A COMPARATIVE STUDY BETWEEN ELSS AND ULIP AS

INVESTMENT

A Project
Submitted in partial fulfillment of the
requirements for the award of the Degree of

MASTERS OF BUSINESS ADMINISTRATION

By

ANKITA SINGH MBA/10037/18

SONAIL BANERJEE MBA/10040/18
SHILPI RANI MBA/10041/18
AMRESH JHA MBA/10044/18
RUCHIKA SINGH MBA/10046/18

DEPARTMENT OF MANAGEMENT
BIRLA INSTITUTE OF TECHNOLOGY, MESRA, RANCHI
2018-20

1. INTRODUCTION
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1.1 INTRODUCTION

Investors are confronted with the problem of choosing the best investment
opportunities in the financial market in order to earn higher return for their
investments. The complexities of financial market can be dealt with certain
intuitions with sound technical back ground. A small investor cannot afford to
invest sizeable amount to maintain their position in fact with market conditions. A
mutual fund foresees market conditions and invests substantial funds collected
from the pool of investors.

Whatever be the type of investor there is a mutual fund that fits everyone.
It is important to understand that each mutual fund has different risks and
rewards. In general, the higher the potential return, higher the risk of loss.
Although some funds are less risky than others, all funds have some level of risk-
it's never possible to diversify away all risk. This is a fact for all investments.
Each fund has a predetermined investment objective that tailors the fund's
assets, sectors of investments, and investment strategies.

All mutual funds are varying based on their asset classes. For example,
while equity funds that invest in fast-growing companies are known as growth
funds, equity funds that invest only in companies of the same sector or region are
known as specialty funds. Hence Mutual Funds have their own risk and return
potential.

There are a number of investment options available in the economy. But

there are some investment options available that provides both saving benefit
and return benefits particularly tax benefits. Hence it becomes necessary to
study the investment option which gives maximum benefits to the investor
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1.2 STATEMENT OF PROBLEM

Mutual funds could not survive in the early years of inception and went
dark. The initiation made by the government results in the development of Mutual
fund growth in the economy. At the same time the products by Insurance
companies prevail as a good investment option for the investors from the early
periods. Hence the growth of economy made opportunity available to the
investors. The government of India encouraged public sector mutual Funds, set
up public sector Banks and Insurance Corporation. It was not sufficient to
mobilize potential investment and it promoted the private sector Mutual Funds in
1993. Hence there are dozens of leading Mutual funds and Insurance
Companies in the economy. Therefore it is worth while to measure the
performance and benefits to the investors. Such comparison will bring to light any
loopholes in the present system and to offer such suggestions based on such
comparison.

STATEMENT OF OBJECTIVES
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Following are the objectives of the study:

► To find the awareness among the customers about investment

alternatives.
► To indicate the Schemes which provides higher returns to the Investors
and also tax benefits.
► To compare the performance of ELSS with ULIP.
► To find the reasons which influence the decision of investors to choose a
particular investment.

2. HYPOTHESIS

1) There is no significant relationship between nature of investment and

choice of schemes.
2) There is no significant relationship between reasons to influence decision
of investors and range of income.
3) There is no significant relationship among awareness of customers and
qualification of respondents.
4) There is no significant relationship between drawbacks in promoting
products and choice of investment.
5) There is no significance relationship between the range of income and risk
taking capacity.

3. THEORETICAL FRAMEWORK
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MUTUAL FUNDS

A mutual fund is a pool of money, collected from investors and is invested

according to certain investment objectives.
A mutual fund is created when investors put their money together. It is
therefore a pool of the investor’s funds. The most important characteristic of a
mutual fund is that the contributors and the beneficiaries of the fund are the same
class of people, namely the investors. The term mutual means that investors
contribute to the pool and also benefit from the pool.
A mutual fund’s business is to invest the funds thus collected, according to
wishes of the investors who created the pool.

CHARACTERISTICS OF MUTUAL FUND

 A mutual fund belongs to the investors who have pooled their funds. The
ownership of the mutual fund is in the hands of the investors.
 Investment professionals and other service providers, who earn a fee for
their services, from the fund, manage the mutual fund.
 The pool of funds invested in a portfolio of marketable investments. The
value of the portfolio is updated everyday.
 The investor’s share in the fund is denominated by “units”. The value of
the units changes with change in the portfolio’s value, everyday. The value
of one unit of investment is called as the Net Asset Value (NAV).
The common retort to the oft-asked question by anxious investors, of the
best way to save tax, is to invest in Post Office savings schemes, or perhaps a
regular investment in a public provident, or to buy insurance policies or Equity
Linked Saving Schemes.
ELSS holds the advantage of being the equity-based tax saving
instrument in the country today and offers tax deduction on investments up to
Rs.100000, under Section 80C of the Income Tax Act.

EQUITY LINKED SAVING SCHEME

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Equity Linked Saving Schemes (ELSS) is similar to the normal equity
diversified schemes that invest across the board and market segments. Features
that differentiate ELSS from an open-ended equity diversified scheme are tax
saving benefit (deductions under Sec 80C) and a lock-in period of three years,
which are explained hereunder. Also, one can invest in these schemes in small
amounts through a Systematic Investment Plan and begin with a small fund size
to add to this expense (i.e.) of investing in an ELSS is similar to any other equity
scheme.

ELSS

Tax Benefit: Saves from short- Better Return than

Up to Rs.1 lakh, term volatility: Lock that of other savings
u/s Sec 80C
Tax in of 3 years instruments and
similar to other equity
schemes

Benefit:

Until FY 05, Sec 88 of Income Tax Act had fixed an overall ceiling of
Rs.100000 for investments in the tax saving instruments, including a cap of
Rs.10000 for investment in ELSS. The investors would get a rebate based on his
taxable income. In FY 05 the budget has scrapped Sec 88 and replaced it with
Sec 80C. under this section, investments up to Rs.100000 are eligible for
deduction from Gross Taxable Income and the ceiling on investments in ELSS is
removed. These investments deducted from the Gross Total Income, hence
reducing the taxable income.

Illustration:
Particulars Rupees(till 05) Rupees (after 05)
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Gross Total Income 4,00,000 4,00,000
(-) Deductions Nil 1,00,000
Taxable Income 4,00,000 3,00,000

Advantages of Lock-in-period

 The close-ended nature of the scheme gives the investment team an

opportunity to take decisions without the pressures of dealing with constant
fund cash flow considerations.

 This would also help to focus on long-term opportunities in mid-cap

and small-cap companies that are strategically placed to take advantage of
the robust economic growth in India and of the global outsourcing trend.

 Since the fund would remain with the fund manager for a long duration,
it would give him more flexibility with regards to the illiquid nature of mid-cap
space. Therefore, the Fund is likely to perform better than an open-ended
scheme.

ULIP
What Is a Unit Linked Insurance Plan?
A unit linked insurance plan (ULIP) is an investment product that provides for
insurance payout benefits. ULIP offerings are primarily concentrated in India. The
investment vehicle requires a premium payment which is invested in investment
products for capital appreciation.
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Understanding Unit Linked Insurance Plans

A unit linked insurance plan can be utilized for various benefit payouts including
life insurance, retirement, education and more. A ULIP offers varying provisions
to the investor as benefits. A ULIP is typically opened by an investor seeking to
provide coverage for beneficiaries. It is paid into by the owner in the form of
premiums, with the intention of the plan’s worth to be paid out at a specified time
frame for a specific purpose. With a life insurance ULIP, the beneficiary would
receive payments following the owner’s death. Plans can include varying
provisions for triggering payments.

A unit linked insurance plan’s investment options are structured similar to a

mutual fund. The assets in a ULIP vehicle are managed to a specified objective.
The vehicle calculates a daily net asset value. The vehicle is market-linked and
appreciates with increasing share value. When an investor purchases units in a
ULIP, he or she is purchasing units along with a larger number of investors, just
like an investor would purchase units in a mutual fund. Different ULIPs offer
different qualified investments. Investors can buy shares in a single strategy or
diversify their investments across multiple market-linked ULIP funds.

ULIPs require a premium. Premiums vary with the terms of each ULIP. An initial
lump sum is typically required along with annual, semi-annual, or monthly
premium payments. Premium payments are proportionally invested towards
specified coverage and in the designated investments.

Unit linked insurance plan investors can make changes to their fund preferences
throughout the duration of their investment. The funds offer transferring flexibility.
Numerous investment options are also available including stock funds, bond
funds, and diversified funds.
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Unit linked insurance plans allow for the coverage of an insurance policy with
premium payments allocated to funds that are expected to increase at market
rates over time.

ELSS VS ULIP

ULIPs basically works like a mutual fund with a life cover thrown in. they
invest the premium in market-linked instruments like stocks, corporate bonds and
government securities. Investments in ULIPs attract Tax benefit under Section
80C.
A tax –saving fund is a diversified equity fund. It works like an open-ended
diversified equity fund that invests predominantly in the stock market to generate
growth by way of capital appreciation for investors.

The only difference between an equity fund and taking a tax saving fund is
that the latter has a 3-year lock-in tax benefits under Section 80C. To that end
there is a common ground between tax-saving funds and ULIPs in the shape of
Section 80C tax benefits.

RETURN ASPECTS

The reason why ULIP returns are on the lower side compared to tax-
saving funds is due to the higher expenses charged by them. The expenses take
their toll on the ‘investible surplus’ which reduces to the extent of expenses.

For example, mortality charges as well as the commission paid to agents

are factored into the ULIP expenses. While mortality charges are unique to
ULIPs as compared to tax-saving funds, commissions form a part of tax-saving
funds as well.
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Tax-saving funds offer is the option of staying invested in the scheme

during maturity. But ULIP do not give the option of staying invested. The investor
has to necessarily collect the maturity proceeds.

Life Total
Age Insurance EPF(Rs) PPF / NSC ELSS Deduction
Premium(Rs) u/s 80C
25-35 10% 20% 20% 50-60% 1,00,000
35-40 10% 30% 25% 35-40% 1,00,000
45-55 10% 35% 30% 25-30% 1,00,000
>55 10% 0 65% 20-25% 1,00,000

TAX ASPECTS

Income Tax Provision Impacting Investment in Mutual Funds:

Investors receive two types of incomes from investment in Mutual Funds,

namely, Dividends declared from time to time by the mutual fund and Capital
Gains arising out of redemption of mutual fund units. Both these incomes are
subject to the provisions of the Income Tax Act, 1961.

The following are the Tax provisions, applicable after the Finance Act 2006-
07:

 Dividends from mutual funds for the year 2006-07 are tax-free in the
hands of investors.
 In case of mutual fund scheme with more than 50% in debt, a dividend
distribution tax of 10% plus surcharge has to be paid by the mutual funds.
 In case of mutual funds scheme with more than 50% in equity, the
dividend distribution tax is not to be paid
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INVESTMENT IN ELSS:

Investment in specific Equity Saving Schemes, as notified by the

Government of India, are eligible for tax rebate under Section 88, up to a
maximum limit of Rs.10000 on the investment. The rebate is available according
to the taxable income of the investor.

Taxable Income Available IT Rebate Maximum Amount of

Rebate
Up to Rs.10,00,000 30% of the investments Rs.3000
made
> 1.00 lakh < 1.5 lakh 20% of the investments Rs.2000
made
> 1.5 lakh 15% of the investments Rs.1500
made

Investors whose taxable income exceeds Rs.5 lakh are not eligible for any
tax rebates under Section 88.

A mutual fund which is registered under the SEBI (mutual Fund)

Regulation, 1996 is fully exempt from paying tax on its incomes, under section 10
(23D) of the IT Act. Since it is only a pass through entity, income is not taxed in
the hands of the mutual fund.
4. RESEARCH METHODOLOGY

INTRODUCTION
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Research methodology is a systematic way that solves the research
problem. It may be understood as a science of studying how research is done
scientifically. It is, we study the various steps that are generally adopted by a
researcher in studying the research problem along with the logic behind them. It
is necessary for the researcher to know not only the research methods or
techniques but also methodology. Researcher need to know how to develop the
tests, how to calculate the mean , how to apply research techniques which are
relevant and which not the knowledge of research methodology provides tools to
take things objectively.
SAMPLE SIZE
The sample size for the study is 120. It is derived from the universe of
250.

.DATA ANALYSIS AND INTERPRETATION

The data, after collection, has to be processed and analysed in

accordance with the outline laid down for the purpose at the time of developing
the research plan. This is essential for a scientific study and for ensuring that we
have all relevant data for making contemplated comparisons analysis.
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Technically speaking, processing implies editing, coding, classification and
tabulation of collected data, so that they are amenable to analysis.

The term ‘analysis’ refers to the computation of certain measures along

with searching for patterns of relationship that exist among data groups-thus, “ in
the process of analysis, relationships or differences supporting or conflicting with
original or new hypothesis should be subjected to statistical tests of significance
to determine with that validity data can be said to indicate any conclusions.

TABLE-1

AGE OF RESPONDENTS

AGE NO.OF RESPONDENTS PERCENTAGE

20-30 26 21.67
31-40 34 28.33
41-50 39 32.5
>50 21 17.5
TOTAL 120 100
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INFERENCE:

From the above table, it is clear that 32.5% are in the age group of 41-50,
28.33 % of are in the age group of 31-40, 21.67 % of respondents are in the age
group 0f 20-30 and 17.5 % 0f respondents are in the age group of above 50.

CHART1

TABLE-2

EDUCATION LEVEL OF RESPONDENTS

QUALIFICATION NO OF RESPONDENTS PERCENTAGE

SSLC 8 6.67
+2 20 16.67
GRADUATION 54 45
POST GRADUATION 38 31.67
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TOTAL 120 100

INFERENCE:

From the above table, it is clear that 45% of respondents are Graduates,
31.67 % of respondents are Post Graduates,16.67% of respondents are +2 and
6.67 % of respondents are SSLC.

CHART2

TABLE-3

OCCUPATION OF RESPONDENTS

OCCUPATION NO OF RESPONDENTS PERCENTAGE

IT 25 20.83
MANUFACTURING(PVT) 18 15
SELF EMPLOYMENT 24 20
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GOVT SECTOR 13 10.83
OTHERS 40 33.33
TOTAL 120 100

INFERENCE:

From the above table, it is clear that 20.83% of respondents are from IT
sector, 15 % of respondents are from Manufacturing & private sector, 20 % of
respondents are from Self Employment, 10.83 % of respondents are from Govt
Sector and 33.33% are from Others category.

CHART 3

TABLE -4

MONTHLY INCOME OF RESPONDENTS

MONTHLY INCOME NO OF RESPONDENTS PERCENTAGE

BELOW 20000 56 46.67
20-50000 38 31.67
50-80000 14 11.67
ABOVE 80000 12 10
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TOTAL 120 100

INFERENCE:

From the above table , it is clear that 46.67 % of the respondents have
income level of below Rs.20000 per month, 31.67 % of the respondents have
income level between 20 to 50000 per month, 11.67 %of the respondents have
income level between 50 to 80000 and 10 % of the respondents have income
level above 80000 per month.

CHART 4

TABLE-5

AVENUES OF INVESTMENT

OPTIONS NO OF RESPONDENTS PERCENTAGE

MUTUAL FUNDS 22 18.33
INSURANCE 24 20
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SHARES 22 18.33
DEPOSITS 19 15.83
REAL ESTATE 10 8.33
OTHERS 23 19.16
TOTAL 120 100

INFERENCE:
From the above table, it is clear that 20 % of respondents preferred
Insurance, 19.16 % for others, 18.33 % of the respondents invested in Mutual
Funds, 18.33 % for shares, 15.83 for deposits and 8.33 % for Real Estate .
CHART 5
AVENUES OF INVESTMENT

TABLE-6

REASONS FOR INVESTMENT

REASONS NO OF RESPONDENTS PERCENTAGE

RISK FREE 20 16.67
HIGH RETURN 32 26.67
SECURE 22 18.33
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BETTER MARGIN 28 23.33
INTEREST 18 15
TOTAL 120 100

INFERENCE:

From the above table, it is clear that 26.67 % of the respondents opt for
High return, 23.33 % opt for Better margin,18.33 % of the respondents opt for
Secure 16.67 % of the respondents opt for Risk free investment and 15 % opt for
Interest.

CHART 6

TABLE-7

AWARENESS OF TAX SAVING SCHEMES

OPTIONS NO.OF RESPONDENTS PERCENTAGE

YES 87 72.5
NO 33 27.5
TOTAL 120 100
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INFERENCE:

From the above table, it is clear that 72.5 % of the respondents are aware
of Tax saving schemes and 27.5 % of the respondents are not aware of Tax
saving schemes.

CHART 7

TABLE-8

SCHEME PREFERRED BY INVESTORS IN TERMS OF TAX SAVINGS

OPINION NO OF RESPONDENTS PERCENTAGE

ELSS 38 31.67
ULIP 23 19.16
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OTHERS 37 30.83
NIL 22 18.33
TOTAL 120 100

INFERENCE:

From the above table, it is clear that 31.67 % of the respondents consider
that ELSS is better Tax saving scheme, 30.83 % of respondents consider Others,
19.16 % of respondents consider ULIP as better Tax saving scheme and 18.33%
of respondents consider Nil.
CHART 8
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TABLE – 9

REASONS FOR CHOOSING PARTICULAR INVESTMENT

SCHEMES NO OF RESPONDENTS PERCENTAGE

TAX BENEFIT 29 24.16
FUTURE
28 23.333
EXPECTATIONS
PERFORMANCE 14 11.67
LIQUIDITY 23 19.16
SAVING THE SURPLUS 26 21.67
TOTAL 120 100

INFERENCE:

From the above table it is clear that 24.16 % of respondents have chosen
a particular investment for the purpose of Tax Benefit, 23.33% of respondents
opt because of Future Expectations, 21.67 % of respondents have chosen for the
purpose of saving their surplus, 19.16 % on the basis of Liquidity and 11.67 % of
respondents choose in terms of Performance.

CHART 9
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TABLE - 10

RISK TAKING CAPACITY OF INVESTORS

OPINION NO OF RESPONDENTS PERCENTAGE

HIGH RISK HIGH
42 25
RETURN
MODERATE RISK
57 47.5
MODERATE RETURN
LOW RISK LOW
21 17.5
RETURN
TOTAL 120 100

INFERENCE:

From the above table it is clear that, 47.5 % of the respondents are opt for
Moderate Risk Moderate Return, 25 % of the respondents opt for High Risk High
Return and 17.5 % of respondents opt for Low Risk Low Return.

CHART - 10
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TABLE – 11

PREFERRED TENURE OF INVESTMENT

OPTION NO OF RESPONDENTS PERCENTAGE

SHORT TERM 32 26.67
MID TERM 54 45
LONG TERM 34 28.33
TOTAL 120 100

INFERENCE:

From the above table, it is clear that 45 % of the respondents preferred for
Mid term investment, 28.33 % of respondents preferred to Long term investment
and 26.67% of respondents preferred Short term investment.

CHART – 11
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TABLE-12

LEVEL OF RETURN EXPECTED

OPINION NO OF RESPONDENTS PERECENTAGE

LESS THAN 10 % 11 9.167
11 – 15 % 32 26.67
15 – 20 % 36 30
ABOVE 20 % 41 34.167
TOTAL 120 100

INFERENCE:

From the above table it is clear that 34.167 % of respondents expect

above 20 % of return, 30 % 0frespondents expect 15 – 20 % of returns, 26.67 %
of respondents expect 11- 15 % of returns and 9.167 % of respondents expect
less than 10 % of return.

CHART - 12
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TABLE – 13

RANKING OF PREFERRED INVESTMENT

INVESTMENT rank 1 rank 2 rank 3 rank 4 rank 5 rank 6 rank 7

ALTERNATIVE
mutual funds 15 10 15 35 20 10 15
shares 10 15 10 20 15 25 25
bonds 5 10 15 15 20 25 30
deposits 45 15 25 15 15 5 0
po savings 30 25 20 10 5 25 5
insurance 10 35 20 10 5 15 25
derivatives 5 10 15 15 40 15 20
TOTAL 120 120 120 120 120 120 120

INFERENCE:
From the above table it can be seen that most of the investors are inclined
towards bank deposits ,post office deposits, insurance, and mutual funds as
investment, we assume here mutual fund as ELSS, and it got 4 th preference.

CHART - 13

INVESTMENT ALTERNATIVE PREFERENCE

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TABLE - 14

FACTORS TO BE GIVEN IMPORTANCE BY INVESTMENT COMPANIES

AREA OF FOCUS Percentage

customer satisfaction 37.5
product performance 20.83
creating awareness 20.84
competing the rivals 16.66
others 4.17
total 100

INFERENCE:

CHART - 14

SUGGESTIONS AND RECOMMENDATIONS

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 From the analysis it is found that most of the respondents were under the
age group 41 to 50 and are coming under the income level of below
Rs.20000 per month. So the company has to concentrate the above said
income levels and attract the age group of 41 to 50.

 Majority of the respondents is in the opinion that HDFC should give more
importance on product performance. Hence the company should
concentrate more on product performance.

 Most of the respondents are influenced by high return. Hence the

company should make awareness among the people about its return
earning capacity.

 Investors are considering ELSS as the better tax saving scheme. So the
company should make necessary arrangements to make more advantage
on this.

 Most of the respondents are willing to take moderate risk, preferring mid
term investment and expecting more than 20 % of returns. Hence the
company should act accordingly.

 The company satisfies the customers and at the same time it should
improve its relationship towards its customers.

QUESTIONNAIRE

1) Name :
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Address :
Phone :
Gender : Male Female
Age : 20-30 31-40 41-50 ABOVE 50
Qualification: SSLC +2 UG PG

2) NATURE OF OCCUPATION:
IT Manufacturing Self Employment Govt Sector
Others

3) YOUR INCOME RANGE: (per month)

Below Rs.20000 Rs.20-50000 Rs. 50-80000
Above Rs.80000

4) WHERE DO YOU INVEST NORMALLY

Mutual Funds Insurance Shares Deposits
Real Estate Others

5) REASON FOR THE ABOVE INVESTMENT

Risk Free High Return Secure Better Margin Interest.

6) ARE YOU AWARE OF TAX SAVING SCHEMES

Yes No

7) WHICH TAX SAVING INVESTMENT YOU CONSIDER BETTER

ELSS ULIP Others Nil
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8) REASONS FOR CHOOSING A PARTICULAR INVESTMENT
OPTION
Tax Benefit Future Expectations Performance
Liquidity /Flexibility Just to save my surplus

9) MENTION YOUR RISK TAKING CAPACITY

High risk High return
Moderate risk Moderate return
Low risk Low return.

10) MENTION YOUR PREFERRED TENURE OF INVESTMENT

Short term (within 3 years)
Mid term (3 years – 5 years)
Long term. (Above 5 years)

11) WHAT IS THE LEVEL OF RETURN EXPECTED IN PERCENTAGE

IN A YEAR FROM YOUR INVESTMENT
Less than 10 % 11 - 15 % 15 – 20 % Above 20 %

12) ARE YOU SATISFIED WITH THE PERFORMANCE OF TAX

SAVINGS SCHEME
Yes No
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13) RANK YOUR PREFERRED INVESTMENT ALTERNATIVE

S.NO PARTICULARS RANK

1 Mutual Funds
2 Share Market
3 Bonds
4 Deposits
5 Post Office Savings
6 Insurance
7 Derivatives

14) WHICH AREA DO YOU FEEL THAT INVESTMENT COMPANIES

SHOULD GIVE MORE IMPORTANCE
Customer Satisfaction Product Performance
Creating Awareness Competing the rivals Others

15)SUGGESTIONS: