2007-08 from 6. STATISTICAL HIGHLIGHTS OF LIFE INSURANCE SECTOR % MARKET SHARE IN LIFE INSURANCE SECTOR (October 2008) Life Insurance Corporation of India LIC still remains the largest life insurance company accounting for 64% market share. ICICI Prudential It experienced growth of 58% in new business premium.000. It had an estimated 1.

792. 2008. Its market share is 2. SBI Life leveraged the 14. New premium collection for the company was Rs 4.491. the company ranked 6th in 2007-08. registering a year-on-year growth of 64%. 2007 to 1. The Company generated new business premium income of Rs 2. Total new business premium collected was Rs 2. It’s the fifth year of operations.23% a year back. The company broke even in March 2006. Total market share of the company increased from 3.680 crore in FY2007-08.74 lakh as against 4. The number of policies sold in the year 2007-08 stood at 10. after its takeover of AMP Sanmar business.76 crore and its market share went up to 2. in terms of new number of policies sold.14% in 2006-07 to 5. However. making it the 4th largest company in India. HDFC Standard Life Insurance Co Ltd HDFC Standard Life has increased its depth in existing markets by increasing its financial consultant strength from 74. taking the overall branch network to above 740. Birla Sun Life Insurance Co Ltd It is a joint venture between the Aditya Birla Group and Sun Life Financial Inc of Canada for asset . RLIC has been one of the fast gainers in market share in new business premium amongst the private players.98% in 2007-08 form 5.000 as on March 31. The company ranked second (after LIC) in number of policies sold in 2007-08. with total market share of 7. the company accomplished a large distribution set-up by opening 600 branches in 10 months.36%.Bajaj Insurance Total new business premium collected by was Rs 6. It experienced a phenomenal growth of 196% in 2008. Bajaj Allianz Life has a strong distribution network across the country with over 1000 branches spread over 950 towns.45.000-odd bank branches of its parent SBI to push insurance policies. In a short span of time.88% and it ranks 6th among the insurance companies and 5th amongst the private players.000 as on March 31. an increase of 87% over last year.51 lakh in the previous year.66 crore in 2007-08.66% in 2006-07. The company reported a growth of 52% and its market share went up to 6.70 crore in 2007-08.96% from 1.15% in 2007-08.792. It has crossed 1.7 Million policies in just two years of operations. SBI Life Insurance State Bank of India has a 74% equity stake and the balance 26% is held by French firm Cardif SA in SBI Life insurance. It now ranks 5th in new business premium and 4th in number of new policies sold in 2007-08. Reliance Life Insurance Co Ltd Reliance Life has sold maximum number of new group non-single policies in 2007-08.

Market share of the company increased from 1.60%. The company reported growth of 157.plans to expand to 250 branches from the existing count of 185 in the next year. its affiliates and UK-based financial services firm Old Mutual plc. Aviva Life Insurance Company India Ltd Aviva Life is a joint venture between FMCG major Dabur and the UK-based Aviva Plc. The company plans to increase its capital base to Rs 3. During 2007-08.17% to 1.08 crore in 2007-08 as against Rs 724.71%. pushing down Max New York Life insurance company. its ninth year of operations. With this growth rate.13% in 2007-08. an additional capital of over Rs 550 crore had been infused in various trenches by the company. the company reported growth of 80%. For year 2007-08 growth in new business collection was 122. For the fiscal 2007-08. With this growth rate.03 crore in 2006-07.83 crore as against Rs 387. The company was pushed down to the 8th position from 7th in 2007-08. . Aviva Life Insurance plans to increase its capital base by Rs 344 crore. Market share of the company was 1. Total premium was Rs 1.19% in 2007-08. Growth in new insurance premium was mere 0.059. life insurance and wealth management businesses.11% in 2007-08. The company moved to the 7th position in 2007-08 from 8the a year before.000 locations across India via 221 branches and close to 40 bancassurance partnerships. the company is expected to break even by 2010.22% to 2. Total new business generated was Rs 641.83 crore. moving from the 11th position to 9th. Max New York Life Insurance Co Ltd The company reported growth of 73% in 2007-08. It has presence in more than crore.81% from April – July 2008 against the same period last year. Last year the company doubled its branch network to 150 from 74.200 crore at Present. Its performance has been very moderate as compared to other private companies. Performance of company was very moderate last year also with reporting growth in new business of only 46%. Promoter of company . Kotak Mahindra Old Mutual Life Insurance Ltd Kotak Mahindra Old Mutual Life Insurance is a joint venture between Kotak Mahindra Bank.600 crore from Rs 1. New business premium from April – July was Rs 641. market share of the company increased from 1. It captured a market share of 1.18% for the first four months of the current fiscal year. The Aditya Birla Group holds 74% and Sun Life Financial holds the rest 26% in the company.Kotak Mahindra Bank -. The company is planning to increase this figure to 210 by end of this fiscal. The company ranking dropped to 10th in 2007-08 from 9th last year. This is an increase of 66% over the same period last year.

INSURANCE AS INVESTMENT Insurance provides an investor with a vehicle whereby money invested now provides a future return usually at a known date. or funds. once an increase has been made. Like the unit-linked endowment your monthly premiums are used to buy units in a fund. The life insurance products contain along with elements of investment like regular saving.1 UNIT LINKED ENDOWMENT POLICIES In this type of Life Insurance policy your monthly premiums are used to buy units in a fund or funds run by professional managers. Some simply provide a sum of money if the life assured dies before set date but nothing if he survives while others act as savings vehicle. Higher Rate tax payers (risk taking) 6. The sum payable on maturity of a unit-linked endowment policy depends on the performance of the underlying fund. Basic Rate tax payers (risk averse) 2. This is best suited for category two type of investor. This is best suited for category one type of investor. There are a wide variety of life insurance policies available. the price of these units can go up and down. These are safer than unit linked policies but generate less gain compared to the unit linked policies. Endowment policies act as investment/savings while single premium bonds are pure investment although the protection aspect is very less in it. Like unit trusts. . The various forms of endowment policies include:- 1. capital formation & return of capital also additional return. The major products that act as an investment are in the life insurance domain. so the value of the endowment can consistently change. Unit linked endowment policies 4. With profit endowment policies 3. the value of the units cannot fall.2 UNITIZED WITH PROFIT ENDOWMENT POLICIES It is a mixture of the unit-linked and with-profits endowments. Unitized with profit endowment policies The major investors concerned with investment in insurance are:- 1. Without profit endowment policies 2. 6. Unlike the unit-linked endowment.6.

quarterly or monthly basis. ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure. They have a great similarity with mutual funds in terms of functioning and structure. 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). ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route. The rest is used to invest in a fund that invests money in stocks or bonds. In a ULIP too. A ULIP is a life insurance policy which provides a combination of risk cover and investment. Provision for reasonable insurance cover. Major guidelines for ULIP 1. In ULIPs. These ULIP’s are valued based on their Net Asset Values i. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested. making premium payments on an annual. These make them a much better choice compared to ‘with profits’ insurance policies. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. The policyholder’s share in the fund is represented by the number of units whose value is determined by the total value of all the investments made by the fund divided by the number of units. This is in contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. Barring the insurance element there is nothing differentiating mutual funds from ULIPs.e. . i. the insurer deducts charges towards life insurance (mortality charges).e. administration charges and fund management charges. along with availability of the greater part of the targeted sum at the longer end.7. with a linkage to the premium payment during the term of the contract. determining the premium paid is often the starting point for the investment activity. ULIP’s are more transparent as compared to ‘with profits’ insurance policies and in this the investor can himself choose the assets into which his funds are invested. The freedom to modify premium payments at one’s convenience clearly gives ULIP investors an edge over their MF counterparts. Minimum lock-in period of three years 2. the net value of investment in the funds where the premium of insurance is invested to generate returns. half-yearly. ULIPs We will look at ULIP’s (Unit Linked Insurance Policies) in detail.

768 crore whereas LIC managed to obtain Rs 2.6 crore. expenses determined by the insurance company MUTUAL FUND Minimum investment amounts are determined by the fund house Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory Entry/exit loads have to be borne by the investor Section 80C benefits are available only on investments in tax-saving funds Expenses Portfolio disclosure Not mandatory Generally permitted for free or at a nominal cost Section 80C benefits are available on all ULIP investments Modifying asset allocation Tax benefits The key difference is that in ULIP investment amounts are decided by the investor itself which means he is getting higher responsibility of his own money. The performance of these plans has also been quite impressive with the recent figures revealing that the private insurers have acquired a business of Rs 4. It is the only option that lets you to be a part of the stock market and at the same time offers insurance cover. The performance of stock market especially in the last few months has made ULIPS all the more popular. Standard method must be used across the industry for computation of net asset value (NAV). .758.3. Secondly tax benefits are available in all ULIP’s as compared to mutual funds. PARAMETER OF COMPARISON Investment amounts ULIP Determined by the investor and can be modified as well No upper limits. 8. ULIPS VS MUTUAL FUNDS Some of the comparison points between ULIP’s and mutual funds with respect to the major parameters are given below.

63 24.27 58.18 22.87 Since Inception CAGR 22.78 19.05 -2.28 19.07 -6.06 21.78 15.59 30.07 -8.34 -8.87 17.07 -2.41 33.15 30.63 14.46 18.80 27.42 23.04 -9.23 32.Magnifier HDFC Unit Linked Endowment Growth Plan ICICI Pru Life Time Maximier (Growth) Plan ICICI Pru Life Time Pension Growth # ICICI Pru LT Pension II .96 -9.Equity Plus Bajaj Allianz Unit Gain Pension-Equity Index Plus Bajaj Allianz Unit Gain Plus .02 40.87 8.73 15.43 45.05 -2.86 24.15 23.58 6 Months Return -2.27 30. Up to 100% Equity (as on 20th May 2008) Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Scheme Name Aviva Easy Life Plus .Unit Linked Aviva Life Bond .32 24.15 33.98 22.56 39. MAJOR ULIP’S IN MARKET a.31 28.07 -6.09 11.12 -8.Unit Linked Aviva Life Bond 5 Growth .42 30.63 14.30 58.17 22.69 47.Growth Fund ICICI Pru Premier Maximiser (Growth) II Plan OM Kotak Aggressive Growth Plan OM Kotak Growth Plan SBI Life Unit Plus Growth Fund Average Maximum Minimum Equity (%) 0-85% 0-85% 0-85% 0-85% 0-85% 0-85% 0-85% 100% 100% 85-100% 100% 85-100% 85-100% 85-100% 85-100% 85-100% 50-90% 100% 75-100% 75-100% 75-100% 75-100% 75-100% 75-100% 75-100% Latest NAV 33.27 22.95 33.72 18.81 -9.28 8.64 33.38 -8.65 -8.Equity Gain Plan Bajaj Allianz Unit Gain Pension .Unit Linked Aviva Young Achiever .47 22.32 1 Year Return 8.06 -12.Equity Plan Bajaj Allianz Unit Gain.43 18.77 -7.Unit Linked Aviva Life Saver .32 -7.15 8.97 29.59 26.78 15.17 .46 27.23 32.86 12.86 33.60 47.15 8.38 22.32 26.67 -10.87 13.16 15.54 -11.22 22.39 32.86 33.15 30.07 -7.08 19.96 -9.08 31.94 29.61 12.9.92 19.Equity Plus Bharti Axa Future Confident Grow Money Bharti Axa Future Confident II Grow Money Bharti Axa Wealth Confident Grow Money Birla Individual Life .32 22.69 31.87 34.28 15.56 14.92 23.32 24.75 26.07 -2.87 13.96 -8.60 -5.85 -11.18 66.15 33.70 33.15 40.Equity Index Bajaj Allianz Unit Gain Plus.Unit Linked Bajaj Allianz Unit Gain .Unit Linked Aviva Save Guard Growth .87 8.27 29.16 -12.40 30.Unit Linked Aviva Life Long .

29 -2.07 27.02 19.10 -2.62 14.Growth Fund (NAV 0%) Birla Individual Life .07 -3.48 -3.77 12.88 -3.62 8.49 24.84 1 Year Return 8.67 12.15 25.15 16.95 -3.77 19.56 26.02 15.80 22.69 22.87 13.07 40.Unit Linked Aviva Save Guard Balanced .11 16.88 12.94 17.80 27.35 18.88 16.51 23.83 21.02 15.46 12.50 -2.29 -2.80 -0.64 18.70 15.85 40.73 12.39 14.79 14.Balanced Plus Bajaj Allianz Unit Gain Plus .72 6 Months Return -2.46 .90 34.b.93 19.07 -1.66 17.Growth Fund Birla Group Life .41 41.Unit Linked Aviva Pension Plus .16 12.Creator HDFC Unit Linked Endowment Balanced Plan ICICI Prudential Superannuation Growth OM Kotak Balanced Plan SBI Life Unit Plus Balanced Fund Average Maximum Minimum Equity (%) 0-45% 0-45% 0-45% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-50% 30-60% 60% 60% Latest NAV 33.86 18.77 12.Balanced Plus Bharti Axa Future Confident Save n Grow Money Bharti Axa Future Confident II Save n Grow Money Bharti Axa Wealth Confident Save n Grow Money Birla Group Life .69 12.87 10. Up to 60% Equity (as on 20th May 2008) Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Scheme Name Aviva Life Bond 5 Balanced .Balanced Fund Bajaj Allianz Unit Gain Pension .28 16.14 33.36 22.25 -3.30 0.Unit Linked Bajaj Allianz Unit Gain .69 12.12 19.14 16.44 8.87 Since Inception CAGR 16.81 12.11 16.29 0.77 32.75 15.84 -1.25 -2.74 19.63 -2.

86 16.58 30.c. Up to 40% Equity (as on 20th May 2008) Scheme # 1 2 3 4 5 6 7 8 9 10 Scheme Name Birla Group Life .30 15.18 11.82 11.78 14.54 19.04 27.86 6 Months Return -1.70 13.Stable Fund (NAV 0%) Birla Individual Life .12 17.32 -0.Balanced Fund ICICI Pru Premier Life-Balancer II ICICI Pru Superannuation Balanced Average Maximum Minimum Equity (%) 20-35% 20-35% 20-35% 20-35% 15-30% 0-40% 0-40% 0-40% 0-40% 0-40% Latest NAV 29.17 18.69 18.30 10.37 -0.Enrich HDFC Unit Linked Endowment Defensive ICICI Pru Life Time Balancer Plan ICICI Pru Life Time Pension Balanced Plan ICICI Pru LT Pension II .Stable Fund Birla Group Life .40 14.72 26.57 16.52 14.62 1 Year Return 13.52 10.84 32.83 16.24 10.57 .87 14.24 16.37 -0.Enhancer Birla Individual Pension .72 17.47 -1.87 Since Inception CAGR 15.78 12.24 10.71 15.62 -0.94 -0.56 26.00 14.60 17.66 1.94 -1.47 1.95 14.85 -1.75 13.72 13.28 -0.34 0.

71 9.11 22.49 7.18 8.89 1.34 8.25 2.06 17.05 22.59 16.Secure Fund Birla Group Life .34 3.Unit Linked Aviva Save Guard Secure .14 10.Protector Birla Individual Pension .21 1 Year Return 9.71 14.98 7.74 9.48 8.37 10. Up to 20% Equity (as on 20th May 2008) Scheme # 1 2 3 4 5 6 7 8 9 10 Scheme Name Aviva Life Bond 5 Secure .98 6.19 6.60 3.22 15.48 1.34 12.44 2.d.45 6 Months Return 2.44 2.49 .84 8.12 10.08 8.Growth Birla Individual Pension .99 12.Secure Fund (NAV 0%) Birla Individual Life .69 Since Inception CAGR 8.42 16.69 11.Nourish ICICI Pru Life Time Protector Plan Average Maximum Minimum Equity (%) 0-20% 0-20% 0-20% 0-20% 0-20% 0-20% 0-10% 0-20% 0-10% 0-10% Latest NAV 14.11 14.32 8.42 15.Unit Linked Birla Group Life .29 1.44 2.42 14.40 2.64 11.Unit Linked Aviva Treasure Plus .32 8.71 9.11 14.99 21.21 2.29 2.Builder Birla Individual Life .

42 4.08 14.58 10.07 9.91 12.01 13.Cash Plus HDFC Unit Linked Endowment Liquid Plan ICICI Pru Life Time Pension Short Term Plan ICICI Pru Premier Life Preserver (STP) OM Kotak Money Market Plan Average Maximum Minimum Equity (%) 0% 0% 0% 0% 0% 0% 0% Latest NAV 12.03 6.14 4.77 4.61 4.45 .27 10.83 7.Cash Plus Bajaj Allianz Unit Gain Plus .20 6 Months Return 3.42 6.54 5.34 5.e.80 4.31 12.90 4.19 4.76 9.12 7.58 Since Inception CAGR 4.86 7.26 9.36 9.87 8.34 4.90 5.19 3.26 13.Cash Plan Bajaj Allianz Unit Gain Pension .87 10.74 10.45 6.97 26.80 1 Year Return 8. Liquid Funds Scheme # 1 2 3 4 5 6 7 Scheme Name Bajaj Allianz Unit Gain .

13 6.32 4.Bond Birla Group Life .68 1.87 3.06 3.93 5.97 4.83 3. Pure Debt Funds Scheme # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Scheme Name Aviva Easy Life Plus .48 4.Income Fund ICICI Pru LT Pension Income Plan ICICI Pru Premier Life Protector II ICICI Pru Superannuation Income ICICI Pru Superannuation Short Term Debt OM Kotak Bond Plan Equity (%) - Latest NAV 13.43 10.09 13.55 2.55 2.02 9.uwp Aviva Life Long .Debt Plus Bajaj Allianz Unit Gain Plus .36 12.78 4.38 5.81 12.63 9.05 3.56 12.15 6.uwp Aviva Young Achiever .78 4.97 4.39 3.02 6.54 3.Fixed Interest (NAV 0%) Birla Group Life .36 12.35 13.21 13.uwp Bajaj Allianz Unit Gain .56 3.98 6.80 2.20 12.53 12.78 4.94 5.21 13.89 3.70 4.91 13.55 3.97 4.97 8.26 12.02 3.23 9.21 13.53 11.Debt Plus Birla Group Life .52 7.97 5.52 4.60 12.uwp Aviva Life Saver .12 4.33 24.55 2.f.55 2.38 5.Fixed Interest Fund Birla Group Life .53 8.10 13.70 Since Inception CAGR 3.Floating Rate Fund Birla Group Life .13 10.91 13.89 9.uwp Aviva Pension Plus .83 3.61 10.21 11.01 3.98 14.69 3.uwp Aviva Life Bond .35 5.40 9.92 6 Months Return 2.41 10.11 4.98 1 Year Return 4.48 4.Debt Plan Bajaj Allianz Unit Gain Pension .Gilt Fund HDFC Unit Linked Endowment Secure Plan ICICI Pru Group Gratuity Capital Guarantee Fund ICICI Pru LT Pension II .04 .92 9.53 13.21 12.71 5.95 4.63 6.37 4.25 3.31 11.52 4.

99 6.22 8.81 3.78 1.34 13.32 2.14 5. the same cannot be predicted about his life insurance.83 6. If he does not have the mind to invest in equity.97 5.12 4. he can choose a debt or balanced fund.45 12. Firstly. the structure of a ULIP takes care of quite a bit of the uncertainty in the markets.11 10. Insurance companies understand the need to give insurance seekers the flexibility to rethink their investment strategy in view of market conditions. and fund management costs. Secondly a ULIP policyholder has the option to invest in a variety funds.86 3.53 4. general expenses (agents' commissions and underwriting costs).71 3. investors need to understand that a ULIP is a bundled product of their investment and their insurance proceeds.55 5. It is the . then he is exposing his life insurance as well as his invested surplus to the various risks and uncertainty of equity market. In this competitive scenario the question arises whether Investors should opt for ULIP. However.90 8. which to a large extent is very scarce. depending on his risk profile. CRITICISMS OF ULIP’s One area where unit-linked plans come in for widespread criticism relates to the expenses that insurers charge under three broad heads: mortality charges (which goes towards paying for your insurance cover).23 24 OM Kotak Floating Rate Plan OM Kotak Gilt Plan Average Maximum Minimum - 12. While it is sensible to let invested assets get an equity favor. So if a person has a ULIP invest in equities.

an investor can always choose a heavy percentage of debt and keep the policy alive until the market conditions even out. Also. Although given the present market condition. It means that even if the market is down sliding and returns are low. one can either withdraw the money invested or continue for a longer period. at the present moment is a blessing in disguise. you want to surrender your policy. ULIP isn't the only investment that gives you tax benefits. the policy offers life cover. given the free switches. Besides. it does not give you the option to increase your sum assured at a later date. Flexibility: If you take a regular insurance cover. Tax benefits: Of course. one can use it as an endowment policy and only cash in upon maturity. With a ULIP policy. one can change the balance of investments between debt and equity. the advantage of a ULIP is that the returns from ULIP (upon maturity and also on withdrawals) are 100% tax free. If at the end of three years. which is actually the job of the investment advisor/consultant. A traditional policy. But this is not a luxury . despite investing in a debt fund. is ULIP still a safe bet? Returns: ULIPs allow an investor to maximize returns by choosing a hundred percent investment in equity (subject to market conditions). a ULIP policy offers the option of free switches (up to 4) every year. mortality charges will be adjusted to the present duration of investment). on the other hand has several deductions on account of hidden charges. Why then. Therefore. any market-influenced investment seems like a huge risk. given three years time this would have evened out to give you good returns. Similarly. Lock-in period: Most ULIPs come with a 3-year lock-in period. So. However.investors to make the right switch they need to track markets actively and be well informed. one can choose to invest only in debt. However. At the present moment. one can choose to not pay premium at the end of three years and still get risk cover benefits for the policy period (However. it would be sensible to continue the investment (even at low returns) because if nothing. with a ULIP you can increase your risk cover at any point in your policy period Terms of payment: ULIPs function much like Mutual funds when it comes to payment of premium. Depending upon the market conditions. thereby enjoying tax-free wealth. Long term investment: The benefit of a ULIP is that it can be used as a short-term as well as long term investment. This. So anytime in the year. Surrendering charges: ULIPs score heavily over traditional insurance policies on surrendering charges. you will receive hundred percent of your investment. depending upon the market condition one can choose a investment portfolio that gives maximum returns.

This is a huge advantage over other equity investments (ELSS or SIP funds) where the returns are entirely dependent upon market conditions.Understand all the charges levied on the product over its tenure. Read the literature available on ULIPs on the web sites and brochures circulated by insurance companies. Examine the performance of the plan . on the other hand (subject to minimum corpus) allows you to make withdrawals as long as you maintain the minimal balance. Understand the peculiarities of the plan . it allows anyone who has invested in one to use it as either a money-back policy (withdrawing as and when there's requirement) or an endowment policy (to enjoy tax-free wealth upon maturity) or a pension plan (by withdrawing every month after you retire) or even as a Children's plan. A regular insurance cover. like Mutual Funds are highly liquid unlike their traditional insurance counterparts. CHOOSING THE RIGHT ULIP Understand the concept of ULIPs thoroughly . not just the initial charges. Focus on your requirements and risk profile .one can afford with an insurance policy. 11.Identify a plan that is best suited for you keeping in mind your risk appetite. In case you have a high-risk appetite. A ULIP.Compare the performance of the plan with benchmark indices like BSE Sensex or Nifty in the past two or three years to get a better idea about the performance. Liquidity: ULIPs. All-in-one: A Unit Linked Insurance policy is flexible. even if there is a market slide. liquid and does not require long-term commitment. the fixed administrative charges. A complete charge structure would include the initial charges. This makes ULIP a comprehensive solution to long as well as short-term investors Capital Guarantee: There are several insurance companies that offer ULIPs with capital guarantee. doesn't give you returns during the policy period. an investor will at the very least recover all the money invested in the policy. This will help you know the benefits and structure of the ULIP. unless it's a money-back policy. Ensure that you can . Regular insurance policies will lapse if there is delay or non-payment of premium in any year of the term. So. opt for a more aggressive fund option (an option that invests higher percentage in equities) and vice versa. fund management charges and mortality charges.Do your homework well and read as much as you can about ULIPs as you can before investing. Hence.

Last but not least. . the fund management charges and mortality charges. You not only need to understand the charges in the first year but also through the term of the policy. performance of the scheme (equity as well as debt schemes). Understand the charges levied on the product . flexibility in terms of increasing or decreasing protection. not just the initial charges. A complete charge structure would include the initial charges. Compare ULIP products of different insurance companies . cost structure. reporting structure and flexibility in redemption. the fixed administrative charges. additional facilities such as top-up premium and free switch between different fund options.Understand all the charges levied on the product over its tenure. Know about the Company . insure with a brand you can trust to honor its commitment and service in accordance to your requirements. Thoroughly understand the flexibility and redemption conditions of an ULIP.Compare products of different insurance companies in terms of premium payments.easily get information about your NAV when you need it.

top-ups. charges (FMC. As the premium paid in ULIP’s are subject to investment risks associated with capital markets the insured is responsible for his/her decisions. free switches.12. The overhead charges have a major role to play in the amount that is finally used for the investment. Most of them have had a negative return over the last year owing to the weak performance of the equity market. 4. This is because the total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units. The mix shows the more risky options and the less risky options which allow the investor to choose the fund that he wants to invest in. Assess the funds on parameters of type of fund (equity. The more risky options have shown higher percentage change as compared to the less risky ones over the last one year. 8. 2. OBSERVATIONS 1. 5. 3. Investor needs and his risk profile should determine the funds that he should invest in so as to gain maximum benefit out of it. debt and balanced). 11. mortality etc.). The mix of options provided include low-risk low-return and high-risk high-return options that can be pursued by the investor. 6. 10. Since the risk is high due to the equity market exposure it is more favorable for the investor close to retirement to avoid the equity option of the ULIP. The above description of insurance as an investment tool shows that it has a good mixture of investment and protection. . 7. 9. Since the returns of certain funds are linked to market performance one must clearly understand that past performance of the investment funds do not indicate the future performance of the same. .com http://investopedia. 3. 4. http://www. SEARCH ENGINE SITES: http://google. http://moneycontrol. REFERENCES Information was mainly gathered from: http://www. http://www.13. Press releases. 5.birlasunlife. media sites & online journals were referred to gather information for this project. Events. Online journals & NEWS & MEDIA SITES: 1.licindia. WEB SITES The following website search engines.allianzbajaj.irda.tata-aig. 3.ibef. 3. 4. http://www. News. http://www. 5. Company websites. 4. COMPANY WEBSITES http://www. Books & www. 2. 6.

Faculty Of Commerce. Benaras Hindu University 2. 5. Personal Financial Planning-Icfai .un. 3. http://rediff. M.htm Icfai Publication BOOKS & JOURNALS 1. 4. 6. http://sify. http://unpan1. http://en. Insurance Principles & ARTICLES URL: 1.pdf http://in.php?id=14054015 Insurance Chronicle. Mishra. http://outlookmoney. 7.

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

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

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