CONTENTS

Chapter I
Introduction of the Study Purpose of the Study Scope of the study Research Methodology Limitations 3 4 5 6 7

Chapter II
Industry Profile "ompany Profile Product Profile 9 !7 !# $4 $5 % $9

Chapter III
"onceptual &rame'or( )or(ing Mechanism 3$ % 4! 4$ % 4#

Chapter IV
*ata analysis and Interpretation ,LIPs -s. Mutual &unds ,LIPs -s. /raditional Policies Similarities 01' ,LIPs -s. M& 2 ,LIPs -s. /raditional Policies 5+ % 65 66 % 7$ 73 % 76 77

Chapter V
&indings from the study "onclusions 3i0liography 4ppendices 79 #+ #! #$

CHAPTER - I

INTRODUCTION
Life Insurance or life assurance is a contract 0et'een the policy o'ner and the insurer5 'here the insurer agrees to pay a sum of money upon the occurrence of the insured6s death. In return5 the policy o'ner 7or policy payer8 agrees to pay a stipulated amount called a premium at regular inter-als. Life Insurance is a contract for payment of money to the person assured 7or to the person entitled to recei-e the same8 on the occurrence of the e-ent insured against.

Usually the contract prov !es "or#

!. Payment of an amount on the date of maturity or at specified periodic inter-als or at death if it occurs earlier. $. Periodical payment of insurance premium 0y the assured5 to the corporation 'ho pro-ides the insurance.

$ho can ta%e & "e nsurance pol cy'

!. 4ny person a0o-e !# years of age5 'ho is eligi0le to enter into -alid contract5 $. Su09ect to certain conditions a policy can 0e ta(en on the life of a spouse or children. :o' life insurance policies are a-aila0le in t'o types; !. /raditional policies; $. ,nit lin(ed insurance plans7,LIP58;

No( U&IPs are "oo! n )ar%et#

,LlP stands for ,nit Lin(ed Insurance Plan. It pro-ides for life insurance 'here the policy -alue at any time -aries according to the -alue of the underlying assets at the time. ,LIP is life insurance solution that pro-ides for the 0enefits of protection and fle<i0ility in in-estment. /he in-estment is d#noted as units and is represented 0y the -alue that it has attained called as :et 4sset =alue 7:4=8. ,LIP came into play in the !96+s and 0ecame -ery popular in )estern >urope and 4mericas. /he reason that is attri0uted to the 'ide spread popularity of ,LIP is 0ecause of the transparency and the fle<i0ility 'hich it offers. 4s times progressed the plans 'ere also successfully mapped along 'ith life insurance need to retirement planning. In today6s times5 ,LIP pro-ides solutions for insurance planning5 financial needs5 financial planning for children6s future and retirement planning. /hese are pro-ided 0y the insurance companies or e-en 0an(s. /hese in-estments can also 0e used for ta< 0enefit under section #+".

PURPOSE O* STUD+#

/o study the concept and 'or(ing mechanism of ,LIPs Reasons 'hy ,LIPs get thumps up Reasons for in-esting systematically /o study in detail a0out t'o ,LIP product of 3a9a9 4llian? Life Insurance "o Ltd /o ma(e a comparison 0et'een Mutual &unds 2 ,LIPs /o study the comparison 0et'een /raditional Policies 2 ,LIPs /o understand the relationship 0et'een Mutual &unds 2 ,LIPs and /raditional Policies 2 ,LIPs

/o ha-e an a'areness of IR*4 @uidelines 'ith respect to ,LIPs

SCOPE O* STUD+#

/he pro9ect entitled A,LIP as an In-estment 4-enueB is a detailed study a0out the inception of the concept of ,nit lin(ed insurance policies and its 'or(ing mechanism. /he study is confined only to the analysis a0out the ,LIPS and its effecti-eness in comparison 'ith the traditional policies and the Mutual funds. /he Scope is limited only to the detailed understanding of the t'o products of the 3a9a9 4llian?.

RESEARCH ,ETHODO&O-+ Sources o" !ata 5

*ata collection is of t'o types as follo's;

Data Collect on

Pr )ary Data Pr )ary !ata#

/he primary data refers to from direct Cuestioning 0een collected or gathered research study. /he data collected 0y nteract n. tra ners an! sales

Secon!ary Data

the data collected and 'hich has not earlier 0y any other for this study 'as ( th nsurance )ana.ers.

Secon!ary !ata#
/his type of data refers to the gathering of information from the sources that ha-e Areadymade dataB already in possession. /his data has already 0een collected and complied. /his data has 0een collected from the e<isting sur-eys in the company. Information has 0een gathered from the company 0rouchers5 periodicals5 'e0sites and other 0oo(s. 4fter gathering the data from the Sources5 the data 'as analy?ed5 ta0ulated5 interpreted and finally conclusions 'ere made regarding the entire pro9ect.

&I,ITATIONS O* THE STUD+#

/he study is limited only to 3irla sun life. /he study does not include any comparison 'ith product of other companies. More focused on ,LIPs only.

CHAPTER - II

INDUSTR+ PRO*I&E

Insurance Overv e(

/his is the current scenario of the @lo0al Insurance Industry and no' let us loo(s at the 0asic function of insurance. )hile conceding that insurance is a ris( transfer tool5 corporate should 0e made to understand that it does not suffice merely to transfer the ris( 0ut they ha-e to participate in the effort of loss pre-ention. :e' techniCues and technology ha-e to 0e adapted from them to time in order to impro-e performance and this has special significance to the order to impro-e performance and this has special significance to the Indian insurance Industry. /he Indian insurance industry has al'ays suffered from dra'0ac(s li(e lac( of proper understanding of the purpose of insurance5 lopsided gro'th etc.5 'ith the opening up of the industry5 it is hoped that the ro' entrants 'ith their 0etter channels 'ould spread to the real message of insurance5 leading to a dynamic gro'th. >mphasis should 0e on finding ne' technological a-enues5 although it has 0een o0ser-ed 'orld o-er that for selling insurance5 an eye to eye contact is essential. Internet can 0e used for 0etter ser-icing 'hich 'ould e-entually5 lead to 0usiness de-elopment. )ith the entry of foreign companies into the insurance arena5 a fresh life has 0een inducted and there is a great deal of optimism in the air that the mar(et 'ould automatically create a -i0rant competition leading to the customer 0eing the ultimate 'inner.

Insurance n In! a#
Insurance in India started 'ithout any regulation in the nineteenth century. It 'as a typical story of a colonial era; a fe' 3ritish Insurance companies dominating the mar(et se'ing mostly large ur0an centers. 4fter the independence5 it too( a dramatic turn. Insurance 'as nationali?ed. &irst5 the life insurance companies 'ere nationali?ed in !9565 and then the general 0usiness 'as nationali?ed in !97$. Dnly in !999 pri-ate insurance companies ha-e 0een allo'ed 0ac( into the 0usiness of insurance 'ith a ma<imum of $6E of foreign holding. )e descri0e ho' and 'hy of regulation and deregulation. /he entry of the State 3an( of India 'ith its proposal of 0an( assurance 0rings a ne' dynamic in the game. )e study the collecti-e e<perience of other countries in 4sia already deregulated their mar(et and ha-e allo'ed foreign companies to participate. If the e<perience of other countries is any guide5 the dominance of Life Insurance "orporation is not going to disappear any time soon. /he Indian insurance mar(et5 'ith a population of o-er one million5 offers tremendous opportunities and can easily sustain !++ insurers. /his article analyses the de-elopment of the insurance sector5 'hich 'ill result in higher domestic sa-ings and in-estments5 significant e<pansion of flue capital mar(et5 enhanced insurance infrastructure financing and increased foreign capital inflo' and employment. /he opening up of the Indian insurance sector has 0een hailed tie a ground0rea(ing mo-e to'ards further li0erali?ation of the Indian economy. /he si?e of the e<isting insurance mar(et is

!+

gro'ing at a rate of ten percent per year. /he estimated potential of the Indian insurance mar(et in terms of premium 'as around Rs. 344+++ crores 7,SF66 0illion8 in !999. /he Indian players ha-e tapped only tent per cent of the mar(et share and the remaining 9+ per cent of the mar(et remain untapped. /he Indian @o-ernment has recently enacted the insurance Regulatory *e-elopment 4uthority 4ct !9995 'hich amends e<isting Insurance la's dating from !936. /he act esta0lishes an authority called the Insurance Regulatory *e-elopment 4uthority5 designed to regulate the Insurance sector. /his article e<amines the pro-isions of the ne' 4ct from the point of -ie' of a company 'ith di-erse 0usiness interests 'ishing to esta0lish a 9oint -enture 'ith an Indian company.

Insurance un!er the /r t sh Ra0#

Life insurance in modern form 'as first set up in India through a 3ritish company called the Driental Life Insurance "ompany in !#!# follo'ed 0y the 3om0ay 4ssurance "ompany in !6$3 and Madras >Cuita0le Life Insurance Society in !#$9. 4ll of these companies operated in India 0ut did not insure the li-es of Indians. /hey 'ere there insuring the li-es of >uropeans li-ing in India. Some of the companies that started later did pro-ide insurance for Indians. 3ut they 'ere treated as Asu0standard and therefore had to pay an e<tra premium of $+E or more. /he first company that had 3 policies that could 0e 0ought 0y Indians 'ith Gfair -alue6 'as the 3om0ay Mutual Life 4ssurance Society starting in !#7!. 3y !93#5 the insurance mar(et in India 'as 0u??ing 'ith !76 companies 70oth life and non life8. Ho'e-er5 the industry 'as plagued 0y fraud. Hence a comprehensi-e set of regulations 'as put in place to stem this pro0lem. 3y !9565 there 'ere !54 Indian companies5 !6 non Indian insurance companies and 75 pro-ident societies that 'ere issuing life insurance policies. Most of these policies 'ere entered in the cities 7especially around 0ig cities li(e 3om0ay5 "alcutta5 *elhi and Madras8. In !9565 the finance minister Sri S *. *eshmu(h announced nationali?ation of the life insurance 0usiness.

, lestones o" Insurance Re.ulat ons n the 12th Century

+ear
!9!$ !9$#

S .n " cant Re.ulatory Event

/he Indian Life Insurance "ompany 4ct enacted. /he Indian Insurance "ompanies 4ct enhanced to ena0le the go-ernment to collect statistical information a0out 0oth life and non life insurance 0usiness.

!!

!93# !956

/he Insurance 4ct; "omprehensi-e 4ct to regulate insurance 0usiness in India /he Indian and foreign insurers and pro-ident societies ta(en o-er 0y the "entral go-ernment and nationali?ed. LI" formed 0y an act of parliament. =II. LI" 4ct5 !9565 'ith a capital contri0ution of Rs.5 crore from the go-ernment of India.

!97$ !993 !994 !995 !996

:ationali?ation of general insurance 0usiness in India. Setting up of Malhotra "ommittee. Recommendations of Malhotra "ommittee. Setting up of Mu(her9ee "ommittee /he go-ernment gi-es greater autonomy to LI"5 @I" and its su0sidiaries 'ith regard to the restructuring of 0oards and fle<i0ility in in-estment norms aimed at channeling funds to the infrastructure sector.

!99#

/he ca0inet decides to allo' 4+E foreign eCuity in pri-ate insurance companres $6E to foreign companies and !4E to :RIs and &IIs.

!999

/he standing committee headed 0y Murali *eora decides that foreign eCuity in Pri-ate insurance should 0e limited to $6E. /he IR4 0ill is renamed the Insurance Regulatory and *e-elopment 4uthority 7IR*48 3ill. 4lso5 "a0inet clears IR*4 3ill

$+++

President gi-es assent to the IR*4 3ill.

Re.ulat ons#
In India insurance is a federal su09ect. /he primary legislation that deals 'ith insurance 0usiness in India is;

Insurance Re.ulatory Author ty#

Dn the recommendation of Malhotra committee an Insurance Regulatory *e-elopment 4ct 7IR*48 passed 0y Indian Parliament in !993. Its main aim 'as to acti-ate an insurance regulatory apparatus essential for proper monitoring and control of the insurance Industry. *ue to this 4ct Se-eral Indian pri-ate companies ha-e entered into the insurance mar(et5 and some companies ha-e 9oined 'ith foreign partners.

!$

In economic reform process5 the insurance "ompanies ha-e gi-en 0oost to the socio economic de-elopment process. /he huge amount of funds that are disposal of insurance are directed as desired a-enues li(e housing safe drin(ing 'ater5 electricity primary education and infrastructure. 40o-e all the policyholders gets 0etter pricing of products from competiti-e insurance companies.

& 3eral 4at on#

/he opening up of insurance Sector 'as a part of the ongoing li0erali?ation in the financial sector of India. /he domain of state run insurance companies 'as thro'n open to pri-ate enterprise on *ecem0er 75 !9995 'ith the introduction of the Insurance Regulatory 4uthority 7IR*48 3ill. /he opening up of the sector ga-e 'ay to the 'orld (no'n names in the industry to enter the Indian mar(et through tie ups 'ith the eminent 0usiness houses. )hat 'as once a Cuiet 0usiness is 0ecoming one of the hottest 0usinesses todayJ

Post & 3eral 4at on#

/he changing face of financial sector and the entry of se-eral companies in the field of life insurance segment are one of the (ey results of these li0erali?ation efforts. Insurance 0usiness 0y 'ay of generating premium income adds significantly to the @*P. >stimates sho' that a meager 35 4+ million5 out of a population of 95+ million5 ha-e come so far under the Insurance industry. /he potential mar(et is so huge that it can gro' 0y !5 to !7 per annum. )ith the entry of pri-ate players the Indian insurance mar(et may finally 0e a0le to ma(e deeper penetration in to ne'er segments and e<pand the mar(et si?e manifold. /he Cuality of ser-ice 'ill also impro-e and there 'ill 0e 'ide range of product catering to the needs of different customers. /he pace for claims settlements is also e<pected to impro-e due to increased competition. /he life insurance mar(et in India is li(ely to 0e ris(y in the initial stages5 0ut this 'ill impro-e in the ne<t three to fi-e years. /herefore it may 0e ad-antageous to 0e a second round entrant. In the life insurance mar(et the need to 0uild trust o-er time 0ecomes important 0ecause the ris( assessment systems and data that are a (ey to success in the insurance mar(et are significantly underde-eloped in India e-en today. Re"or)s an! I)pl cat ons# /he li0erali?ation of the Indian insurance sector has 0een the su09ect of much heated de0ate for some years. /he sector is finally set to open up to pri-ate competition. /he Insurance Regulatory and *e-elopment 4uthority 0ill cleared the 'ay for pri-ate entry into insurance5 as the go-ernment 'as (een to in-ite pri-ate sector participation into insurance. /o address those concerns5 the 0ill reCuires direct insurers to ha-e a minimum paid up capital of Rs. ! 0illionK to in-est policy holder6s funds only in IndiaK and to restrict international companies to a minority

!3

eCuity holding of $6 percent in any ne' company. Indian promoters 'ill also ha-e to dilute their eCuity holding to $6 percent o-er a !+ year period. D-er the past three years5 around 3+ companies ha-e e<pressed interest in entering the sector and many foreign and Indian companies ha-e arranged alliances. )hether the insurer is old or ne'5 pri-ate or pu0lic5 e<panding the mar(et 'ill present challenges. 4 num0er of foreign insurance companies ha-e set up representati-e offices in India and ha-e also tied up -arious asset management companies. /hey ha-e either signed MD,6s 'ith Indian companies or are trying to do the same. Some ha-e carried out e<tensi-e research on the Indian insurance sector. Dthers ha-e set up liaison offices.

,a0or Players In In! an Insurance

& "e Insurance; Pu3l c#

Life Insurance "orporation of India

Pr vate#

H*&" Standard Life Insurance Ma< :e' Lor( Life Insurance I"I"I Prudential Life Insurance Mota( Mahindra Life Insurance 3irla Sun Life Insurance

!4

/4/4 4I@ Life Insurance S3I Life Insurance I:@ =ysya Life Insurance 3a9a9 4llian? Life Insurance MetLife Insurance 4MP Sanmar Life insurance 4-i-a Life Insurance Sahara India Life Insurance Shriram Life Insurance 3harathi4N4 Life Insurance

-eneral Insurers Pu3l c#

:ational Insurance :e' India 4ssurance Driental Insurance ,nited India Insurance

Pr vate#

3a9a9 4llian? @eneral Insurance I"I"I Lom0ard @eneral Insurance I&&"D /o(yo @eneral Insurance Reliance @eneral Insurance Royal Sundaram 4lliance Insurance /4/4 4I@ @eneral Insurance "holamandalam @eneral Insurance ><port "redit @uarantee "orporation H*&" "hu00 @eneral Insurance

Re- nsurer

@eneral Insurance "orporation of India

!5

Types o" & "e Insurance Pol c es

Lour family counts on you e-ery day for financial support; food5 shelter transportation5 education5 and much more. Insurance pro-ides you 'ith that uniCue sense of security that no other form of in-estment pro-ides. It gi-es you a sense of financial support especially during that time of crisis irrespecti-e of the fluctuations in the stoc( mar(et. Insurance pro-ides for your career goals right from your childhood years. Insurance is all a0out ma(ing sure your family has adeCuate financial to ma(e those plans and dreams come true. It pro-ides financial protection to help your family or 0usiness to manage after your death.

!6

*e( o" the & "e nsurance pol c es are#

Life policies - "o-er the insured for life. /he insured does not recei-e money 'hile he is ali-eK the nominee recei-es the sum assured plus 0onus upon death of the insured. Endowment policies - "o-er the insured for a specific period. /he insured recei-es money on sur-i-al of the term and is not co-ered thereafter. Money back policies - /he nominee recei-es money immediately on death of the insured. Dn sur-i-al the insured recei-es money at regular inter-als during the term. /hese policies cost more than endo'ment 'ith profit policies. Annuities / Childrens policies - /he nominee recei-es a guaranteed amount of money at a pre determined time and not immediately on death of the Insured. Dn sur-i-al the insured recei-es money at the same pre determined time. /hese policies are 0est suited for planning children6s future5 education and marriage costs. Unit Linked Insurance Plan - ,LIP pro-ides for life insurance and at the same time pro-ides suita0le In-estment a-enues. /he policy -alue is the sum assured plus the appreciation of the underlying assetsK it is life insurance solution that pro-ides for the 0enefits of protection and capital appreciation at the same time. /he product is Cuite similar to a mutual fund in the sense that the in-estment is denoted as units and is represented 0y the -alue that it has attained called as :et 4sset =alue 7:4=85 and apart from the insurance 0enefit the structure and functioning of ,LIP is e<actly li(e a mutual fund.

!7

CO,PAN+ PRO*I&E

!#

/A5A5 A&&IAN6 &I*E INSURANCE Pro" les

3a9a9 4llian? Life Insurance "o. Ltd. is a 9oint -enture 0et'een t'o leading companies 4llian? 4@5 one of the 'orld6s largest insurance companies5 and 3a9a9 4uto5 one of the 0iggest $ and 3 'heeler manufacturers in the 'orld. 3a9a9 4llian? Life Insurance is the fastest gro'ing pri-ate life. Insurance "ompany in India "urrently has o-er 44+5+++ satisfied customers. )e ha-e a presence in more than 55+ locations 'ith 6+5+++ Insurance "onsultant pro-iding the finest customer ser-ice. Dne of India6s leading pri-ate life insurance companies

Indian perations!
@ro'ing at a 0rea(nec( pace 'ith a strong pan Indian presence 3a9a9 4llian? has emerged as a strong player in India. 3a9a9 4llian? Life Insurance "ompany Limited is a 9oint -enture 0et'een t'o leading conglomerates 4llian? 4@ and 3a9a9 4uto Limited. "haracteri?ed 0y glo0al presence 'ith a local focus and dri-en 0y customer orientation to esta0lish high earnings potential and financial strength5 3a9a9 4llian? Life Insurance "o. Ltd. 'as incorporated on !$th March $++!. /he company recei-ed the Insurance Regulatory and *e-elopment 4uthority 7IR*48 certificate of Registrahon 7R38 :o !!6 on 3rd 4ugust $++! to conduct Life Insurance 0usiness in India.

"hared #ision!
3a9a9 4uto Ltd. the &lagship "ompany of the Rs. #+++crore 3a9a9 group is the largest manufacturer of t'o 'heelers and three )heelers in India and one of the largest in the 'orld. 4 household name in India5 3a9a9 4uto has a strong 0rand image 2 0rand loyalty synonymous 'ith Cuality 2 customer focus. )ith o-er ! 5.+++ employees5 the company is a Rs. 4+++ crore auto giant5 is the largest $13 'heeler manufacturer in India and the 4th largest in the 'orld. 444 rated 0y "RISIL5 3a9a9 4uto has 0een in operation for o-er 55 years. It has 9oined hands 'ith 4llian? to pro-ide the Indian consumers 'ith a distinct spoon in terms of life insurance products.

4s a promoter of 3a9a9 4llian? Life Insurance "o. Ltd. 3a9a9 4uto has the follo'ing to offer;

&inancial strength and sta0ility to support the Insurance 3usiness.

!9

Strong 0rand eCuity. Has good mar(et reputation5 as a 'orld class organi?ation. Has an e<tensi-e distri0ution net'or(. Ha-e adeCuate e<perience of running a large organi?ation. 4 !+ million strong 0ase of retail customers using 3a9a9 products. ><tensi-e use of ad-anced Information /echnology. ><perience in the financial ser-ices industry through 3a9a9 4uto &inance Ltd.

All an4 -roup

4llian? @roup is one of the 'orlds leading insurers and financial ser-ices pro-iders. &ounded in !#9+ in 3erlin5 4llian? is no' present in o-er 7+ countries 'ith almost !745+++ employees. 4t the top of the international group is the holding company5 4llian? 4@5 'ith its head office in Munich. 4llian? @roup pro-ides its more than 6+ million customers 'orld'ide 'ith a comprehensi-e range of ser-ices in the areas of;

Property and "asualty Insurance Life and Health Insurance 4sset Management and 3an(ing.

All an4 A-- A -lo3al * nanc al Po(erhouse

)orld'ide $nd 0y @ross )ritten Premiums Rs.45 46654 "r. 3rd largest 4ssets under Management 74,M8 2 largest amongst insurance 4,M of Rs.5!5 965959cr. !$th largest corporation in the 'orld 49.# E of glo0al 0usiness from Life Insurance >sta0lished in !#9+5 !!+ yrs of insurance e<pertise 7+ countries5 !73575+ employees 'orld'ide

/a0a0 Auto#
3a9a9 4uto Ltd.5 the &lagship "ompany of the Rs. #+++ crore 3a9a9 group is the largest manufacturer of t'o 'heelers and three 'heelers in India and one of the largest in the 'orld. 4 household name in India5 3a9a9 4uto has a strong 0rand image 2 0rand loyalty synonymous 'ith Cuality 2 customer focus.

$+

A stron. In! an 3ran!- Ha)ara /a0a0#

Dne of the largest $ 2 3 'heeler manufacturers in the 'orld $! millionO -ehicles on the roads across the glo0e Managing funds of o-er Rs. 4+++ "r. 3a9a9 4uto finance one of the largest auto finance cos. in India Rs. 45744 "r. /urno-er 2 Profits of 53# "r. in $++$ +3 It has 9oined hands 'ith 4llian? to pro-ide the Indian consumers 'ith a distinct option in terms of life insurance products. 4s a promoter of 3a9a9 4llian? Life Insurance "o. Ltd.5 3a9a9 4uto has the follo'ing to offer )orld'ide financial strength and sta0ility to support the insurance 0usiness.

4 strong 0rand eCuity. 4 good mar(et reputation as a 'orld class organi?ation. 4n e<tensi-e distri0ution net'or(.

$hy %a&a& Allian'(

It pro-ides an impecca0le trac( record across the glo0e in pro-iding security and co-er for you and your family. )e5 at 3a9a9 4llian?5 reali?e that you see( an insurer 'ho you can trust your hard earned money 'ith. 4llian? 4@ 'ith o-er !!+ years of e<perience in o-er 7+ countries and 3a9a8 auto5 trusted for o-er 55 years in the Indian mar(et5 together are committed to offering you financial solutions that pro-ide all the security you need for your t4mily and yourself. 3a9a9 4llian? 0rings to you se-eral inno-ati-e products5 the details of 'hich you can 0ro'se in this section.

)ey Achie*ements!

Races past @)P of o-er Re. ! ++!"r5 'ith gro'th of o-er 357E o-er pre-ious years @)P of Rs. $!9 "rores &LP of Rs #6+cr a 3#+E gro'th o-er last years &LP of Rs !79 or. Roc(eted to :o. $ position as against :o 6 at the end of last financial year amongst P-t. Life Insurance cos.5 'ith a clear lead of Rs $4+ "r. &astest gro'ing insurance company 'ith 3#+E gro'th Mar(et share 9umps almost 4 times from +.95 E to 3.39 E amongst all life Insurance cos. Increased its product portfolio from 7 to !9 simple and fle<i0le products Launched complete suite of employee 0enefit solutions 7@roup products for "orporate8

$!

:o.! P-t. Life Insurer &L $+++6. Leading 0y RS. 7#"r. :o.! P-t. Life Insurer in Retail 3usiness Leading 0y RS 339 "r. )hopping gro'th of $!6E for the &L $++5 +6 Ha-e sold o-er !35++5+++ policies to satiated customers Is 0ac(ed 0y a net'or( of 55+ offices spanning the country 4ccelerated @ro'th

4ssets under management Rs 353$4 "r. Shareholder capital 0ase of Rs 5++ "r.
:o of policies sold in &L $!5376 !5!55965 !5#65443 $5##5!#9 75#!56#5 953$5545 @)P in &L Rs. 7 "r. Rs. 69 "r. Rs. $$! "r. Rs. !++$ "r. Rs. 3!34 "r. Rs. 4$5! "r.

:o of Policies $++! $++$76monts8 $++$ $++3 $++3 $++4 $++4 $++5 $++5 $++6 $++6 $++7

/a0a0 All an4 -The Present

Product tailored to suit your needs *ecentrali?ed organi?ation structure for faster response )ide reach to ser-e you 0etter P a nation'ide net'or( of 7++ O 0ranches Speciali?ed departments for 3anc assurance5 "orporate 4gency and @roup 3usiness )ell net'or(ed "ustomer "are "enter6s 7"""58 'ith state of art I/ systems Highest standard of customer ser-ice 2 simplified claims process in the Industry )e0site to pro-ide all assistance and information on products and ser-ices5 online 0uying and online rene'als. /oll free num0er to ans'er all your Cueries5 accessi0le from any'here in the country. S'ift and easy claim settlement process e<perience of running a large organi?ation.

$$

*ocuse! Sales Net(or%#

$3

Ba$a$ Allian% &i"e 'nsurance

Agency Channel

Bancassurance

Group and Alternate Channel

Branches

Standard Chartered Bank

Group !mployee Bene"it

Satellite

Satellite

Satellite

Syndicate Bank

Corporate Agency

Various Cooperative banks

#ranchise

7 RRB and Numerous other Tie ups

Brokers

T e Ups ( th /an%s
P oneers o" /anc assurance n In! a# Ha-ing pioneered the phenomenon5 3an( assurance is one our core 0usiness strategies. /'o of our strong 3anc assurance tie ups are;

Standard "hartered 3an( Syndicate 3an(

)e ha-e de-eloped a range of life insurance products e<clusi-ely for our 3an( assurance partners. 4lso5 our products are customi?ed to suit specific needs of 0an(s.

$4

PRODUCT PRO*I&E

PRDUCTS O* /A5A5 A&&IAN6

In! v !ual Plans

Un t -a n Plus -ol!

$5

4 uniCue ,nit Lin(ed Plan

Ne( *a) ly -a n 4 ,nit Lin(ed &le<i0le In-estment Plan

Ne( Un t -a n Plus SP Single Premium Plan

Pens on -uarantee 4n 4nnuity Pension Plan

Ter) Care /erm Plan 'ith Return of Premium

Invest -a n 4n >ndo'ment Plan

& "et )e Care )hole Life Plan

Ch l! -a n "hildren6s Policy

&oan Protector 4 Mortgage Reducing /erm Insurance Plan

Cash -a n Money 3ac( Plan

S(arna V shrant Retirement Plan

Ne( Un t -a n Plus ,nit Lin( plan 'ith higher allocation

*uture Inco)e -enerator Retirement Pension Plan

Ne( Un t -a n Easy Pens on Plus SP ,niCue ,nit Lin(ed pension

$6

Alp N vesh +o0ana 4n endo'ment plan 'ith Life co-er and Maturity 0enefit

Saral Sura%sha +o0ana Most economical term insurance policy

-roup Plans

-roup Cre! t Sh el! 4-aila0le for >mployer >mployee @roups and :on >mployer >mployee @roups

-roup Ter) & "e 4-aila0le for >mployer >mployee @roups and :on >mployer >mployee @roups

Ne( -roup -ratu ty Care >mployer >mployee @roup plan

Ne( -roup Superannuat on Care >mployer >mployee @roup plan offering sta0le and independent post retirement life

-roup Ter) & "e Sche)e In lieu of >*LI 7>mployees *eposit Lin(ed Insurance8

/hese are the insurance plans that offer fle<i0ility 'ith ta< 0enefits; Unit +ain Plus +old! A Unit Linked Plan 3a9a9 4llian? ,nit @ain Plus @old is a ,niCue plan 'ith the com0ination of protection and prospects of earning attracti-e returns 'ith in-estments in -arious mi<es of securities that ma(es a perfect plan to last you a lifetime of prosperity and happiness. ,nder this plan there is a high allocation up to #5E. 4lso5 it guaranteed Life "o-er 'ith a choice of 6 In-estment &unds. Unit +ain Plus "P! A "in,le Premium Unit Linked Plan!

$7

/his plan ena0les one to protect his1her lo-ed ones5 'hile ma(ing the money gro' faster 'ith the ad-antage of lo' charges. It pro-ides one the option of allocating 9#E of the single premium to purchase units in any1all of the 6 funds a-aila0le 'ith 3a9a9 4llian?.

Customer!
3a9a9 4llian? has products suita0le for all income groups. "ompany is a legal entity and has legal e<istence5 0ut actually comes into life 'hen it o0tains customer. "ustomers are first and last real asset of the company. In the mar(eting era customer is 'hole 2 sole. In our life insurance all the categories of human 0eing comes and co-ers that -aries from 3Ddays of 0irth to 6!yrs5 and our company targeting lo'er5 middle and higher incomes of group and our policies economical and access a0le to all income groups.

Competitors!
/he main competitors for 3a9a9 4llian? Life Insurance "o Ltd are;

Life Insurance "orporation of India I"I"I Prudential Life Insurance "o. Ltd 3irla Sun Life Insurance "o. Ltd H*&" Standard Life Insurance "o. Ltd I:" =ysya Life Insurance "ompany P-t. Ltd Ma< :e' Lor( Life Insurance "o. Ltd Met Life India Insurance "ompany Put. Ltd. Mota( Mahindra Dld Mutual Life Insurance Limited S3I Life Insurance "o. Ltd /ata 4I@ Life Insurance "ompany Limited Reliance Life Insurance "ompany Limit 4-i-a Life Insurance "o. India P-t. Ltd Sahara India Life Insurance "o5 Ltd Shriram Life Insurance "u5 Ltd 3harathi4<a Life Insurance "o Ltd

$#

$9

Chapter - III

3+

CONCEPTUA& *RA,E$OR7

Un t & n%e! Insurance Plans

U&IP is a mar(et lin(ed in-estment 'here the premium paid is in-ested in funds. *ifferent options are a-aila0le5 li(e !++E >Cuity5 3alanced5 *e0t5 LiCuid etc and according to the fund selected5 the ris(s and returns -ary. /he costs are upfront and are transparent5 the in-estment made is (no'n to the in-estor 74s he is the one 'ho decides 'here his money should 0e in-ested8. /here is a greater fle<i0ility in terms of premium payments i.e. 4 premium holiday is possi0le. Lou can also in-est surplus money 0y 'ay of top ups 'hich 'ill increase your in-estment in the fund and there0y pro-ide a push to returns as 'ell.

3!

/here is no assured Sum on sur-i-al5 the higher of the Sum 4ssured or &und =alue is paid at the maturity or incase of death. &e' reasons 'hy 'e thin( ,LIPs are 0etter; !. &ree insurance co-er; 4s seen in the a0o-e e<ample5 the insurance co-er is freeK the policy e-en pro-ides 0etter returns $. 3est solution for children6s education1future needs ,LIPs not only help sa-e money systematically for a particular goal5 0ut also helps protect that goal 3. S'itches 'ithout capital gains and entry loads; ,nli(e eCuity and mutual fund in-estments 'hich are su09ect to capital gains 'hen sale is madeK ,LIPs ha-e the con-enience of s'itching among the funds 'ithout any entry loads or capital gains 4. /he Mortality charges are lo'er than traditional policies. Unit-linked insurance plans 7,LIPs8 are the fla-or of the season. Launched a couple of years ago5 these plans ha-e contri0uted o-er 5+ percent of the ne' 0usiness of insurance companies such as I"I"I Prudential5 3irla Sun Life and 3a9a9 4llian? Life Insurance "o Ltd. >ncouraged 0y the response5 other players5 too5 are launching -ariants of sa-ings and endo'ment plans in the unit lin(ed format5 a recent addition to the range of insurance products. /he introduction of unit lin(ed insurance plans 7,LIPs8 has 0een5 possi0ly5 the single largest inno-ation in the field of life insurance in the past se-eral decades. In a s'oop5 it has addressed and o-ercome se-eral concerns that customers had a0out life insurance liCuidity5

fle<i0ility and transparency and the lac( thereof. /hese 0enefits are possi0le 0ecause ,LIPs are differently structured products and lea-e many choices to the policyholder. Hence5 as a customer5 you must carefully consider 'hether you can ma(e such a product 'or( 'ell for you. 3roadly spea(ing5 I 0elie-e that ,LIPs are 0est suited for those 'ho ha-e a conceptual understanding of financial mar(ets and are genuinely loo(ing for a fle<i0le5 long term sa-ings cum insurance solution. Put simply5 ,LIPs are structured such that the protection 7insurance8 element and the sa-ings element can 0e distinguished and hence managed according to oneQs specific needs. /raditionally5 the sa-ings element of insurance has 0een opaCue5 gi-ing policyholders no control o-er asset allocation5 no transparency5 no fle<i0ility to match oneQs lifestyle5 ine<plica0le returns and an e<pensi-e5 complicated e<it. ,LIPs5 0y separating the t'o parts 'ithin the same product5 and managing them independently5 offer insurance 0uyers 'hat no traditional policy had continuous information

3$

a0out ho' their policy is 'or(ing for them. Dften5 people 'onder 'hether itQs 0etter to purchase separate financial products for their protection and sa-ings needs. "ertainly5 this is a -ia0le option for those 'ho ha-e the time and s(ill to manage se-eral products separately. Ho'e-er5 for those 'ho 'ant a con-enient5 economical5 one stop solution5 ,LIPs are the 0est 0et. /o understand ho' a ,LIP meets the multiple needs of protection of 0oth health and lifeK and sa-ings in the same policy5 let us ta(e the e<ample of a 35 year old man 'ith $ young children. )ith a premium of5 say5 Rs 3+5+++ p.a. he could 0egin 'ith a sum assured of Rs 5 la(h5 for 'hich the life insurer 'ould set aside a nominal amount of the premium to co-er this ris(. /he 0alance could 0e in-ested in a fund of his choice5 possi0ly a 0alanced or gro'th option. 4s the children gro'5 he might 'ant to increase the le-el of protection5 'hich could 0e done 0y liCuidating some of the units to pay for a ris( premium. Dn the other hand5 if he gets a significant raise5 he could increase the sa-ings element in the policy 0y topping it up. /he (ey to good financial planning is to understand oneQs current and future financial goals5 ris( appetite and portfolio mi<. /his done5 the ne<t step is to allocate assets across different categories and systematically adhere to an in-estment pattern5 so that they 'or( in tandem to meet oneQs reCuirements o-er the ne<t month5 year or decade. 3ecause of their fle<i0ility to ad9ust to different lifestage needs5 ,LIPs fit in -ery 'ell 'ith financial planning efforts. Moreo-er5 as a systematic in-estment plan5 ,LIPs greatly diminish the ha?ards of in-esting in a -olatile mar(et5 and using the concept of QRupee "ost 4-eragingQ5 allo' the policyholder to earn real returns o-er the long term. )hen youQre 0uying a ,LIP5 ma(e sure you select one that 'or(s 'ell for you. /he important thing is to loo( for and understand the nuances5 'hich can considera0ly alter the 'ay the product 'or(s for you. /a(e the follo'ing into consideration.

Char,es! ,nderstand all the charges le-ied on the product o-er its tenure5 not 9ust the initial charges. 4 complete charge structure 'ould include the initial charges5 the fi<ed administrati-e charges5 the fund management charges5 mortality charges and spreads5 and that too5 not only in the first year 0ut also through the term of the policy. It might seem confusing at first5 0ut a company pro-ided 0enefit illustration should help ma(e this clearer. Some companies le-y a spread 0et'een the 0uy and sell rates of the units5 'hich can significantly reduce the -alue of the in-estment o-er the long term. "lose e<amination and Cuestioning of such aspects 'ill re-eal the gro'ing po'er of your in-estment.

.und

ptions and Mana,ement! ,nderstand the -arious fund options a-aila0le to you and

the fund management philosophy and o09ecti-es of each of them. ><amine the trac( record

33

of the funds thus far and ho' they are performing in comparison to 0enchmar(s. )ho manages the funds and 'hat e<perience do they ha-eJ 4re there adeCuate controlsJ Importantly5 loo( at ho' easily you can access information a0out your fundQs performance 'hen you need it

are their daily :4=sJ Is the portfolio disclosed regularlyJ

.eatures! Most ,LIPs are rich in features such as allo'ing one to top up or s'itch 0et'een funds5 increase or decrease the protection le-el5 or premium holidays. "arefully understand the conditions and charges associated 'ith each of these. &or instance5 is there a minimum amount that must 0e s'itchedJ Is there a charge on the sameJ Must you go through medical under'riting if you 'ant to increase the sum assuredJ

Company! Last 0ut not least5 insure 'ith a 0rand you can trust to honor its commitment and ser-ice you according to your reCuirements.

Ha-ing 0ought a ,LIP5 it6s important that you monitor it on a regular 0asis5 though not as freCuently as you 'ould a stoc( or mutual fund. Lour ,LIP is a long term in-estment and daily fluctuations in the :4= should not impact you. "hec( once a Cuarter to see ho' your fund is performing5 and consider a s'itch if there is a change in the le-el of ris( you are 'illing to ta(e or in your personal mar(et -ie'. Monitor your fundK -alue it in the fe' 'ee(s or months 0efore a planned 'ithdra'al or top up5 or a change in your life stage or lifestyle. &or those 'ho are still finding their feet 'ith their ,LIP and its multitude of options5 the 0est thing to do is to consult your ad-isor. Life insurance as a form of protection is the single most important financial product any earning mem0er of a family must ha-e. Ha-ing said this5 a 'ell di-ersified portfolio is one of the first rules of financial planning5 and as such one should consider different instruments as the a0ility to sa-e increases. "ertainly ,LIPs successfully com0ine the first and most important need of protection5 'ith sa-ings5 and hence are an e<cellent addition to your portfolio. /hese can 0e com0ined 'ith -arious other products5 after ta(ing into account your ris( appetite5 financial goals and need for portfolio di-ersification. Possi0le in-estment options range from 0an( deposits and go-ernment small sa-ing schemes to mutual funds5 stoc(s and property. 3uying a ,LIP is Cuite different from 0uying a traditional insurance productK and sometimes there are cases of people 'ho 0elie-e they ha-e 0een mis sold a ,LIP5 the complaint most often 0eing that they 'ere not a'are of the ris(s or the charges. 4ll financial products ha-e a certain amount of ris( and charges5 0e it a mutual fund5 property5 or e-en a 0an( deposit. It 'ould 0e unrealistic to assume that the features and 0enefits of a ,LIP come at no cost5 though the charges are considera0ly lo'er than that of a traditional product.

34

In fact5 the -ery reason the product is transparent is 0ecause the customer (no's the charges and ris(s. &urther5 unli(e other financial products5 all life insurance plans come 'ith a !5 day free loo(5 'hich allo's you to return the policy if you 0elie-e it does not meet your needs or e<pectations.

O30ect ves o" U&IPS#

!.

/o gi-e customer fle<i0ility !+ "hoose Sum 4ssured Premium payment term Increase sum assured 4dd riders and5 "ustomi?e the policy according to needs. /o gi-e customer a decent inflation 0eating returns5 in accordance 'ith mar(et returns. /o protect the purchasing po'er of customers money in future times and to protect them against inflation and constant erosion in moneys -alue there of. /o gi-e a 0roader fund choices to customers according to their ris( appetite /o gi-e customers a transparency and (eep them fully informed a0out fund5 management and e<penses in-ol-ed. 40ility to increase 1 decrease sum assured according to changing life situations 7such as loans8 and increasing Human Life -alue. /o pro-ide liCuidity to the customers in cases of emergency /o ena0le customers to acti-ely manage their o'n funds according to their perceptions and changing mar(et situations.

$. 3. 4. 5. 6. 7. #.

35

D sa!vanta.es o" U&IPs#

!. $. 3. 4. 5. 6. 7. #. 9. !+. !!. )ide choice of fund options. 40ility to 'ithdra' money after some time5 to a-oid long loc(5 3ird in hand is 'orth $ in the 0ush. /o get inflation 0eating returns on in-estment 3rea(ing up of premium into insurance and in-estments. 40ility to ma(e the ,LIP as mainly insurance oriented 7lo' premium and high sum assured8 or predominantly In-estment oriented 7re-erse8 >na0les customers 1 policy holders to understand the company6s In-estment style5 through in-estment reports. Premium holidays accommodating fluctuating and unpredicta0le incomes. Policy ne-er lapses5 thus 5 ma(ing the optimum usage of insurance 0enefit &le<i0ility. Suita0le to 0usiness classes 'ith unsure incomes. 3lending of safety5 attracti-e returns and liCuidity.

36

The "ollo( n. po nts 3e"ore .o n. n "or a U&IP#

!. $. It is prudent to ma(e eCuity oriented in-estments 0ased on an esta0lished trac( record of at least three years o-er different mar(et cycles. ,LIPs do not fulfill this criterion no'. Insurance and sa-ings are t'o different goals and it is 0etter to address them separately rather than 0undle them into a single product. 4 com0ination of a term plan and a mutual fund could gi-e 0etter results o-er the long term 3. 4. If in-estment returns are your priority5 you should compare alternati-e in-estment products 0efore loc(ing in your money. /a< ad-antages do 'or( in fa-or of ,LIPs for de0t oriented funds. &or eCuity oriented funds5 eCuity lin(ed sa-ings products5 'hich en9oy ta< ad-antages and pro-ide mar(et lin(ed returns5 are compara0le. 5. /he e<pense structure of insurance products does significantly dent returns.

8 Reasons (hy U&IPs .et the thu)3s up#

4s( any indi-idual 'ho has purchased a life insurance policy in the past year or so and chances are high that the policy 'ill 0e a unit lin(ed insurance plan 7,LIP8. ,LIPs ha-e 0een selling li(e pro-er0ial Ghot ca(es6 in the recent past and they are li(ely to continue to outsell their plain -anilla counterparts going ahead. So 'hat is it that ma(es ,LIPs so attracti-e to the indi-idualJ Here5 'e ha-e e<plored some reasons5 'hich ha-e made ,LIPs so irresisti0le. 9: Insurance co*er plus sa*in,s! /o 0egin 'ith5 ,LIPs ser-e the purpose of pro-iding life insurance com0ined 'ith sa-ings at mar(et lin(ed returns. /o that e<tent5 ,LIPs can 0e termed as a t'o in one plan in terms of gi-ing an indi-idual the t'in 0enefits of life

37

Insurance plus sa-ings. /his is unli(e compara0le instruments li(e a mutual fund for instance5 'hich does not offer a life co-er. 1: Multiple in*estment options! ,LIPs offer a lot more -ariety than traditional life insurance plans. So there are multiple options at the indi-idual6s disposal ,LIPs generally come in three 0road -ariants;

4ggressi-e ,LIPs 7'hich can typically in-est #+E !++E in eCuities5 0alance in de0t8 3alanced ,LIPs 7can typically in-est around 4+E 6+E in eCuities8 "onser-ati-e ,LIPs 7can typically in-est up to $+E in eCuities8

4lthough this is ho' the ,LIP options are generally designed5 the e<act de0t1eCuity allocations may -ary across insurance companies. Indi-iduals can opt for a -ariant 0ased on their ris( profile. &or e<ample5 a 3+ Lr old indi-idual loo(ing at 0uying a life insurance plan that also helps him 0uild a corpus for retirement can consider in-esting in the 3alanced or e-en the 4ggressi-e ,LIP. Li(e'ise5 a ris( a-erse indi-idual 'ho is not comforta0le 'ith a high eCuity allocation can opt for the "onser-ati-e ,LIP. ;: .le/ibility! Indi-iduals may 'ell as( ho' ,LIPs are any different from mutual funds. 4fter all5 mutual funds also offer hy0rid10alanced schemes that allo' an indi-idual to select a plan according to his ris( profile. /he difference lies in the fle<i0ility that ,LIPs afford the indi-idualK Indi-iduals can s'itch 0et'een the ,LIP -ariants outlined a0o-e to capitali?e on in-estment opportunities across the eCuity and de0t mar(ets. Some insurance companies allo' a certain num0er of Gfree6 s'itches. /his is an important feature that allo's the informed indi-idual1in-estor to 0enefit from the -agaries of stoc(1de0t mar(ets. &or instance5 'hen stoc( mar(ets 'ere on the 0rin( of 75+++ points 7Sense<85 the informed in-estor could ha-e shifted his assets from an 4ggressi-e ,LIP to a lo' ris( "onser-ati-e ,LIP. S'itching also helps indi-iduals on another front. /hey can shift from an 4ggressi-e to a 3alanced or a "onser-ati-e ,LIP as they approach retirement. /his is a reflection of the change in their ris( appetite as they gro' older. 8: $orks like an "IP! Rupee cost a-eraging is another important 0enefit associated 'ith ,LIPs. Indi-iduals ha-e pro0a0ly already heard of the Systematic In-estment Plan 7SIP8 'hich is increasingly 0eing ad-ocated 0y the mutual fund industry5 )ith an SIP5 indi-iduals in-est their monies regularly o-er time inter-als of a Month1Cuarter and don6t ha-e to 'orry a0out Gtiming6 the stoc( mar(ets. /hese are not 0enefits peculiar to mutual funds. :ot many reali?e that ,LIPs also tend to do the same5 al0eit on a Cuarterly1half yearly 0asis. 4s a matter of fact5 e-en the annual premium in a ,LIP 'or(s on the rupee cost a-eraging principle. 4n added 0enefit 'ith ,LIPs is that indi-iduals can also in-est a one time amount

3#

in the ,LIP either to 0enefit from opportunities in the stoc( mar(ets or if they ha-e an in-esti0le surplus in a particular year that they 'ish to put aside for the future.

* ve Reasons "or Invest n. Syste)at cally

D-er the last !$ months in-estors in eCuity mar(ets ha-e seen it all5 from all time high le-el of 6$++ le-els to dismal lo' le-el of 4$++. 4 lot of in-estors 'ho entered at 65$++ e<pecting the mar(et to go e-en higher are -ery upset. Most in-estors cannot really stomach the (ind of -olatility that is inherent in eCuity mar(ets. 4t the end of the day5 in-estors 'ho can ta(e some ris( are actually shunning eCuities only 0ecause they entered eCuity mar(ets at the G'rong time6 Systematic in-estment plans 7SIPs8 ta(e care of this pro0lem. 3ut mar(et timing is not the only reason for you to plump for SIPs5 there are other ad-antages. 9: Li,ht on the wallet! @i-en that a-erage per capital income of an Indian is appro<imately only Rs. $55+++ 7i.e. monthly income of Rs $5+#385 a Rs 55+++ one time entry in a mutual hind is still as(ing for a lot 7$.4 times the monthly income8. 4nd mutual funds 'ere ne-er meant to 0e elitistK far from it5 the retail in-estor is as much a part of the mutual fund target audience as the ne<t high net'orth in-estor 7H:I8. So if you cannot shell out Rs 55+++5 that6s not a huge stum0ling 0loc(5 ta(e the SIP route and trigger your mutual fund In-estment 'ith as lo' as Rs. 5++ 7in most cases8. 1: Makes market timin, irrele*ant! If mar(et lo's gi-e you the 9itters and ma(e you 'ish you had ne-er in-ested in eCuity mar(ets5 then SIPs can help you 0lunt that depression. Most retail in-estors are not e<perts on stoc(s and are e-en more out of sorts 'ith stoc( mar(et oscillations. 3ut that does not necessarily ma(e stoc(s a loss ma(ing in-estment proposition. Studies ha-e repeatedly highlighted the a0ility of stoc(s to outperform other asset classes 7de0t5 gold5 property8 o-er the long term 7at least 5 years8 as also to effecti-ely counter inflation. So if stoc(s are such a great thing5 'hy are so many in-estors complainingJ It6s 0ecause they either got the stoc( 'rong or the timing 'rong. 3oth these pro0lems can 0e sol-ed through an SIP in a mutual fund 'ith a study trac( record. ;: 0elps you build for the future! Most of us ha-e needs that in-ol-e significant amounts of money5 li(e child6s education5 daughter6s marriage5 0uying a house or a car. If you had to sa-e for these milestones o-ernight or e-en a couple of years in ad-ance5 you are unli(ely to

39

meet your o09ecti-e 7'edding5 education5 house5 etc8. 3ut if you start sa-ing a small amount e-ery month1Cuarter through SIPs that is treated as sacred and that is set aside for some purpose5 you ha-e a far 0etter chance of ma(ing that do'n payment on your house or getting your daughter married 'ithout dra'ing on your P& 7pro-ident fund8. 8: Compounds returns! /he early 0ird gets the 'orm5 is not 9ust a part of the 9ungle fol(loreK e-en the early in-estor gets a lion6s share of the in-estment 0ooty -ia a -ia the in-estor 'ho comes in later. /his is mainly due to a thum0 rule of finance called compounding. 4ccording to a study 0y Principal Mutual &und if In-estor >arly and In-estor Late 0egin in-esting Rs !5+++ monthly in a 0alanced fund 75+;5+ P eCuity; de0t8 at $5 years and 3+ years of age respecti-ely5 In-estor early 'ill 0uild a corpus of Rs # m 7Rs #+ la(hs8 at 6+ years5 'hich is t'ice the corpus of Rs 4 m that In-estor Late 'ill accumulate. 4 gap of 5 only years results in a dou0ling of the in-estment corpusR /hat is 'hy SIPs should 0ecome an in-estment ha0it. SIPs run o-er a period of time 7decided 0y you8 and help you a-ail of compounding. <: Lowers the a*era,e cost! SIPs 'or( 0etter as opposed to one time in-esting. /his is 0ecause of rupee cost a-eraging. ,nder rupee cost a-eraging an in-estor typically 0uys more of a mutual fund unit 'hen prices are lo'. Dn the other hand5 he 'ill 0uy fe'er mutual fund units 'hen prices are high. /his is a good discipline since it forces the in-estor to commit cash at mar(et lo's5 'hen other in-estors around him are 'ary and e<iting the mar(et. In-entors may e-en 0e pleased 'hen prices fall 0ecause the fi<ed rupee in-estment mould no' fetches more units.

4+

$or% n. ,echan s)
)or(ing Mechanism of ,LIPs includes the follo'ing steps; "ales! 4gents and other channel sales people collect premium from customers. Allocation! Dnce sales people collect premium from customers5 all that money is not in-ested at once. Part of it is deducted to'ards administration e<penses5 insurance e<penses 7Mortality "harges as they are usually called85 and management e<penses. 4fter deducting money for the 4IM 7admin5 insurance5 management e<penses85 the rest of the money is in-ested into the fund choice chosen 0y the customer. Administration E/penses# is the e<pense for ma(ing the policy document 1 0ond ma(ing Stamp duty 7insurance is a legal document su09ect to Indian stamp act85 agent commission and other fi<ed o-er heads spread. 4dmin charges are deducted IMM>*I4/>LL after premium is paid. :ot at the end of the year. Insurance E/penses or mortality char,es # /hese are nothing 0ut the /erm Insurance "harges chosen 0y the customer 7for e<ample5 let us say5 Rs.!+ la(h85 for a gi-en premium 7for e<ample5 let us say5 Rs.7+5 +++1 8. Mortality charges 7and any rider 0enefit premium8 are deducted 4/ /H> 3>@I::I:@ of the policy year and not at the end. .und Mana,ement char,es! )hen company in-ests money into eCuity mar(ets5 they incur 0ro(erage etc e<penses. )hen they in-est into de0t 0ased 1gilt scurrilities and other interest yielding instruments5 they ha-e to spend of 0ond trading charges. 4ll these e<penses are passed on to the policy holders 0y the 'ay of &und Management "harges. /his is done 4/ /H> >:* of policy year. 4fter money is deducted for 4IM5 the rest is in-ested into different funds5 7MetLife has 65 and 3ata 7has 4 or 5 customer6s choice and agent6s discretion. /his fund is uniti?ed and a face -alue of Rs.!+1 is gi-en to each unit during the :e' &und Dffer. Let us for instance say5 company in-ests Rs.!+ la(hs into eCuity 1 de0t 0ased fund. It has allocated ! lac( units to all policy holders5 depending on the premium each customer paid. :o'5 :et 4sset =alue 7:4=8 is calculated 0y the follo'ing formula; Total "un! value = no o" un ts

4!

K )here5 the denominator 7units8 does not change. Dnly the numerator changes 7total fund -alue8 depending on the mar(et -ariations. If the fund5 after one year of in-estment management5 has attained a -alue of5 say5 Rs.!3 lac(s5 then5 the :et 4sset =alue 7:4=8 of each unit 'ould 0e Rs:9; lac%s = 9 lac% un ts > Rs:9; = per un t: /his :4= is pu0lished e-ery day in financial ne's papers. Mechanisms are same for a de0t 0ased fund or eCuity 0ased fund. In case company feels necessary5 they ta(e in-estment ad-ice from >Cuity Research 4nalysts 7in case of eCuity 0ased funds8 and "redit Rating "ompanies 7such as "RISIL5 I"R45 "4R> etc8 for due diligence and for minimi?ing the ris(. >ach Life Insurance "ompany has soft'are installed into their system 7many companies use "isco Systems S)8. 4t the end of the trading session5 that is after 4.3+ PM e-ery e-ening5 that soft'are calculates the total -alue of each in-estment fund and di-ides the same 0y num0er of units 7less 'ithdra'als 1 death 0enefits gi-en if any8 and 0y 4 4.M early morning5 :4= computation 'ould 0e o-er. /hat :4= is pu0lished in ne'spapers and pu0lished in the respecti-e company6s 'e0site. In most Life Insurance companies5 customer has the option to choose the fund5 s'itch the fund 'hen he1she 'ants5 re direct the ne' premiums5 'ithdra' etc.

Net asset value#

/he Net Asset Value or NAV is a term used to descri0e the -alue of an entity6s assets less the -alue of its lia0ilities. /he term is commonly used in relation to collecti-e in-estment schemes. It may also 0e used as a synonym for the 0oo( -alue of a firm.

Contents#
#ariations! )hile the a0o-e definition is simple5 there are many different types of entities5 and different 'ays of measuring the -alue of assets and lia0ilities. In the conte<t of collecti-e in-estments 7mutual funds5 net asset -alue is the total -alue of the fund6s portfolio less lia0ilities. /he :4= is usually calculated on a daily 0asis. In terms of corporate -aluations5 net asset -alue is the -alue of assets less lia0ilities. 4nd5 to gi-e an indication of 'hat 'e could mean 0y the -alue of assets considers some of these -ariations each one achie-es something slightly different5 and is applied in different 'ays;

3oo( -alue "arrying -alue Historical cost

4$

4morti?ed cost Mar(et -alue

Usa,e! In-estors might 'ant to (no' if a company is cheap or e<pensi-e to in-est in. Dne possi0ility is to compare its current mar(et capitali?ation 'ith its net asset -alue since5 all things 0eing eCualK one might e<pect them to 0e the same. /here are reasons 'hy this might not 0e true.

:4= co-ers the company6s current asset and lia0ility position. In-estors might e<pect the company to ha-e large gro'th prospects5 in 'hich case they 'ould 0e prepared to pay more for the company than the :4= suggests.

/he :4= is usually 0elo' the mar(et price 0ecause the current -alues of the funds assets are higher than the historical financial statements used in the :4= calculation. 3ut in the case of5 for e<ample5 Li0erty Media "orporation5 analysts and management ha-e estimated that it is actually trading for 3+ 5+E 0elo' its net asset -alue 7or Acore asset -alueB8.

/he :4= of an open end fund 'ill al'ays eCual its price. 3ut the price of a closed end fund may not eCual its :4= as closed end funds are traded in the secondary mar(et and the a0o-e reasons cause price to -ary from :4= 7premium or discount applied8 :et assets are sometimes the same as net 'orth5 or shareholders6 eCuity 7current assets minus current lia0ilities8 'hich may 0e slightly less than total assets. /he :4= is usually 0elo' the mar(et price 0ecause the current -alues of the funds assets are higher than the historical financial statements used in the :4= calculation. Calculat n. Net Asset Value ?NAV@ /he in-estor may ha-e heard the term :et 4sset =alue 7:4=8 used 'hen referring to ,LIPs. :o' it is important to learn ho' to calculate a ,LIPs :4= and understand 'hat it really means. Calculat n. NAVs# "alculating ,LIP net asset -alues is easy. Simply ta(e the current mar(et -alue of the fund6s net assets 7securities held 0y the fund minus any lia0ilities8 and di-ide 0y the num0er of shares outstanding. So ifs fund had net assets of F5+ million and there are one million shares of the fund5 then the price per share 7or :4=8 is F5+.++. /he most important thing to (eep in mind is that :4= change daily and is not a good indicator on ho' your portfolio is doing 0ecause things li(e distri0utions mess 'ith the :4= 7it also ma(es mutual funds hard to trac(. assets minus

lia0ilities. In AReturn on :et 4ssetsB 7RD:48 it6s often fi<ed assets plus net 'or(ing capital

U&IP -u !el nes# IRDA )a%es a start#

43

/his article 'as 'ritten 0y Personalfn for 3usiness India5 and 'as carried in its Septem0er $45 $++6 issue 'ith the title5 IR*4 ma(es a start. /he original draft5 in its entirety5 has 0een retained here. 4fter 0eing 'itness to rampant misrepresentation of ,LIP5 7unit lin(ed insurance plans8 the regulatorP Insurance Regulatory and *e-elopment 4uthority 7IR*48 finally introduced some much needed guidelines to lend an element of insurance to an other'ise in-estment product. Ho'e-er5 'e maintain that there is still more to 0e done to ma(e ,LIP5 more transparent and ma(e it e-en more insurance oriented. &irst some 0ac(ground P ,LIPs made an entry at a rather opportune time for insurance companies. /he mood in eCuity mar(ets 'as -ery pessimistic5 ho'e-er5 at those le-els8 3S> Sense< less than 35+++ points8 mar(ets could go in only one direction up. 4nd ta(e off they did in an unprecedented manner. &rom 35+++ points5 the 3S> Sense< surged furiously to o-er !$5+++ points lea-ing in-estors 0reathless. )hy are 'e tal(ing of stoc( mar(ets in an insurance article 'here 'e propose to discuss the latest ,LIP guidelinesJ 3ecause unfortunately5 not 9ust fund managers5 0ut also insurance companies 'ere rather e<cited 0y the sharp rise in stoc( mar(ets. )hen you come to thin( of it5 insurance companies should 0e more concerned a0out insuring li-es than the -agaries of stoc( mar(ets. Ho'e-er5 in ,LIPs5 they had a product that 'as more geared to'ards Goffering a return6 than insuring li-es. 4nd this anomaly 'as put to good use 0y insurance agents. ,LIP5 'ere spo(en of in the same 0reath as mutual funds. In fact5 many agents e-en 'ent as far as pro9ecting ,LIPs superior to mutual funds 0ecause they attract ta< 0enefits 7under Section #+"8 on all options5 unli(e mutual funds 'here you get a ta< 0enefit only on the >LSS 7eCuity lin(ed sa-ings scheme8 category. Moreo-er5 ,LIP5 'ere sho'n to 0e a short cut in-estment1insurance a-enue Pfor instance5 in-estors 'ere encouraged to pay premiums only for the first 3 years and not necessarily o-er the entire tenure of the policy. /he reason is 0ecause the e<penses in the initial 3 years6 premium are so high that insurance companies reco-er the entire cost of the policy 7including life co-er charges8 and can Gdo 'ithout6 the remaining premiums. )hile these mar(eting gimmic(s 'ere glaring5 the IR*45 to their credit5 did inter-ene at regular inter-als to infuse some much needed sanity. 3ut as 'e5 at Personalfn5 ha-e seen on the mutual fund side5 at times the regulator must come do'n hea-ily as financial ser-ice pro-iders can ta(e Cuite a'hile to get the hint.

44

Dn Suly I5 $++65 the IR*4 introduced re-ised ,LIP guidelines to correct GsomeB of these anomalies5 'e say some 0ecause much is yet to 0e achie-ed5 0ut more on that later. &or one IR*4 has gi-en the ne' ,LIP a Gface65 in insurance a face can 0e ta(en as the sum assured and the tenure. /he old ,LIP lac(ed 0oth and indi-iduals did not ha-e in(ling a0out either e-en after ta(ing the ,LIP. /he latest guidelines dictate that;

Ter)=Tenure#

/he ,LIP client must ha-e the option to choose a term1tenure. If no term is defined5 then the term 'ill 0e defined as G7+ minus the age of the client6. &or e<ample if the client is opting for ,LIP at the age of 3+ then the policy term 'ould 0e 4+ years.

/he ,LIP must ha-e a minimum tenure of 5 years.

"um Assured! Dn the same lines5 no' there is a sum assured that clients can associate 'ith. /he minimum sum assured is calculated as; ?Ter)=1 A Annual Pre) u)@ or ?< A Annual Pre) u)@ 'hiche-er is higher. /here is no clarity 'ith regards to the ma<imum sum assured. /he sum assured is treated as sacred under the ne' guidelinesK it cannot 0e reduced at any point during the term of the policy e<cept under certain conditions P li(e a partial 'ithdra'al 'ithin t'o years of death or all partial 'ithdra'als after 6+ years of age. /his 'ay the client is at ease 'ith regards to the sum assured at his disposal. Premium payments! If less than first 3 years premiums are paid5 the life co-er 'ill lapse and policy 'ill 0e terminated 0y paying the surrender -alue. Ho'e-er5 if at least first 3 years premiums ha-e 0een paid5 then the life co-er 'ould ha-e to continue at the option of the client. "urrender *alue! /he surrender -alue 'ould 0e paya0le only after completion of 3 policy years. Top-ups# Insurance companies can accept top up only if the client has paid regular premiums till date5 If the top up amount e<ceeds $5E of total 0asic regular premiums paid till date5 then the client has to 0e gi-en a certain percentage of sum assured on the e<cess amount. /op ups ha-e a loc( in of 3 years 7unless the top up is made in the last 3 years of the policy8. Partial withdrawals! /he client can ma(e partial 'ithdra'als only after 3 policy years. "ettlement! /he client has the option to claim the amount accumulated in his account after maturity of the term of the policy up to a ma<imum of 5 years. &or instance5 if the ,LIP matures on Sanuary !5 $++75 the client has the option to claim the ,LIP monies till as late as *ecem0er 3!5 $+!$. Ho'e-er5 life co-er 'ill not 0e a-aila0le during the e<tended period. Loans! :o loans 'ill 0e granted under the ne' ,LIP.

45

Char,es! /he insurance company must state the ,LIP charges e<plicitly. /hey must also gi-e the method of deduction of charges. %enefit Illustrations! /he client must necessarily sign on the sales 0enefit illustrations. /hese illustrations are sho'n to the client 0y the agent to gi-e him an idea a0out the returns on his policy. 4gents are 0ound 0y guidelines to sho' illustrations 0ased on an optimistic estimate of !+E and a conser-ati-e estimate of 6E. :o' clients 'ill ha-e to sign on these illustrations5 0ecause agents 'ere -iolating these guidelines and pro9ecting higher returns. )hile 'hat the IR*4 has done is commenda0le5 slot more needs to 0e done. 4t Personalfn5 'e ha-e our o'n 'ish list 'ith regards to ,LIP portfolios; a. Regular disclosure of detailed ,LIP portfolios. /his is a pro0lem 'ith the industryK for all their tal( on 0eing 9ust li(e 7Dr e-en 0etter than8 mutual funds5 ,LIP portfolios are no'here near their mutual fund counterparts in freCuency as 'ell as in transparency. 0. Dn the same lines5 other data points li(e portfolio turno-er ratios need to 0e mentioned clearly so clients ha-e an idea on 'hether the fund manager is in-esting or punting. c. ,LIPs 7especially the aggressi-e options8 need to mention their in-estment mandate5 is it going to aim for aggressi-e capital appreciation or steady gro'th. In other 'ords 'ill it 0e managed aggressi-ely or conser-ati-elyJ )ill it in-est in large caps5 mid caps or across 0oth segmentsJ )ill it 0e managed 'ith the gro'th style or the -alue styleJ

><posure to a stoc(1sector in a ,LIP portfolio must 0e defined. *i-ersified eCuity funds ha-e a limit to ho' much they can in-est in a stoc(1sector. In-estment guidelines for ,LIPs must also 0e crystalli?ed. Dur interaction 'ith insurance companies indicates that there is little clarity on this frontK 'e 0elie-e that since ,LIPs in-est so hea-ily in stoc( mar(ets they must ha-e -ery clear cut in-estment guidelines.

46

47

CHAPTER IV

To Stu!y n !eta l a3outB t(o U&IP pro!ucts o" /a0a0 All an4 & "e Insurance Co &t!:
The /a0a0 All an4 Un t -a n Plus C-ol!D )ith 3a9a9 4llian? ,nit @ain Plus G@old6 'e ha-e formulated a uniCue com0ination of protection and prospects of attracti-e returns 'ith in-estment in -arious mi<es of securities to ma(e a perfect plan to last you a lifetime of prosperity and happiness.

So)e o" the %ey "eatures o" th s plan are#

@uaranteed life co-er5 'ith a fle<i0ility to choose insurance co-er according to your changing needs. Presenting a uniCue in-estment G4sset 4llocation &und6 'herein you ha-e not to 'orry to s'itch funds in case mar(et condition changes rather our e<perienced &und Managers 'ill monitor the mi< of assets in the fund and 'ill manage the mi< in such situations to ma<imi?e

4#

your returns.

If you 'ant to manage the mi< of assets for your policy on your o'n5 you ha-e the choice of 5 other in-estment funds 'ith complete fle<i0ility to s'itch money from one fund to other to manage your in-estments 0etter.

Lour policy continues to participate in in-estment performance of the fund7s8 e-en if you are not a0le to pay 3 full years6 premium. &le<i0ility of partial 'ithdra'als at any time after three years from commencement of the policy pro-ided three full years6 premiums are paid. @et maturity -alue eCual to the &und =alue at maturity date or in periodic installments spread o-er a ma<imum period of fi-e years. 4 host of optional additional rider 0enefits 'hich includes assurance to your family 'ith family income 0enefit and 'ai-er of premium 0enefit.

Ho( !oes the plan (or%'

Premiums paid 0y you5 net of premium allocation charge5 are in-ested in fund7s8 of your choice and units are allocated depending on the unit price of the fund7s8. /he -alue of your policy is the total -alue of units that you hold in the fund7s8. /he insurance co-er charges5 policy administration charges and the additional rider 0enefit charges 7if any8 are deducted through monthly cancellation of units. &und Management "harge is priced in the unit -alue.

E/a0a0 All an4 Un t -a n Plus C-ol!D o""ers you the "ollo( n. cover cho ces#
Minimum Sum 4ssured T 5 times 4nnuali?ed premium5 DR half of the Policy /erm times 4nnuali?ed Premium5 'hiche-er is higher. Ma<imum Sum 4ssured T AyB times the annual premium5 'here y 'ill 0e as per the follo'ing ta0le; 4ge @roup AyB for 0ase co-er or 0ase co-er 'ith ,L 4*3 21or ,L 4P/P*3 rider AyB for 0ase co-er or 0ase co-er 'ith ,L "I and1or ,L H"3 rider ALB for 0ase co-er 'ith ,L &I35 pro-ided ,L "I 21or ,L H"3 rider has not 0een opted for. +%3+ !++ 3!%35 #5 36%4+ 7+ 4!%45 5+ 46 55 3+ 56%6+ $+

+.5 times Policy /erm If age of &I3 life assured O policy term is less than or eCual to 6+ If age of &I3 life assured O policy term is greater than 6+ 5+ or 0ase co-er multiplier5 'hich e-er is lo'er. +.5 times policy term

49

/ene" ts ava la3le un!er the plan#

Dn death occurring 0efore the age of 7 years; /he death 0enefit 'ill 0e the fund -alue as on date of receipt of intimation of death at the office. Dn death after the age of 7 years and 0efore the age of 6+ years; /he 0enefit paya0le 'ould 0e the sum assured less -alue of partial 'ithdra'als made in the last $4 months prior to the date of death or the fund -alue as on date of receipt of intimation of death at the "ompany6s office5 'hiche-er is higher. /he death 0enefit paya0le 'ould 0e calculated separately for regular premiums and top up premiums.

Dn death of the life assured on or after attaining the age of 6+ years; /he 0enefit paya0le 'ould 0e the sum assured less -alue of partial 'ithdra'als made5 'ithin $4 months 0efore attaining age 6+ years and all partial 'ithdra'als made after attaining age 6+ years or the fund -alue as on the date of receipt of intimation of death at the office5 'hiche-er is higher. /he death 0enefit 'ould 0e calculated separately for regular premiums and top up premiums

Dn Maturity5 the &und =alue in respect of regular premium and top up premium 'ill 0e paid. /he surrender -alue of the policy 'ill 0e eCual to the fund -alue less surrender charge5 if any. 4nytime after three years from the date of commencement of the policy5 pro-ided due premiums for first three policy years ha-e 0een paid5 the policyholder 'ill ha-e the option to a-ail of surrender 0enefit 0y complete surrender of units. &urther if first three years regular premiums ha-e not 0een paid and the policy is lapsed for insurance co-er5 the Surrender =alue5 if any5 'ould 0e paya0le at the e<piry of the re-i-al period or at the end of third policy year5 'hiche-er is later.

Unit Price! /he unit price of each fund is arri-ed at 0y di-iding the :et 4sset =alue 7:4=8 of the fund 0y the num0er of units e<isting in the fund at the -aluation date 70efore any ne' unit i s allocated or cancelled8 #aluation 1ate! /he "ompany aims to -alue the &unds on each day the financial mar(ets are open. Ho'e-er5 the "ompany reser-es the right to -alue less freCuently in e<treme circumstances5 'here the -alue of the assets may 0e too uncertain. In such circumstances5 the "ompany may defer -aluation of assets until a certainty on the -alue of assets is resumed. /he deferment of -aluation of assets 'ill 0e su09ect to prior consultation 'ith IR*4. "urrently5 the cut off time is 3.++ p.m. for applica0ility of ,nit Price of a particular day for s'itches5 redemptions and pu0lication of ,nit Price.

Co)putat on o" NAV#

$hen Appropriation price is applied! /he :4= of a fund shall 0e computed as Mar(et -alue of

5+

in-estment held 0y the fund plus the e<penses incurred in the purchase of the assets plus the -alue of any current assets plus any accrued income net of fund management charges less the -alue of any current lia0ilities less pro-ision5 if any. /his gi-es the net asset -alue of the fund. *i-iding 0y the num0er of units e<isting at the -aluation date 70efore any ne' units are allocated85 gi-es the unit price of the fund under consideration. /his is applica0le 'hen the company is reCuired to purchase assets to allocate units at the -aluation date. $hen E/propriation price is applied# /he :4= of a fund shall 0e computed as Mar(et -alue of in-estment held 0y the fund less the e<penses incurred in the sale of the assets plus the -alue of any current assets plus any accrued income net of fund management charges less the -alue of any current lia0ilities less pro-ision5 if any. /his gi-es the net asset -alue of the fund. *i-iding 0y the num0er of units e<isting at the -aluation date 70efore any units are redeemed85 gi-es the unit price of the fund under consideration. /his is applica0le 'hen the company is reCuired to sell assets to redeem units at the -aluation date.

Invest)ent Opt ons#

3a9a9 4llian? offers you a choice of si< 768 in-estment funds as gi-en 0elo'; Asset Allocation .und2 3isk Profile 2 0i,h! /he in-estment o09ecti-e of this fund 'ill 0e to reali?e a le-el of total income5 including current income and capital appreciation5 'hich is consistent 'ith reasona0le in-estment ris(. /he in-estment strategy 'ill in-ol-e a fle<i0le policy for allocating assets among eCuities5 0onds and cash. /he fund strategy 'ill 0e to ad9ust the mi< 0et'een these asset classes to capitali?e on the changing financial mar(ets and economic conditions. /he fund 'ill ad9ust its 'eights in eCuity5 de0t and cash depending on the relati-e attracti-eness of each asset class. %ond .und - 3isk profile - Moderate! /he in-estment o09ecti-e of this fund is to pro-ide accumulation of income through in-estment in high Cuality fi<ed income securities. E4uity +rowth .und - 3isk profile - #ery 0i,h! /he in-estment o09ecti-e of this fund is to pro-ide capital appreciation through in-estment in selected eCuity stoc(s that ha-e the potential for capital appreciation. E4uity Inde/ .und II - 3isk profile - 0i,h! /he in-estment o09ecti-e of this fund is to pro-ide capital appreciation through in-estment in eCuities forming part of :S> :I&/L. Accelerator Mid-Cap .und - 3isk profile - #ery 0i,h # /he in-estment o09ecti-e of this fund is to achie-e capital appreciation 0y in-esting in a di-ersified 0as(et of mid cap stoc(s and large cap stoc(s. Minimum 5+E of >Cuity In-estments 'ould 0e in Mid "ap stoc(s. /hese funds are professionally managed 0y asset managers of 3a9a9 4llian?5 0ac(ed 'ith the rich

5!

e<perience of 4llian? 4@5 one of the largest asset managers in the 'orld today5 managing assets 'orth o-er a /rillion >uros 7o-er Rs. 555++5+++ "rores8

I)portant Deta ls o" the C/a0a0 All an4 Un t -a n Plus C-ol!D Plan#
Parameter Minimum 4ge at >ntry Ma<imum 4ge at >ntry Minimum Maturity 4ge Ma<imum Maturity 4ge 4dditional Rider 3enefit "easing 4ge Minimum /erm Ma<imum /erm *etails + years5 ris( commences at age 7. Minimum age at entry for all riders is !# years 6+ years 75+ years in case of all 4dditional Rider 3enefits e<cept ,L )DP. 65 years for ,L )DP8 !# years 7+ years 65 years for all riders e<cept ,L )DP. 7+ years for ,L )DP !+ years. In case of minor life minimum policy term is !# less age at entry of the minor life. "ustomer selecta0le term su09ect to ma< maturity age

Rs !$5+++ per yearly installment5 Rs 65+++ per half yearly installment5 Rs. 35+++ per Cuarterly installment Rs !5+++ Minimum Premium per monthly mode 7Monthly mode is a-aila0le through >"S and Salary Sa-ing Scheme only8. Minimum /op ,p Premium is Rs. 55+++. ULou can change the premium payment mode on any policy anni-ersary.

"ettlement ption!
Plan your maturity proceeds 0y e<ercising the Settlement Dption 'ith us. /his facilitates you to recei-e your maturity proceeds in eCual installments 7paya0le yearly5 half yearly5 Cuarterly or monthly5 at your option8 spread o-er a ma<imum period of 5 years. /he amount paid out in each installment 'ill 0e the outstanding fund -alue at that date di-ided 0y the num0er of outstanding installments. :o ris( co-er 'ill 0e a-aila0le during the settlement period. /he company ho'e-er 'ill deduct all the charges 7e<cept the mortality charge and rider premium charge5 if any8. :o partial 'ithdra'als or s'itches are allo'ed during the settlement period.

.ree Look Period!

)ithin !5 days from the date of receipt of the policy5 you ha-e the option to re-ie' the terms and conditions and return the policy5 if you disagree to any of the terms 2 conditions5 stating the reasons for your o09ections. Lou 'ill 0e entitled to a refund of the premium paid5 su09ect only to

5$

a deduction of a proportionate ris( premium for the period on co-er and the e<penses incurred on medical e<amination and stamp duty charges. /he refund paid to Lou 'ill also 0e reduced 1 increased 0y the amount of any reduction 1 increase in the &und =alue5 if any5 due to a fall 1 rise in the unit price 0et'een the date of allocation and redemption of units 7'ithout reference to any premium allocation rate or charges8.

1ays of +race!
4 grace period of 3+ days for the yearly5 half yearly and Cuarterly modes and of !5 days for the monthly mode is allo'ed under the policy. Lour policy remains in force for all insurance co-ers5 if any5 e-en if the due premiums are not paid during this period.

3e*i*al of the Policy!

It is possi0le to re-i-e a policy that has lapsed due to non payment of premiums 'ithin $ years from such date of lapse. Lou ha-e to gi-e a 'ritten application to the company to re-i-e the policy 'ith all due unpaid regular premiums. /he re-i-al 'ill effected su09ect to under'riting.

5ermination Conditions!
/his Policy shall automatically terminate on the earlier occurrence of either of the follo'ing e-ents;

/he units in the policy are fully surrenderedK /he &und =alue in respect of regular premium less surrender charge falls to 0e an amount eCui-alent to one annual premium pro-ided regular premiums ha-e 0een paid for 3 full yearsK

,pon death of the life assuredK ,pon the policy remaining lapsed for t'o years or the policy remaining lapsed up to third policy anni-ersary 'hiche-er is later. ,pon maturity5 unless Lou ha-e opted for the settlement option or5 /he e<piry of the period for the settlement option

5a/ %enefits!
Premiums paid and 0enefits recei-ed 'ill 0e eligi0le for ta< 0enefits as per applica0le ta< la's.

As per the current tax laws: Premiums payable are eligible for tax benefits as per Section 80C of the Income Tax Act after deducting Premium paid towards U Critical Illness !enefit and U "ospital Cash !enefit# if selected$ Partial %ithdrawals# Surrender &alue# 'eath !enefit and (aturity !enefit are eligible for tax benefits as per Section )0*)0'+ of the Income Tax Act$ The charges paid for U Critical Illness and U "ospital Cash !enefit are eligible for tax benefits as per Section 53

80*'+ of the Income Tax Act$ In case of change in any tax laws rele,ant to the policyholder or the fund performance# the same will be applied as per regulations pre,ailing at that point of time$ General Exclusion: In case the life assured commits suicide within one year of the date of commencement-re,i,al of the policy. the amount payable would be the ,alue of the units in your account$

Charges under the Plan:

Policy Administration Charge: /s$ 000 per annum inflating at 12 e,ery )st of April will be deducted at each monthly anni,ersary by cancellation of units$ &und ,ana.e)ent
Char,e# !.75E p. a. of the :4= for >Cuity @ro'th &und and 4ccelerator Mid "ap &und5 !.$5E p.a. of the :4= for >Cuity Inde< &und II and 4sset 4llocation &und5 +.95E p.a. of the :4= for 3ond &und and LiCuid &und. /he &und Management "harge is charged on a daily 0asis and ad9usted in the unit price. 4ll /op up premiums has a premium allocation charge of $E.

.und "witchin, Char,es! /hree free s'itches 'ould 0e allo'ed e-ery year. Su0seCuent s'itches 'ould 0e charged V 5E of s'itch amount or Rs. !++5 'hiche-er is lo'er5 on each such occasion. Miscellaneous Char,e! /he miscellaneous charge 'ould 0e Rs.!++1 per transaction in respect of reinstatement5 alteration of premium mode5 increase 1 decrease in regular premium or issuance of copy of policy document. "urrender Char,e! If any due regular premium is not paid 'ithin the grace period in the first three policy years5 the surrender charge 'ould 0e 6+E of the first years6 4nnuali?ed Premium. If first three years regular premiums ha-e 0een paid in full5 the surrender charge 'ould 0e as follo's; W! % 7!1!.!+8 X:Y U &irst Lears6 4nnuali?ed Premium. K )here : is !+ years less the elapsed policy duration in years and fraction thereof . :o Surrender "harge 'ill 0e applied on units in respect of /op up Premium. Mortality Char,es! /he mortality charge 'ould -ary according to the attained age of the life assured at the time of deduction of the charge. /his charge 'ould 0e reco-ered through cancellation of units on a monthly 0asis and 'ould 0e applied on Sum at Ris( 'hich is eCual to sum assured less fund -alue. . 3ider Premium Char,es! /he charges for additional rider 0enefits selected shall 0e reco-ered through cancellation units on a monthly 0asis.

Revision of charges: 4fter ta(ing due appro-al from the Insurance Regulatory and 54

*e-elopment 4uthority5 the "ompany reser-es the right to change the follo'ing charges;

&und Management "harge up to a ma<imum of $.75E p.a. of the :4= for the >Cuity @ro'th &und and 4ccelerator Mid "ap &und5 $.$5E p.a. for the >Cuity Inde< &und II and 4sset 4llocation &und5 !.75E p.a. for the 3ond &und and LiCuid &und.

S'itching charge up to a ma<imum of Rs.$++ per s'itch or 5E of the s'itching amount5 'hiche-er is lo'er. Miscellaneous charge up to a ma<imum of Rs.$++1 per transaction Rider Premium "harges as per filed to IR*4. If the Policyholder1Life 4ssured does not agree 'ith the charges5 he1she 'ill 0e allo'ed to e<it the plan at the pre-ailing price of units after applying surrender charge5 if any.

R s%s o" Invest)ent n the Un ts o" the Plan#

/he Proposer1Life 4ssured should 0e a'are that the in-estment in the ,nits is su09ect to the follo'ing5 amongst other ris(s and should fully understand the same 0efore entering into any unit lin(ed insurance contract 'ith the "ompany.

,nit Lin(ed Life Insurance products are different from the traditional insurance products and are su09ect to the ris( factors.

/he premium paid in unit lin(ed life insurance policies are su09ect to in-estment ris(s associated 'ith capital mar(ets and the ,nit Price of the units may go up or do'n 0ased on the performance of the fund and factors influencing the capital mar(et and the insured1policyholder is responsi0le for his1her decisions.

3a9a9 4llian? Life Insurance is only the name of the insurance company and 3a9a9 4llian? ,nit @ain Plus G@old6 is only the name of the policy and does not in any 'ay indicate the Cuality of the policy5 its future prospects or returns.

Please (no' the associated ris(s and the applica0le charges from your policy document or 0y consulting the "ompany5 your Insurance agent or your Insurance intermediary.

>Cuity Inde< &und II5 4ccelerator Mid "ap &und5 >Cuity @ro'th &und5 4sset 4llocation &und5 3ond &und and LiCuid &und are the names of the funds offered currently 'ith 3a9a9 4llian? ,nit @ain Plus G@old65 and in any manner do not indicate the Cuality of the respecti-e funds5 their future prospects or returns.

/he in-estments in the ,nits are su09ect to mar(et and other ris(s and there can 0e no assurance that the o09ecti-ities of any of the funds 'ill 0e achie-ed.

/he >Cuity @ro'th &und5 >Cuity Inde< &und II5 4ccelerator Mid "ap &und5 4sset 4llocation &und5 3ond &und and LiCuid fund do not offer a guaranteed or assured return.

55

4ll 0enefits paya0le under the Policy are su09ect to the ta< la's and other financial enactments5 as they e<ist from time to time.

/he past performance of the funds of the company is not necessarily an indication of the future performance of any of these funds.

56

New Unit Gain Plus SP

/he thum0 rule for 0uying an in-estment product is that it should pro-ide good returns5 lo' charges5 complete fle<i0ility and transparency in in-estment. )e at 3a9a9 4llian? Life Insurance ha-e considered all these parameters and present to you :e' ,nit @ain plus SP. /his Single Premium plan offers attracti-e in-estment in securities5 complete fle<i0ility and transparency and additional protection of a -alua0le life co-er. )ith a high allocation of 9#E and 4 in-estment funds to choose from5 this plan offers participation in financial mar(ets5 a -alua0le life co-er and attracti-e ta< ad-antage. )ith fund s'itching options and partial or full 'ithdra'al facility this plan pro-ides complete fle<i0ility to our customers.

/a0a0 All an4 Ne( Un t -a n Plus SP

3a9a9 4llian? :e' ,nit @ain plus SP comes 'ith a host of features to allo' you to ha-e the 0est of all 'orlds % Protection and In-estment 'ith fle<i0ility li(e ne-er 0efore.

7ey "eatures o" /a0a0 All an4 Ne( Un t -a n Plus SP plan are#

It is a single premium unit lin(ed plan 'ith ma<imum maturity age 7+. 9#E of the single premium is allocated to'ards ,nits. Minimum @uaranteed death 0enefit; Sum 4ssured. "hoice of 4 in-estment funds 'ith fle<i0le in-estment management; you can s'itch 0et'een funds at any time. 4ttracti-e in-estment alternati-e to fi<ed interest securities. Pro-ision for surrender or partial 'ithdra'als any time after three years from commencement. ,nmatched fle<i0ility %to meet your changing needs.

0ow does the plan work(

In this plan 9#E of the single premium is in-ested in a fund7s8 of your choice 2 units are allocated depending on the price of units for the fund7s8. /he fund -alue of your policy is the total -alue of units that you hold in the fund7s8. /he mortality charges and policy administration charges are deducted through cancellation of units. /he &und Management "harge is ad9usted in the ,nit Price. "um Assured# Lou can choose a Sum 4ssured 7Le-el of Protection8 that you 'ant in the :e'

57

,nit @ain Plus SP Plan.

(inimum Sum Assured 3 )412 of the Single premium

Ma<imum Sum 4ssured T L times the Single Premium 'here L 'ill 0e as per the follo'ing ta0le;

4ge @roup

+%!7

!#%35

36%45

46%5+

5!%55

56%65 $U

L !+ !+ 7 5 3 U Multiplier may 0e increased to 5 in special cases on a case to case 0asis. /ene" ts ava la3le un!er th s plan#

Dn death 0efore the age of 7 years; &und =alue as on date of receipt of intimation of death at the office. Dn death on or after the age of 7 years and 0efore the age of 6+ years; sum assured less the -alue of partial 'ithdra'als made in the last $4 months prior to the date of death or the fund -alue as on date of receipt of intimation of death at the office5 'hiche-er is higher.

Dn death of the life assured on or after the age of 6+ years; sum assured less the -alue of partial 'ithdra'als made 'ithin t'o years 0efore attaining age 6+ years and all partial 'ithdra'als made after attaining age 6+ years or the fund -alue as on the date of intimation of death at the office5 'hiche-er is higher.

Dn maturity5 the fund -alue is paya0le to the policyholder.

.und #alue! /he fund -alue is eCual to the num0er of units under this policy multiplied 0y the respecti-e unit price on the rele-ant -aluation date. Unit Price! /he unit price of each fund is arri-ed at 0y di-iding the :et 4sset =alue 7:4=8 of the fund 0y the num0er of units e<isting in the fund at the -aluation date 70efore any ne' unit is allocated or cancelled8 #aluation 1ate! /he "ompany aims to -alue the funds on each day the financial mar(ets are open. Ho'e-er5 the "ompany reser-es the right to -alue less freCuently in e<treme circumstances5 'here the -alue of the assets may 0e too uncertain. In such circumstances5 the "ompany may defer -aluation of assets until a certainty on the -alue of assets is resumed. /he deferment of -aluation of assets 'ill 0e su09ect to prior consultation 'ith IR*4. "urrently5 the cut off time is 3 p.m. for applica0ility of unit price of a particular day for s'itches5 redemptions and pu0lication of unit price.

Co)putat on o" NAV#

$hen Appropriation Price is applied! /he :4= of a ,nit Lin(ed Life Insurance Product shall

5#

0e computed as mar(et -alue of in-estment held 0y the fund plus the e<penses incurred in the purchase of the assets plus the -alue of any current assets plus any accrued income net of fund management charges less the -alue of any current lia0ilities less pro-ision5 if any. /his gi-es the net asset -alue of the fund. *i-iding 0y the num0er of units e<isting at the -aluation date 70efore any ne' units are allocated85 gi-es the unit price of the fund under consideration. /his is applica0le 'hen the company is reCuired to purchase assets to allocate units at the -aluation date. $hen E/propriation Price is applied! /he :4= of a ,nit Lin(ed Life Insurance Product shall 0e computed as mar(et -alue of in-estment held 0y the fund less the e<penses incurred in the sale of the assets plus the -alue of any current assets plus any accrued income net of fund management charges less the -alue of any current lia0ilities less pro-ision5 if any. /his gi-es the net asset -alue of the fund. *i-iding 0y the num0er of units e<isting at the -aluation date 70efore any units are redeemed85 gi-es the unit price of the fund under consideration. /his is applica0le 'hen the company is reCuired to sell assets to redeem units at the -aluation date.

In*estment ptions!
3a9a9 4llian? :e' ,nit @ain Plus SP offers you a choice of 4 funds. Lou can choose to in-est fully in any one fund or allocate your single premium into the -arious funds in a proportion that suits your in-estment needs. /he four funds offered are as under; E4uity Inde/ .und II- 3isk Profile 20i,h! /he in-estment o09ecti-e of this fund is to pro-ide capital appreciation through in-estment in eCuities forming part of :S> :I&/L. E4uity +rowth .und- 3isk Profile 2 #ery 0i,h ! /he in-estment o09ecti-e of this fund is to pro-ide capital appreciation through in-estment in selected eCuity stoc(s that ha-e the potential for capital appreciation. %ond .und- 3isk Profile 2 Moderate! /he in-estment o09ecti-e of this fund is to pro-ide accumulation of income through in-estment in high Cuality fi<ed income securities. Li4uid .und- 3isk Profile 2 Low! /he in-estment o09ecti-e of this fund is to ha-e a fund that protects the in-ested capital through in-estments in liCuid money mar(et and short term instruments. /hese funds are professionally managed 0y asset managers of 3a9a9 4llian?5 0ac(ed 'ith the rich e<perience of 4llian? S>5 one of the largest asset managers in the 'orld today5 managing assets 'orth o-er a /rillion >uros 7o-er Rs. 555++5+++ "rores8. Apportionment of "in,le Premium! Lou can apportion your Single Premium 0et'een -arious funds a-aila0le. /he apportionment to any chosen fund must 0e at least 5E of the Single Premium.

59

.le/ibility to mana,e your in*estments! Initially5 you can allocate the Single Premium into the 4 funds that are a-aila0le in a proportion of your choice. *epending on the performance of funds5 you can s'itch 0et'een funds 'ith three free s'itches e-ery policy year5 su09ect to a minimum s'itching amount of Rs. 55+++ or the -alue of the total units held in the fund to 0e As'itchedB5 'hiche-er is lo'er. S'itching should not lead to more than $5E of total fund -alue in LiCuid &und. Cash withdrawal option! 4fter three years from the commencement of the policy5 'ithdra'als through partial or complete surrender of units are allo'ed. In case of partial 'ithdra'als5 a minimum 0alance of Rs.!55 +++ or !1!+the of the Single Premium5 'hiche-er is higher5 across all funds should 0e maintained after 'ithdra'al and the minimum 'ithdra'al amount should 0e Rs. 55+++. In case the policy is ta(en on the life of a minor5 the partial 'ithdra'als shall not 0e allo'ed until the minor 7life insured8 attains ma9ority 7i.e. on or after attainment of age !#8.

I)portant Deta ls o" the /a0a0 All an4 Ne( Un t -a n Plus SP Plan# Minimum
4ge at >ntry /erm 4ge at Maturity Minimum Single Premium !# Lrs Rs. $5+++ + Lrs 7Ris( "ommences at age 78 5 Lrs 7+ Lrs 65 Lrs

Ma<imum

"ettlement ption!
Plan your maturity proceeds 0y e<ercising the Settlement Dption. /his facilitates you to recei-e your maturity proceeds in installments 7paya0le yearly5 half yearly5 Cuarterly or monthly5 at your option8 spread o-er a ma<imum period of 5 years. /he amount paid out in each installment 'ill 0e the outstanding fund -alue at that date di-ided 0y the num0er of outstanding installments. :o ris( co-er 'ill 0e a-aila0le during the settlement period. /he company ho'e-er 'ill deduct all the charges 7e<cept the mortality charges8.

.ree Look Period!

)ithin !5 days of the receipt of this Policy5 the Policyholder may5 if dissatisfied 'ith it for any reason5 gi-e the "ompany a 'ritten notice of cancellation along 'ith reasons for the same5 and return the Policy *ocument to the "ompany5 su09ect to 'hich the "ompany shall send the Policyholder a refund comprising the Single Premium paid less the proportionate ris( premium for the period the Life 4ssured that 'as on co-er5 and the e<penses incurred on medical e<amination and stamp duty charges. /he refund paid to the Policyholder 'ill also 0e reduced 0y

6+

the amount of any reduction in the &und =alue due to fall in the ,nit Price 0et'een the date of allocation and redemption of units 7'ithout reference to any premium allocation rate or "harges8.

5ermination of the Policy!

/he Policy shall automatically terminate on the occurrence of any of the follo'ing e-ents;

/he units in the policy are fully surrendered and full surrender -alue is paid to the Policyholder. /he &und =alue 0ecomes eCual to one tenth of the Single Premium paidK /he death of the Life 4ssured. Dn maturity5 unless the policyholder has opted for Settlement Dption. /he e<piry of the period for settlement option.

5a/ %enefits!
Premiums paid 'ill 0e eligi0le for ta< deduction as per Section #+" of the Income /a< 4ct and partial 'ithdra'als5 full surrender and maturity 0enefits are eligi0le for ta< 0enefits as per Section !+7!+8* of the Income /a< 4ct.

Nomination: 5omination can be made for recei,ing policy proceeds in case of death$ 6ou can nominate your beneficiaries under this policy$ In case of death# the policy proceeds will be gi,en to the nominee$ 6ou can also change the nominee during the lifetime of the policy$ General Exclusion: In case the life assured commits suicide within one year of the date of commencement of the ris7 co,er *Policy Anni,ersary following Age 8 in the case of a minor+. the amount payable would be the 9und &alue$ Char,es under the Plan!
@i-en 0elo' are the details of the -arious charges that 'ill 0e reco-ered from the plan to meet e<penses. Policy Administration Char,e! Rs 6++ per annum deducti0le monthly through cancellation of units5 inflating at the rate of 5E per annum. .und Mana,ement Char,e! /he fund management charge 'ould 0e le-ied on :4= and the rate is as follo's; >Cuity @ro'th &und !.75E p.a.5 >Cuity Inde< &und II !.$5E p.a.5 LiCuid &und +.95 E p.a.5 and 3ond &und +.95E p.a. "witchin, Char,es! /hree free s'itches 'ould 0e allo'ed e-ery Policy year. Su0seCuent s'itches 'ould 0e charged a fi<ed amount of Rs. !++ or 5E of the s'itch amount5 'hiche-er is lo'er5 on each such occasion.

6!

Mortality Char,es! /he mortality charge 'ould -ary according to the attained age of the life assured at the time of deduction of the charge and 'ould 0e reco-ered through cancellation of units on a monthly 0asis. Sample standard mortality charge per annum per thousand of sum at ris( is gi-en in the ta0le 0elo'. /he sum at ris( is sum assured less fund -alue.

4ge $+ 3+ 4+ 5+ 6+

Mortality "harge !.57 !.74 $.#$ 6.53 !5.56

3e*ision of char,es!
4fter ta(ing due appro-al from the Insurance Regulatory and *e-elopment 4uthority5 the company reser-es the right to change the follo'ing charges;

&und Management "harge up to a ma<imum of $.75E p.a. for >Cuity @ro'th &und5 $.$5E p.a. for >Cuity Inde< &und II and !.75E p.a. for 3ond &und 2 LiCuid &und. S'itching charge up to a ma<imum of Rs. $++ per s'itch or 5E of the s'itching amount5 'hiche-er is lo'er.

R s%s o" Invest)ent n the Un ts o" the Plan# /he Proposer1Life 4ssured should 0e a'are that the in-estment in the ,nits is su09ect to the follo'ing5 amongst other ris(s and should fully understand the same 0efore entering into any unit lin(ed insurance contract 'ith the "ompany.

,nit Lin(ed Life Insurance products are different from the traditional insurance products and are su09ect to the mar(et ris( factors. /he premium paid in unit lin(ed life insurance policies are su09ect to in-estment ris(s associated 'ith capital mar(ets and ,nit Price of the units may go up or do'n 0ased on the performance of the fund and factors influencing the capital mar(et and

6$

the insured1policyholder is responsi0le for his1her decisions. 3a9a9 4llian? Life Insurance is only the name of the insurance company and 3a9a9 4llian? :e' ,nit @ain Plus SP is only the name of the product and does not in any 'ay indicate the Cuality of the policy5 its future prospects or returns. Please (no' the associated ris(s and the applica0le charges from your policy document or 0y consulting the "ompany5 your Insurance agent or your Insurance intermediary. >Cuity Inde< &und II5 >Cuity @ro'th &und5 LiCuid &und and 3ond &und are the names of the funds offered currently 'ith 3a9a9 4llian? :e' ,nit @ain Plus SP5 and do not in any 'ay indicate the Cuality of the respecti-e funds5 their future prospects or returns. /he in-estments in the ,nits are su09ect to mar(et and other ris(s and there can 0e no assurance that the o09ecti-es of any of the funds 'ill 0e achie-ed. >Cuity Inde< &und II5 >Cuity @ro'th &und5 LiCuid &und and 3ond &und do not offer a guaranteed or assured return. 4ll 0enefits paya0le under the Policy are su09ect to the ta< la's and other financial enactments5 as they e<ist from time to time. /he past performance of the funds of the company is not necessarily indicati-e of the future performance of any of these funds.

To ,a%e a Co)par son 3et(een ,utual *un!s vs: U&IPs#

63

,nit Lin(ed Insurance Policies 7,LIPs8 as an in-estment a-enue are closest to mutual funds in terms of their structure arid functioning. 4s is the case 'ith mutual funds5 in-estors in ,LIPs is allotted units 0y the insurance company and a net asset -alue 7:4=8 is declared for the same on a daily 0asis. Similarly ,LIP in-estors ha-e the option of in-esting across -arious schemes similar to the ones found in the mutual funds domain5 i.e. di-ersified eCuity funds5 0alanced funds and de0t funds to name a fe'. @enerally spea(ing5 ,LIPS can 0e termed as mutual fund schemes 'ith an insurance component. Ho'e-er it should not 0e construed that 0arring the insurance element there is nothing differentiating mutual funds from ,LIPs.

Ho( U&IPs can )a%e so)eone r ch'

*espite the seemingly compara0le structures there are -arious factors 'herein the t'o differ. In this article 'e e-aluate the t'o a-enues on certain common parameters and find out ho' they measure up.

U&IPs Vs ,utual *un!s# U&IPs

In-estment amounts *etermined 0y the in-estor and can 0e modified as 'ell. :o upper limits e<penses ><penses determined 0y the Insurance "ompany. Portfolio *isclosure :ot mandatory generally permitted for free or at a nominal cost Sec #+" 0enefits are a-aila0le on all ,LIP in-estments

,utual *un!s
Minimum in-estment amounts are determined 0y the fund house. ,pper limits for e<penses "hargea0le to in-estors ha-e 0een set 0y the regulator. Zuarterly mandatory >ntry1e<it loads ha-e to 0e 0orne 0y the in-estor Section #+" 0enefits are a-aila0le only on in-estments in ta< sa-ing funds disclosures are

Modifying asset allocation /a< 0enefit

Mode of in*estment / in*estment amounts!

Mutual fund in-estors ha-e the option of either ma(ing lump sum in-estments or in-esting using the systematic in-estment plan 7SIP8 route 'hich entails commitments o-er longer time hori?ons. /he minimum in-estment amounts are laid out 0y the fund house.

64

,LIP in-estors also ha-e the choice of in-esting in a lump sum 7single premium8 or using the con-entional route5 i.e. ma(ing premium payments on an annual5 half yearly5 Cuarterly or monthly 0asis. In ,LIPs5 determining the premium paid is often the starting point for the in-estment acti-ity. /his is in star( contrast to con-entional insurance plans 'here the sum assured is the starting point and premiums to 0e paid are determined thereafter. ,LIP in-estors also ha-e the fle<i0ility to alter the premium amounts during the policy6s tenure. &or e<ample an indi-idual 'ith access to surplus funds can enhance the contri0ution there0y ensuring that his surplus funds are gainfully in-estedK con-ersely an indi-idual faced 'ith a liCuidity crunch has the option of paying a lo'er amount 7the difference 0eing ad9usted in the accumulated -alue of his ISLIP8. /he freedom to modify premium payments at one6s con-enience clearly gi-es ,LIP in-estors an edge o-er their mutual fund counterparts.

E/penses!
In mutual fund in-estments5 e<penses charged for -arious acti-ities li(e fund management5 sales and mar(eting5 administration among others are su09ect to pre determined upper limits as prescri0ed 0y the Securities arid ><change 3oard of India. &or e<ample eCuity oriented funds can charge their in-estors a ma<imum of $.5E per annum on a recurring 0asis for all their e<pensesK any e<pense a0o-e the prescri0ed limit is 0orne 0y the fund house and not the in-estors. Similarly funds also charge their in-estors entry and e<it loads 7in most cases5 either is applica0le8. >ntry loads are charged at the timing of ma(ing an in-estment 'hile the e<it load is charged at the time of sale. Insurance companies ha-e a free hand in le-ying e<penses on their ,LIP products 'ith no upper limits 0eing prescri0ed 0y the regulator5 i.e. the Insurance Regulatory and *e-elopment 4uthority. /his e<plains the comple< and at times Gun'ieldy6 e<pense structures on ,LIP offerings. /he only restraint placed is that insurers are reCuired to notify the regulator of all the e<penses that 'ill 0e charged on their ,LIP offerings. ><penses can ha-e far reaching conseCuences on in-estors since higher e<penses translate into lo'er amounts 0eing in-ested and a smaller corpus 0eing accumulated. ,LIP related e<penses ha-e 0een dealt 'ith in detail in the article A,nderstanding ,LIP e<pensesB.

Portfolio disclosure!

65

Mutual fund houses are reCuired to statutorily declare their portfolios on a Cuarterly 0asis5 al0eit most fund houses do so on a monthly 0asis. In-estors get the opportunity to see 'here their monies are 0eing in-ested and ho' they ha-e 0een managed 0y studying the portfolio. /here is lac( of consensus on 'hether ,LIP5 are reCuired to disclose their portfolios. *uring our interactions 'ith leading insurers 'e came across di-ergent -ie's on this issue. )hile one school of thought 0elie-es that disclosing portfolios on a Cuarterly 0asis is mandatory5 the other 0elie-es that there is no legal o0ligation to do so and that insurers are reCuired to disclose their portfolios only on demand. Some insurance companies do declare their portfolios on a monthly1Cuarterly 0asis. Ho'e-er the lac( of transparency in ,LIP in-estments could 0e a cause for concern considering that the amount in-ested in insurance policies is essentially meant to pro-ide for contingencies and for long term needs li(e retirementK regular portfolio disclosures on the other hand can ena0le in-estors to ma(e timely in-estment decisions. /here is lac( of consensus on 'hether ,LIPs are reCuired to disclose their portfolios. )hile some insurers claim that disclosing portfolios on a Cuarterly 0asis is mandatory5 others state that there is no legal o0ligation to do so.

.le/ibility in alterin, the asset allocation!

4s 'as stated earlier5 offerings in 0oth the mutual funds segment and ,LIPs segment are largely compara0le. &or e<ample plans that in-est their entire corpus in eCuities 7di-ersified eCuity funds85 a 6+;4+ allotment in eCuity and de0t instruments 70alanced funds8 and those in-esting only in de0t instruments 7de0t funds8 can 0e found in 0oth ,LIPs and mutual funds. If a mutual fund in-estor in a di-ersified eCuity fund 'ishes to shift his corpus into a de0t from the same fund house5 he could ha-e to 0ear an e<it load and1or entry load. Dn the other hand most insurance companies permit their ,LIP in-entors to shift in-estments across -arious plans1asset classes either at a nominal or no cost 7usually5 a couple of s'itches are allo'ed free of charge e-ery year and a cost has to 0e 0orne for additional s'itches8. >ffecti-ely the ,LIP in-estor is gi-en the option to in-est across asset classes as per his con-enience in a cost affecti-e manner. /his can pro-e to 0e -ery useful for in-estors5 for e<ample in a 0ull mar(et 'hen the ,LIP in-estor6s eCuity component has appreciated5 he can 0oo( profits 0y simply transferring the reCuisite amount to a de0t oriented plan.

5a/ benefits!
,LIP in-estments Cualify for deductions under Section #+" of the Income /a< 4ct. /his holds 'ell5 irrespecti-e of the nature of the plan chosen 0y the in-estor. Dn the other hand in the mutual

66

funds domain5 only in-estments in ta< sa-ing funds 7also referred to as eCuity lin(ed sa-ings schemes8 are eligi0le for Section #+" 0enefits. Maturity proceeds from ,LIP5 are ta< free. In case of eCuity oriented funds 7for e<ample di-ersified eCuity funds5 0alanced funds85 if the in-estments are held for a period o-er !$ months5 the gains are ta< freeK con-ersely in-estments sold 'ithin a !$ month period attract short term capital gains ta< V!+E. Similarly5 de0t oriented funds attract a long term capital gains ta< V!+E5 'hile a short term capital gain is ta<ed at the in-estor6s marginal ta< rate. *espite the seemingly similar structures e-idently 0oth mutual funds and ,LtP5 ha-e their uniCue set of ad-antages to offer. 4s al'ays5 it is -ital for in-estors to 0e a'are of the nuances in 0oth offerings and ma(e informed decisions.

Relat vely spea% n.# U&IPs an! ,utual *un!s#

4lthough 0oth Mutual &unds 7M&s8 and unit lin(ed insurance plans 7,LIP58 ha-e 0een popular for some time no'5 due to certain similarities 0et'een the t'o5 there are still some grey areas in the minds of in-estors 'ith respect to these in-estment -ehicles. Here6s a loo( at ho' they stac( up against each other to gi-e you an idea a0out 'hich could 0e more suita0le for you.

b&ecti*e!
,*# Mutual &unds are (no'n for their good returns and -ariety of in-estment choices5 including ta< sa-ing schemes called >LSS. U&IP# Popular for its triple 0enefits5 this offers life co-er5 capital appreciation and income ta< 0enefits.

"tructure! 67

,*# 4 M& collects money from the pu0lic and in-ests in eCuity5 de0t or a com0ination of 0oth5 as per a pre specified in-estment o09ecti-e. In-estments are offered units depending on the -alue of their in-estment5 on a pro rata 0asis. >Cuity funds in-est predominantly in the stoc( mar(et to generate gro'th 0y 'ay of capital appreciation for in-estors5 'here as de0t funds in-est in fi<ed funds in-est in fi<ed income securities such as 0onds5 de0entures5 go-ernment securities5 re-erse repo6s5 etc. 4 0alanced fund in-ests partly in 0oth eCuity and de0t. 4 mutual fund scheme can 0e open P ended 7no defined time period8or close P ended 7three or fi-e years85 U&IP# 4lthough the in-estment proportion of a ,LIP is structured li(e mutual funds5 the prime o09ecti-e of this product is insurance and capital appreciation. 4ccordingly5 a part of the premium paid to the company is allocated to'ards life insurance co-er5 administrati-e charges and management fees. /he rest is in-ested in mar(et lin(ed instruments li(e stoc(s5 corporate 0onds go-ernment securities5 depending on the asset allocation plan. Most LSLIP5 offers policy folders a choice of plans5 namely eCuity oriented5 de0t oriented and 0alanced5 too. Lou can s'itch from one plan to another5 a specified num0er of times. /he -alue of units of 0oth ,LIP5 and M&5 are calculated and declared on a daily 0asis at their mar(et 'orth and called the :et 4sset =alue 7:4=8 of the in-estment fund In-estors can gauge 'hether their in-estment has appreciated according or depreciated to :4= mo-ement.

5enure!
,*# /here no minimum holding period for most mutual fund schemes5 e<cept in the case of ta< sa-ing schemes 7>LSS85 'hich ha-e a three year loc( Pin period. "lose ended funds5 'hich ha-e a three year loc( in period5 are either listed on the stoc( e<change or pro-ide liCuidity 0y accepting redemptions at periodic time inter-als 7e.g. e-ery three months or si< months8 U&IP# these usually ha-e a minimum tenure of 5 years and the ma<imum term defends of the age of the in-estor. /hese are also su09ect to a loc( in period of three years 0efore 'hich an in-estor has no access to the in-estment amount.

E/penses!
,*# ><penses such as fund management5 sales and mar(eting5 administration5 etc.5 are charged su09ect to predetermined upper limits as prescri0ed 0y the Securities and ><change 3oard of India. &or e<ample eCuity oriented funds can charge their in-estors a ma<imum of $.5 per cent per annum on a recurring 0asis. 4ny e<pense a0o-e the prescri0ed limit is 0orne 0y the fund house and not passed on to the in-estor entry and[or e<it loads are charged at the time of ma(ing an in-estment 'hile e<it load is charged at the time of scale.

6#

U&IP# /here are no ma<imum limits prescri0ed 0y the Insurance Regulatory and *e-elopment authority5 as regards le-y of e<penses on ,LIP products. Ho'e-er5 the insurance company is reCuired to get the e<pense limit pre P appro-ed from the insurance regulator. /he e<penses charged 0y ,LIPs are rather high and could range 0et'een 5 to 65 per cent for the first year and then fall to 3 to $+ per cent in su0seCuent years.

3eturns!
,*# Mutual funds usually gi-e 0etter returns on in-estment than ,LIPs since a large contri0ution is in-ested in securities. /he returns -ary 'ith the in-estment pattern. &or e<ample de0t scheme are presently offering5 on a-erage 0asis5 annuali?ed returns of 3 to # per cent5 'here as eCuity oriented schemes are presently offering returns in the range of 3+ to 6+ per cent per annum. U&IP# ,LIP charge higher e<penses as a percentage of your in-estment than M&S P the amount a-aila0le for in-estment to that e<tent. Life insurance co-er charges and other e<penses are factored in to the ,LIP premium. Since the 0ase for in-estment is lo'er5 the returns offered 0y ,LIP 'ill mostly lo'er than those on mutual funds schemes.

ptions for recei*in, returns!

,*# Returns are a-aila0le to in-estors in the form of di-idends if the di-idend option is chosen 0y in-estor. In the case of the gro'th option5 these are in the form of capital appreciation. U&IP# /he returns is in the form of capital appreciation and insurance co-er in case of premature death

3edemption Procedure!
,*# /he redemption amount is calculated 0y multiplying the :4= 7minus e<it load5 if any8 on the date of redemption 'ith the num0er of units redeemed. Mutual fund in-estments are highly liCuid 7the redemption amount is recei-ed 'ithin ! to 3 'or(ing days 0ased on scheme type8. U&IP# In the case of ,LIP5 you can redeem units under any of the follo'ing situation; Maturity; this is on the e<piry1maturity date of the ,LIP5 Surrender5 if you surrender your policy5 you recei-e the surrender -alue as stated in the policy5 only after the loc(ing period of three years. *eath; in the e-ent of unfortunate demise of the in-estor5 his nominee recei-es the sum assured or the -alue of the units5 'hich e-er is higher. Partial 'ithdra'als; some funds allo' partial 'ithdra'al at periodic time inter-als. Lour units 'ill stand reduced to that e<tent.

"uitability!

69

4 ,* offers certain ad-antages in terms of cost -arious types and su0 types plan and liCuidity. U&IPs in other hand5 gi-e you the fle<i0ility to shift 0et'een -arious plans 'ith in the insurance company5 'ith Dut high load cost and capital gains implications5 further5 if you plan to in-est for the long term 7more than !+ years85 o could consider ,LIPs as this -ehicle 'ould ensure that your insurance needs are ta(en care of and you en9oy capital appreciation as 'ell.

To )a%e a co)par son 3et(een Tra! t onal pol c es Vs U&IPs#

:ot too long 0ac(5 the good old endo'ment plan 'as the preferred 'ay to meeting the dual o09ecti-e of insuring oneself against an e-entuality and setting aside sa-ings to meet ones financial o09ecti-es. /hen the insurance sector 'as thro'n open to the pri-ate sector. /he result 'as the launch of a 'ide -ariety of insurance plansK including ,LIPs 7unit lin(ed insurance plans8. /'o factors 'ere responsi0le for the ad-ent of ,LIP5 on the domestic insurance hori?on. &irst 'as the arri-al of pri-ate insurance companies. ,LIPs 'ere one of the most significant inno-ations introduced 0y pri-ate insurers. /he other factor that sa' in-estors ta(e to ,LIPs 'as the decline of assured returns in endo'ment plans. )hile these 'ere the t'o factors most instrumental in mar(ing the arri-al of ,LIPs5 another factor that has helped their cause is the impressi-e economic performance o-er the past fe' years that ha-e translated into eCually impressi-e returns on the stoc( mar(ets. )hile this no' appears as one of the primary reasons for their popularity5 'e 0elie-e ,LIP5 ha-e some fundamental positi-es li(e enhanced fle<i0ility and merging of in-estment and insurance in a single entity that ha-e really endeared them to indi-iduals. @i-en that ,LIPs are relati-ely ne' and remain an enigma for a large section of insurance see(ers5 in this note 'e compare them to the traditional endo'ment plans to gi-e you a perspecti-e.

U&IPs

Tra! t onal En!o()ent

7+

Pol cy
Sum assured Higher of 7/enure of policy1$U4nnual premium8 or 75U4nnual premium8 4llocation to eCuities5 0onds5 money Mar(et depending on the option. Lo'er agent commissions5 higher fund management charges. High High High 4-aila0le Larger allocation to 0onds5 gsecs5 money mar(et5 smaller eCuity allocation. Higher agent commissions. Lo' Lo' Lo' 4-aila0le

In-estments

><penses &le<i0ility /ransparency LiCuidity /a< 3enefits

"um assured!
Perhaps the most fundamental difference 0et'een ,LIPs and traditional endo'ment plans is in the concept of premium and sum assured. )hen you 'ant to ta(e a traditional endo'ment plan5 the Cuestion your agent 'ill as( you is num0er you gi-e your agent. ho' much insurance co-er do you needJ Dr in other 'ords5 'hat is the sum assured you are loo(ing forJ /he premium is calculated 0ased on the

In*estments!
/raditionally5 endo'ment plans ha-e in-ested in go-ernment securities5 corporate 0onds and money mar(et instruments. /hey generally shir(ed from in-esting in the stoc( mar(ets5 although there 'as a pro-ision for the same. Ho'e-er5 for some time no'5 endo'ment plans ha-e discarded their traditional outloo( on in-esting and allocate a0out !DE !5E of monies to stoc(s.

/his percentage -aries across life insurance companies.

,LIPs ha-e no such constraints on in-estments. /hey in-est across the 0oard in stoc(s5 go-ernment securities5 corporate 0onds and money mar(et instruments. Df course5 'ithin a ,LIP there are options 'herein there are caps on each in-estment a-enue 7stoc(s5 0onds8.

E/penses!
,LIPs are considered to 0e e<pensi-e 'hen compared to traditional endo'ment plans. /his notion is rooted more in perception than reality. Let us ta(e agent commissions to understand this 0etter. Sale of a traditional endo'ment plan could fetch a commission as high as 3+E 7of premium8 in the first year and 6+E 7of premium8 o-er the first fi-e years. /hen there is ongoing commission in the region of 5E.

7!

Sale of a ,LIP fetches a relati-ely lo'er commission ranging from as lo' as 5E to 3+E of premium 7depending on the insurance company8 o-er ! 3 years. 4fter the initial years5 it sta0ili?es at !E 3E 7again depending on the insurer8. ,nli(e endo'ment plans5 there are no IR*4 regulations on ,LIP commissions. Mortality e<penses for ,LIPs and traditional endo'ment plans remain the same. /here is also little difference ii5 the administration charges. Dne area 'here ,LIPs pro-e to 0e more e<pensi-e than traditional endo'ment is in fund management Since ,LIPs ha-e an eCuity component that needs to 0e managed acti-ely5 they incur fund management charges. /hese charges fluctuate in the +.#+E i .5+E 7of premium8 range. )e could not get a fi< on the fund management charges of traditional endo'ment plans despite ha-ing spo(en to se-eral insurance companies.

.le/ibility!
4s 'e mentioned at the -ery 0eginning of this article5 one aspect that gi-es ,LIPs an edge o-er traditional endo'ment is fle<i0ility. ,LIPs offer a host of options to the indi-idual 0ased on his ris( profile. /here are insurance companies that offer as many as si< options 'ithin a ,LIP 'ith the eCuity component -arying from ?ero to a ma<imum of !++E 7of corpus8. Lou can select an option that 0est fits your o09ecti-es and ris( ta(ing capacity. Ha-ing selected an option5 you still ha-e the fle<i0ility to s'itch to another option. Most insurance companies allo' a num0er of free s'itches6 in a year. 4nother inno-ati-e feature 'ith ,LIPs is the Gtop up6 facility. 4 top up is a one time additional in-estment in the ,LIP o-er and a0o-e the annual premium. /his feature 'or(s 'ell 'hen you ha-e a surplus that you are loo(ing to in-est in a mar(et lin(ed a-enue5 rather than (eep in a sa-ings account or a fi<ed deposit. )ith traditional endo'ment5 there are no in-estment options. Lou select the only option you ha-e and must remain 'ith it till maturity. /here is also no concept of a top up facility. Lour premium amount cannot 0e enhanced on a one time 0asis and s(ipped premiums 'ill result in your policy lapsing.

5ransparency!
,LIPs are also more transparent than traditional endo'ment plans. Since they are mar(et lin(ed5 there is a price per unit. /his is the net asset -alue 7:4=85 'hich is declared on a daily 0asis. 4 simple calculation can tell you the -alue of your ,LIP in-estments. D-er time you (no' e<actly ho' your ,LIP has performed. Most ,LIPs also disclose their portfolios regularly. /his gi-es you an idea of ho' your money is 0eing managed. It also tells you 'hether or not your mutual fund and1or stoc( in-estments coincide 'ith your ,LIP in-estments. If they are5 then you ha-e the opportunity to

7$

do a rethin( on your in-estment strategy across the 0oard so as to ensure you are 'ell di-ersified across in-estment a-enues at all times. )ith traditional endo'ment5 there is no concept of a :4=. Ho'e-er5 insurers do send you an annual statement of 0onus declared during the year5 'hich gi-es you an idea of ho' your insurance plan is performing. /raditional endo'ment also does not ha-e the practice of disclosing portfolios. 3ut gi-en that there are pro-isions that ensure a large chun( of the endo'ment portfolio is in high Cuality 74441so-ereign rating\ de0t paper5 disclosure of portfolios is li(ely to e-o(e little in-estor interest.

Li4uidity!
4nother fle<i0ility that ,LIPs offer the indi-idual is liCuidity. Since ,LIP in-estments are :4= 0ased it is possi0le to 'ithdra' a portion of your in-estments 0efore maturity. Df course5 there is an initial loc( in period 73 years8 after 'hich the 'ithdra'al is possi0le pro-ided the minimum fund -alue is to 0e maintained. /raditional endo'ment has no pro-ision for pre mature 'ithdra'al. Lou can surrender your policy5 0ut you 'on6t get e-erything you ha-e earned on your policy in terms of premiums paid and 0onuses earned. If you are clear that you 'ill need money at regular inter-als then it is recommended that you opt for money 0ac( endo'ment

TaF 3ene" ts#

/a<ation is one area 'here there is common ground 0et'een ,LIPs and traditional endo'ment. Premiums in ,LIPs as 'ell as traditional endo'ment plans are eligi0le for ta< 0enefits under Section #+" su09ect to a ma<imum limit of Rs !++5+++. Dn the same lines5 money recei-ed on maturity on ,LIPs and traditional endo'ments are ta< free under Section !+.

73

S ) lar t es 3et(een ,utual *un! Vs U&IPs#

!. M&s and ,LIPs are (no'n for their good returns. $. M&s and ,LIPs are LiCuidity and &le<i0le 3. M&s and ,LIPs are collect money from the pu0lic and in-est in eCuity de0t or a com0ination of 0oth. 4. /he -alue of 0oth ,LIPs and M&s are calculated and declared on a daily 0asis at their mar(et 'orth and called :et 4sset =alue 7:4=8 of in-estment fund. 5. In M&s >Cuity lin(ed sa-ings scheme 7>LSS8 ha-e minimum lac(ing period is 3 years 4ll ,LIPs ha-e minimum 3 years loc(ing period. 6. In M&s >LSS and 4ll ,LIPs are eligi0le for ta< 0enefit under Sec #+c.

S ) lar t es 3et(een Tra! t onal Pol c es vs: U&IPs#

!. /raditional Policies and ,LIPs are a-aila0le insurance co-erage. $. 3oth are future o09ecti-e 3. 3oth are a-aila0le ta< 0enefit under sec #"c and ta< free returns under Sec !D7!D*8

74

CHAPTER V

75

*INDIN-S

,LIP is gaining importance as it could suffice the needs of the small in-estor 'hile offering the dual options of insurance and the in-estment.

,nit Lin(ed Insurance Plans are purely su09ect to mar(et ris(. 4ny person ha-ing the perfect (no'ledge of the mar(ets can poc(et huge returns.

If the in-estor in-ests in eCuity no minimum guarantee is offered to the in-estor amount. If the in-estor in-est in 3ond fund5 there is minimum guarantee to the in-estor amount Popular for its triple 0enefits5 this offers life co-er5 capital appreciation and income ta< 0enefits ,LIPs are 0etter 'hen compare 'ith /raditional policies and Mutual &unds ,LIPs fle<i0ility to the in-estor after some period are liCuid and offer

76

CONC&USIONS In conclusion5 the ,LIPs there 0y collects money or funds from the in-estors 'ith similar in-estment goals. It is one of the 'ays of mo0ili?ing the funds and channeli?ing them properly. =ery small percentage of the population is 'ell a'are of the ,LIPs. /he ad-ertisement has 0ecome an effecti-e tool to create pu0lic a'areness5 thus educating them a0out the -arious a-enues a-aila0le to them. /he s'itching off from the ,LIPs are -ery lo'. /he in-estment manager has to guide the in-estor to choose the correct a-aila0le funds 'hich they prefer. In rural areas5 people ha-e no idea a0out the ,LIPs5 'hile they totally depend on the agents 'ho often cheat them. /herefore5 it is the duty of the fund managers to guide in-estors properly. In &inal5 ,LIPs are 0etter than Mutual &unds and /raditional policies

77

/ 3l o.raphy#
I"&4I Sournal Dutloo( Money Maga?ine $e3s tes# http;11personalfn.com1 http;11'''.moneycontrol.com1 http;11ndpar(ing.com1mutualfunds.com1 http;110a9a9allian?life.co.in1

7#

APPENDICES

79