Submitted by
RAJEEV JOSEPH
REG.NO:08BA020
1st Year MBA
KARUNYA UNIVERSITY
I also declare that this report has not been submitted by me fully or
partially for the award of any degree, diploma, title, recognition or any other
fellowship of any other university before.
Place: Changanacherry
Initially, let me thank the almighty God for guiding me all through the
project work.
I also owe my sincere thanks to all the staff in Bajaj Allianz Life
Insurance Company Ltd, Changanacherry branch, and the faculties of the
Department of Business Administration, KARUNYA UNIVERSITY for
their valuable guidance and suggestion in the preparation of this report
and completing the same successfully.
CHAPTER CONTENT PAGE No:
1 Executive Summary 1
Introduction 2
Objectives 3
Limitation 3
3 Industry Profile 11
Mutual Fund 22
Bibliography 74
5 Annexture 78
EXECUTIVE SUMMARY
A comparative Analysis of ULIP plans of Bajaj Allianz Life Insurance with mutual
funds in Changanacherry Branch an analysis to be done be by Rajeev Joseph,
student(MBA) of Karunya University, Coimbatore.
Total Investment scenario is changing, in past people were not interested in investment
because there were no good options available for investment. Now there are many
options available for investment like life Insurance, Mutual fund, Equity market, Real
estate, etc.
Today people want more services and more return on their investment. So, most of the
insurance companies are providing more value added services with the basic insurance
operation.
Another option for investment available is Mutual Fund. Mutual Funds are providing
good returns. So while investing people tend more to words mutual fund as they are
providing more returns than Insurance also, with a good investment portfolio. Mutual
fund companies are providing more liquidity.
The project was taken to know about, what are the main aspects in Bajaj Allianz Life
Insurance Company, and its USP (Unique Selling Preposition).Which gives it highest
business and customers. Customers always prefer to invest in a good option and in a
company which is market leader.
After survey and analysis I came to know that most of the people go for ULIP insurance
policies to cover the risk of life, and invest it in a good Portfolio but there is big portion
of customers have taken the policies to save the taxes. And people are aware about the tax
benefits they get for insurance policies. Therefore, while investing in any Investment
option investor checks whether his money is safe or not, Mutual funds provides good
returns but investments are directly exposed to risk. As in ULIP returns are related to
stock market but they are having some insurance benefit and IRDA regulates the
investment.
Many people are getting the tax benefits in ULIP. In Mutual Fund they have to invest
their money in tax saving funds to get the tax benefit.
INTRODUCTION
To make comparison of ULIP plans with Mutual funds in Bajaj Allianz Life Insurance
Co. Ltd. and to Create awareness about Unit Linked Insurance Plan (ULIP) Benefits. The
overall goal of this project was to create awareness about investments. The Above
problem arises because every life insurance company has their products having different
positive and negative aspects.
By doing this type of study in this Insurance sector and looking at the vast scope and
opportunity to study this booming field of Life Insurance and the growing awareness
among the public regarding insuring their life through Life insurance policies as well as
the growing contribution of Insurance in GDP of country with the number of private
players making entrance in this booming industry of Insurance.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.
OBJECTIVES
To understand the reason for which customers prefer ULIP as one of the best
insurance investment mode rather than Mutual fund.
LIMITATIONS
The middle class people do not know basic concept of ULIP so creating
awareness is a big challenge for me.
The findings of my research is from a small sample size.
Narrow minded thinking of middle class people as investment is not their cup of
tea.
Many customers are thinking that investment in share market is very risky. As
ULIP and Mutual fund both are related to share market.
The Government of India in 1956, brought together over 240 private life insurers and
provident societies under one nationalized monopoly corporation and Life Insurance
Corporation (LIC) was born. Nationalization was justified on the grounds that it would
create much needed funds for rapid industrialization. This was in conformity with the
Government's chosen path of State lead planning and development.The (non-life)
insurance business continued to thrive with the private sector till 1972. Their operations
were restricted to organized trade and industry in large cities. The general insurance
industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and
grouped into four companies- National Insurance Company, New India Assurance
Company, OrientalInsurance Company and United India Insurance Company. These were
subsidiaries of the General Insurance Company (GIC).The general insurance business
was nationalized after the promulgation of General Insurance Business (Nationalizations)
Act, 1972. The post-nationalization general insurance business was undertaken by the
General
Oriental Insurance Company Limited; New India Assurance Company Limited; National
Insurance Company Limited; and United India Insurance Company Limited.
Some of the important milestones in the life insurance business in India are:
1850:
1870:
:Bombay mutual life assurance society is the first Indian owned life insurer
1912:
The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928 :
:The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938:
Earlier legislation consolidated and amended to by the Insurance Act with the objective
of protecting the interests of the insuring public.
1956:
245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,
with a capital contribution of Rs. 5 Crore from the Government of India. The General
insurance business in India, on the other hand, can trace its roots to the Triton Insurance
Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907:
The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes
of general insurance of India.
1957 :
General Insurance Council, a wing of the Insurance Association of India, frames a code
of conduct for ensuring fair conduct and sound business practices.
1968 :
The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up.
1972 :
The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973. 107 insurers amalgamated
and grouped into four companies viz. the National Insurance Company Ltd., the New
India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United
India Insurance Company Ltd. GIC incorporated as a company.
1993: Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.
Malhotra- was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector.
1997 : Insurance regulator IRDA set up.
2000: IRDA starts giving licenses to private insurers:Kotak Life Insurance ,ICICI
potential and HDFC standard Life insurance are the first private insurers to sell a policy.
2001: Royal Sundaram Alliance first non life insurer to sell a policy 2002 Banks allowed
to sell insurance plans.
The insurance sector was opened up for private participation seven years ago. For years
now, the private players are active in the liberalized environment. The insurance market
have witnessed dynamic changes which includes presence of a fairly large number of
insurers both life and non-life segment. Most of the private insurance companies have
formed joint venture partnering well recognized foreign players across the globe.
ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company
in India. It experienced growth of 58% in new business premium, accounting for increase
in market share to 8.93% in 2007-08 from 6.97% in 2006-07.
Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share
went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after
LIC) in number of policies sold in 2007-08, with total market share of 7.36%.
SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked
6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in 2007-
08, an increase of 87% over last year.
Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market
share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business
premium and 4th in number of new policies sold in 2007-08.
HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY2007-08,
registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 th
among the insurance companies and 5th amongst the private players.
Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to
2.11% in 2007-08.
Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total new
business generated was Rs 641.83 crore as against Rs 387.51 crore.
Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company
reported growth of 80%, moving from the 11th position to 9th. It captured a market share
of 1.19% in 2007-08. Aviva Life Insurance Company India Ltd ranking dropped to 10th
in 2007-08 from 9th last year. It has presence in more than 3,000 locations
across India via 221 branches and close to 40 banc assurance partnerships. Aviva Life
Insurance plans to increase its capital base by Rs 344 crore.
Here is the market share of various Life Insurance Companies in India at the end of
FY2008.
LIC 48.1%
OM Kotak 1.9%
AVIVA 1.8%
MetLife 1.4%
This research report will help the client to analyze the leading-edge opportunities critical
to the success of insurance industry in India. Based on this analysis, the report gives a
future forecast of the market that is intended as a rough guide to the direction in which
the market is likely to move.
Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by 2010-
11.
With the entry of several low-cost airlines, along with fleet expansion by existing
ones and increasing corporate aircraft ownership, the Indian aviation insurance
market is all set to boom in a big way in coming years.
Health insurance is poised to become the second largest business for non-life
insurers after motor insurance in next three years.
A booming life insurance market has propelled the Indian life insurance agents
into the top 10 country list in terms of membership to the Million Dollar Round
Table (MDRT) an exclusive club for the highest performing life insurance
agents.
COMPANY PROFILE
Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance
Company and Bajaj Finserv.
Allianz SE is a leading insurance conglomerate globally and one of the largest asset
managers in the world,managing assets worth over a Trillion(Over INR 55,00,000
Crores).Allianz SE has over 115 years of financial experience and is present in over 70
countries around the world.
At Bajaj Allianz Life Insurance, customer delight is the guiding principle. Their business
philosophy is to ensure excellent insurance and investment solutions by offering
customized products, supported by the best technology.
VISION
MISSION
As a responsible, customer focused market leader, we will strive to understand the insurance
needs of the consumers and translate it into affordable products that deliver value for money.
Accelerated Growth
As on 31st March 2009, Bajaj Allianz General Insurance maintained its premier position
in the industry by achieving growth as well as profitability. The company garnered a
premium income of Rs. 2866 crore, achieving a growth of 11 % over the last year. Bajaj
Allianz has made a profit before tax of Rs. 149.8 crore and has become the only private
insurer to cross the Rs.100 crore mark in profit before tax in the last two years. The profit
after tax was Rs.95 crores, which is also the highest by any private insurer. The company
ranked second (after LIC) in number of policies sold in 2007-08, with total market share
of 7.36%.
Commission on new business premium, which was 27% during nine months ended on
31st Dec 2007, came down to 20% during the current period.
Operating expenses came down to 20% of GWP for the current period of nine months
ended on 31st Dec 2008 as compared to 26% for the corresponding period of previous
year.
The Company posted a profit of Rs 364 lacs for the period ended 31st Dec 2008 as
compared to a profit of Rs 5358 lacs in the corresponding period of the previous year.
The policyholder surplus is Rs 15514 lacs (corresponding period of previous year Rs
18681 lacs) and the shareholders loss stands at Rs 15150 lacs (corresponding period of
previous year: Rs 13323 lacs).
Number of policies underwritten during the nine months ended 31st Dec 2008 were
18,08,495 (corresponding period of the previous year 23,62,496). Policies in force as on
31 st Dec 2008 is around 70 lacs. The company ranked second (after LIC) in number of
policies sold in 2007-08, with total market share of 7.36%.
The share capital (including share premium) is Rs. 1211 crores as on 31st December
2008. The solvency as on 31 st Dec 2008 stands at 261% (required solvency is 150%).
During the period ended 31st Dec 2008, no additional capital has been infused. Despite
challenging environment, the company has been able to not only reduce commission but
also operating expenses. The solvency margin of the company continues to be very
strong.
As on 31st Dec 2008, the Company employed on roll 22,129 staff as against 20,764 staff
at 31st March 2008.The Company operates out of 1,138 offices as on 31 Dec 2008.
PRODUCTS PROFILE
Invest gain
Cash gain
Child gain
Retirement Solutions
Swarna visranthi
Health Plan
Care first
Health care
Term Plan
Risk care
Term care
UNIT LINKED INSURANCE POLICY
(ULIP)
A unit linked insurance policy is one in which the customer is provided with a life
insurance cover and the premium paid is invested in either debt or equity products or a
combination of the two. In other words, it enables the buyer to secure some protection for
his family in the event of his untimely death and at the same time provides him an
opportunity to earn a return on his premium paid. In the event of the insured person's
untimely death, his nominees would normally receive an amount that is the higher of the
sum assured (insurance cover) or the value of the units (investments).However, there are
some schemes in which the policyholder receives the sum assured plus the value of the
investments.
Every insurance company has four to five ULIPs with varying investment options,
charges and conditions for withdrawals and surrender. Moreover, schemes have been
tailored to suit different customer profiles and, in that sense, offer a great deal of choice.
The advantage of ULIP is that since the investments are made for long periods, the
chances of earning a decent return are high.
Just as in the case of mutual funds, buyers who are risk averse can buy into debt schemes
while those who have an appetite for risk can opt for balanced or equity schemes.
However, the charges paid in these schemes in terms of the entry load, administrative
fees, underwriting fees, buying and selling charges and asset management charges are
fairly high and vary from insurer to insurer in the quantum as also in the manner in which
they are charged.
Tax benefits
The premiums paid for ULIPs are eligible for tax rebates under section 80 which allows a
a maximum of Rs. 1,00,000 premiums paid for taxable income below Rs 8,50,000 and
Proceeds from ULIPs are tax-free under section 10(10D) unlike those from a mutual fund
which attract short term capital gains tax.
Key features
Premiums paid can be single, regular or variable. The payment period too can be regular
or variable. The risk cover (insurance cover) can be increased or decreased.As in all
insurance policies, the risk charge (mortality rate) varies with age. However, for an
individual the risk charge is always based on the age of the policyholder in the year of
commencement of the policy. These charges are normally deducted on a monthly basis
from the unit value. For instance, if there is an increase in the value of units due to
market conditions, the sum at risk (sum assured less the value of investments) reduces
and so the risk charges are lower. The maturity benefit is not typically a fixed amount and
the maturity period can be advanced (early withdrawal) or extended.
Investments can be made in gilt funds (government securities), balanced funds (part debt,
part equity), money-market funds; growth funds (equities) or bonds (corporate bonds).
The policyholder can switch between schemes (for instance, balanced to debt or gilt to
equity). The investment risk is transferred to the policyholder.The maturity benefit is the
net asset value of the units. The value would be high or low depending on the market
conditions during the period of the policy and the performance of the fund manager.
Thus there is no capital protection on maturity unless the scheme specially provides for it.
There could be policies that allow the policyholder to remain invested beyond the
maturity period in the event of the maturity value not being satisfactory.
Administration charges: This ranges between Rs 15 per month to Rs 60 per month and
is levied by cancellation of units and also depends on the nature of the scheme.
Asset management fees: Fund management charges vary from 0.6 per cent to 0.75 per
cent for a money market fund, and around 1.5 per cent for an equity-oriented scheme.
Fund management expenses and the brokerage are built into the daily net asset value.
Switching charges: Some insurers allow four free switches in every year but link it to a
minimum amount. Others allow just one free switch in each year and charge Rs 100 for
every subsequent switch. Some insurers don't charge anything.
Top-ups: Usually attracts 1 per cent of the top-up amount. Top-up normally goes directly
into your investment account (units) unless you specifically ask for an increase in the risk
cover.
Surrender value of units: Insurers levy certain charges if the policy is surrendered
prematurely. This levy varies between insurers and could be around 75 per cent in the
first year, 60 per cent in the second year, 40 per cent in the third year and nil after the
fourth year.
Fund performance: You could check out the performance of similar schemes (balanced
with balanced; equity with equity) across insurance companies.
Look at NAV performance over a period of at least two to three years. This can only give
you some indication about the credibility of the fund manager because past performance
is no guarantee to future returns, especially in insurance products where the emphasis is
on long-term performance (10 years or more).
Since insurance is a product, which entails a long-term commitment on the part of the
insurer, it is important not to go only by the features or the cost advantages of schemes
but by the parentage of the insurer as well.
Comparing schemes based on costs is a fairly complex exercise. As a rule, the higher the
initial years' expenses the longer it takes for the policy to outperform its peers with low
initial years' costs and slightly higher subsequent year expenses.
Retire unhurt
Pension plans are essentially tailored to meet old age financial requirements. But there
are certain advantages in joining a pension plan.
First of all, contribution to pension funds upto Rs 10,000 is eligible for tax deduction
under section 80CCC. In other words, your pension contribution will get deducted from
your taxable income.
So if you are in the top tax bracket, liable to pay to a 30.6 per cent tax, then your tax
savings will be that much.
All life insurance companies offer pension products - both conventional and unit-linked.
In both cases you pay a certain premium amount for a specified length of time.
Usually, the minimum entry age is 18 years and the maximum age is 60 years. You can
choose to pay the premium for five to 30 years. When the policy matures, you receive
one-third of the value of the accumulated amount as a lump-sum payment.
For the remaining, you can buy annuities either from the existing insurer or any other
insurer.
While in a conventional scheme, your money is managed through the insurer's pooled
investment account and you are entitled to bonuses every year, in a ULIP you receive the
value of the investment in your individual account.
ADVANTAGES OF ULIP
Can easily rebalance your risk between equity and debt without any tax
implications.
Best suited for medium risk taking individuals who wish to invest in equity and
debt funds (at least 40% or higher exposure to debt). No additional tax burden for
those investing mainly in debt unlike in MFs.
ULIPS as the name suggests are directly linked with the investments made by the
insured. Though he does not have a direct say in this but he does offer his choice in the
form of investment.
With stock markets soaring high a few months back, ULIPs were offering a good rate of
return, but now with a sudden downfall of the stocks, ULIPs are bound to become
negative investments.
The reality is that most of the ULIPs take more than 5 years to break even. Policies where
the costs are 65 per cent and upwards have not even recovered the principal despite the
strongest bull market we have ever witnessed.
MUTUAL FUND
INTRODUCTION OF MUTUAL FUNDS:
A mutual fund is simply a financial intermediary that allows a group of investors to pool
their money together with a predetermined investment objective. The mutual fund will
have a fund manager who is responsible for investing the pooled money into specific
securities (usually stocks or bonds). When you invest in a mutual fund, you are buying
shares (or portions) of the mutual fund and become a shareholder of the fund.
Mutual funds are one of the best investments ever created because they are very cost
efficient and very easy to invest in (you don't have to figure out which stocks or bonds to
buy).
By pooling money together in a mutual fund, investors can purchase stocks or bonds with
much lower trading costs than if they tried to do it on their own. But the biggest
advantage to mutual funds is diversification.
ACCORDING TO AMFI (ASSOCIATION OF MUTUAL FUND OF
INDIA):
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realized is shared by its unit holders in
proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund.
4. Return Potential: Over a medium to longterm, Mutual Funds have the potential to
provide a higher return as they invest in a diversified basket of selected securities.
5. LowCosts: Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for investors.
6. Liquidity: In open-ended schemes, you can get your money back promptly at
AssetValue (NAV) related prices from the Mutual Fund itself.With close-ended schemes,
you can sell your units on a stock exchange at the prevailing market price or avail of the
facility of repurchase
through Mutual Funds at NAV related prices which some close-ended and interval
schemes
offer you periodically.
9. Choice of Schemes: Mutual Funds offer a variety of schemes to suit your varying
needs
over a lifetime.
10. Well Regulated: All Mutual Funds are registered with SEBI and they function within
the
provisions of strict regulations designed to protect the interests of investors.The
operations
of Mutual Funds are regularly monitored by SEBI.
DISADVANTAGES OF MUTUAL FUNDS:
RISK RETURN
Equity High High
I. Closed-end or Open-end
Open-end Funds: An open-end fund is one that has units available for sale and
repurchase at all time. An investor can buy or redeem units from the fund itself at a price
based on the Net Asset Value (NAV) per unit.
Close-end Funds: A close ended fund makes a one-time sale of a fixed number of unit. It
does not allow investors to buy or redeem units directly from the funds. However, to
provide liquidity to investors many closed-end funds get themselves listed on stock
exchange. Funds do offer buy-back of funds/units thus offering another avenue for
liquidity to closed-end fund investor.
II. Load vs. No Load: Marketing of a new mutual fund scheme involves initial
expense. These expenses may be recovered from the investors in different ways at
different times. Three usual ways in which a funds sales expenses may be recovered
from the investors are:
1. At the time of investors entry into the fund/scheme, by deducting a specific amount
from his initial contribution: front-end or entry load.
2. By charging the fund/scheme with a fixed amount each year, during the stated number
of years: deferred load.
3. At the time of the investors exit from the fund/scheme, by deducting a specific amount
from the redemption proceeds payable to the investor: back end or exit load These
charges made by the fund managers to the investors to cover distribution/sales/marketing
expenses are often called loads. Funds that charge front-end, back-end or deferred
loads are called load funds. Funds that make no such charges or loads for sales expenses
are called no-load funds.
In India, SEBI has defined a load as the one-time fee payable by the investor to allow
the fund to meet initial issue expenses including brokers/agents/distributors
commissions, advertising and marketing expenses.
III. Tax-exempt vs. Non-Tax exempt Funds: Generally, when a fund invests in
tax-exempt securities, it is called a tax-exempt fund. In India, after the 1999 Union
Government Budget, all of the dividend income received from any of the mutual funds is
tax-free in the hands of the investors. However, funds other than Equity Funds have to
pay a distribution tax, before distributing income to investors. In other words, equity
mutual fund schemes are tax-exempt investment avenues, while other funds are taxable
for distributable income.
Once we have reviewed the fund classes, we are ready to discuss more specific fund
types. Funds are generally distinguished from each other by their investment objectives
and types of securities they invest in.
Mutual funds may invest in equities, bonds or other fixed income securities, or short-term
money market securities. So we have Equity, Bonds and Money Market Funds. All of
them invest in financial assets. But there are funds that invest in physical assets. For
example, we may have Gold or other Precious Metal Funds, or Real Estate Funds.
B. Broad Fund Types by Investment Objective
Investors and hence the mutual funds pursue different objectives while investing. Thus,
Income Funds invest to generate regular income, and less for capital appreciation.
Value Funds invest in equities that are considered under-valued today, whose value will
be unlocked in the future.
The nature of a funds portfolio and its investment objective imply different levels of risk
undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a
greater risk of capital loss than a Debt Fund that seeks to protect the capital while looking
for income. Money Market Funds are exposed to less risk than even the For internal use
by Training Department of Prudential ICICI Mutual Fund Bond Funds, since they invest
in short-term fixed income securities, as compared to longer-term portfolios of Bond
Funds.
Money Market Funds: Lowest rung in the order of risk level, Money Market Funds
invest in securities of a short-term nature, which generally means securities of less than
one-year maturity.
Gilt Funds: Gilts are government securities with medium to long-term maturities,
typically of over one year (under one-year instruments being money market securities).
Debt Funds (or Income Funds): Next in the order of risk level, we have the general
category Debt Funds. Debt funds invest in debt instruments issued not only by
governments, but also by private companies, banks and financial institutions and other
entities such as infrastructure companies/utilities.
Diversifies Debt Funds: A debt fund that invests in all available types of debt securities,
issued by entities across all industries and sectors is a properly diversified debt fund. A
diversified debt fund is less risky than a narrow-focus fund that invests in debt securities
of a particular sector or industry.
Focused Debt Funds: Some debt funds have a narrow focus, with less diversification in
its investment. Examples include sector, specialized and offshore debt funds. Other
examples of focused funds include those that invest only in Corporate Debentures and
Bonds or only in Tax Free Infrastructure or Municipal Bonds.
High yield Debt Funds: There are funds which seek to obtain higher interest rates by
investing in debt instruments that are considered below investment grade. e.g. Junk
Bond Funds.
Assured Return Funds an Indian Variant: The SEBI permits only those funds whose
sponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investors
have some lock-in period.
Fixed Term Plan Series Another Indian Variant: These are essentially closed-end.
These plans do not generally offer guaranteed returns. This scheme is for short-term
investors who otherwise place money as fixed term bank deposits or inter corporate
bonds.
Equity Fund: As investors move from Debt Fund category to Equity Funds,
No guarantee returns
b) Growth Fund
c) Specialty Fund
i) Sector Funds
Technology Fund
Pharmaceutical Fund
FMCG Fund
Investment in these schemes entitles the investor to claim an income tax rebate, but
usually has a lock-in period before the end of which funds cannot be withdrawn.
An index fund tracks the performance of a specific stock market index. The objective is
to match the performance of the stock market by tracking an index that represents the
overall market. The funds invest in share that constitute the index and in the same
proportion on the index.
f) Value Funds
Value Funds try to seek out fundamentally sound companies whose shares are currently
under-prices in the market. Value Funds will add only those shares to their portfolios that
are selling at low price-earnings ratios, low market to book value ratios and are
undervalued by other yardsticks. Fund concentrate on future growth prospect having
good potential.
There are equity funds that can be designed to give the investor a high level of current
income along with some steady capital appreciation, investing mainly in shares of
companies with high dividend yields.
Hybrid Funds Quasi Equity/Quasi Debt: Many mutual funds mix these
(money market, debt and equity) different types of securities in their portfolios.
Such funds are termed hybrid funds as they have a dual equity/bond focus.
Commodity Funds: While all of the debt/equity/money market funds invest in
financial assets, the mutual fund vehicle is suited for investment in any other- for
examples- physical assets.
Real Estate Funds: Specialized Real Estate Funds would invest in Real Estate
directly, or may fund real estate developers, or lend to them, or buy shares of
housing finance companies or may even buy their securities assets.
Balanced Funds
Gilt Funds
Index Funds
Sectoral Funds
Thematic Funds
Commodity Funds
Hybrid Funds
There are several ways for investment and disinvestments in mutual funds such as :
Value Averaging
A closed-end fund offers units for sale only in the NFO. It is then listed in the
market.
Investors wanting to buy or sell the units have to do so in the stock markets.
Usually closed-end funds sell at a discount to NAV.
The corpus of a closed-end fund remains unchanged.
Growth fund
Investor who does not require periodic income distribution can choose the
option, where the incomes earned are retained in the investment portfolio and
allowed to grow, rather than being distributed to investors.
The return to the investor who chooses a growth option is the rate at which
his initial investment has grown over a period for which he has invested in the
fund.
The investor choosing this option will vary the NAV with the value of the
investments portfolio , while the no. of units held with remains constant.
Income fund
Balanced fund
offer tax rebeats to the under specific provisions of the Indian income tax laws
Investment made under some schemes are allowed as deduction U/S 88 of the
income tax act .
The lump sum amount is invested for one time and then fixed percent amount is
withdraw monthly.
Remaining amount will grow continuously.
This plan is suitable for retired person, because it gives regular income.
Dividend option
Investors will receive dividends from the mutual fund , as an and when
dividends are declared.
Dividends are paid in the form of warrants or are directly credited to the
investors bank accounts.
Investors choosing this option have a fixed no. of units invested in the fund
and earned incomes on this investment.
The NAV of this investors holding will vary with changes in the value of
portfolio and the impact of the proportion of income earned by the fund to
what is actually distributed as dividend.
REGULATORS IN INDIA
SEBI - The capital markets regulators also regulates the mutual funds in India.
SEBI requires all mutual funds to be registered with them. SEBI issues guidelines
for all mutual funds operations - investment, accounts, expenses etc.
RBI as supervisor of banks owned mutual funds - As banks in India came under
the regulatory jurisdiction of RBI, bank owned funds to be under supervision of
RBI and SEBI.
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual
funds in terms of their structure and functioning. As is the cases with mutual funds,
investors in ULIPs are allotted units by the insurance company and a net asset value
(NAV) is declared for the same on a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to
the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds
and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund
schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs
2. Expenses
In mutual fund investments, expenses charged for various activities like fund
management, sales and marketing, administration among others are subject to pre-
determined upper limits as prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per
annum on a recurring basis for all their expenses; any expense above the prescribed limit
is borne by the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is
applicable). Entry loads are charged at the timing of making an investment while the exit
load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with
no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and
Development Authority. This explains the complex and at times 'unwieldy' expense
structures on ULIP offerings. The only restraint placed is that insurers are required to
notify the regulator of all the expenses that will be charged on their ULIP offerings.
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis,
albeit most fund houses do so on a monthly basis. Investors get the opportunity to see
where their monies are being invested and how they have been managed by studying the
portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios.
During our
interactions with leading insurers we came across divergent views on this issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is
mandatory, the other believes that there is no legal obligation to do so and that insurers
are required to disclose their portfolios only on demand.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt
from the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift
investments across various plans/asset classes either at a nominal or no cost (usually, a
couple of switches are allowed free of charge every year and a cost has to be borne for
additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the
ULIP investor's equity component has appreciated, he can book profits by simply
transferring the requisite amount to a debt-oriented plan.
5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This
holds good, irrespective of the nature of the plan chosen by the investor. On the other
hand in the mutual funds domain, only investments in tax-saving funds (also referred to
as equity-linked savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example
diversified equity funds, balanced funds), if the investments are held for a period over 12
months, the gains are tax free; conversely investments sold within a 12-month period
attract short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-
term capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have
their unique set of advantages to offer. As always, it is vital for investors to be aware of
the nuances in both offerings and make informed decisions.
REVIEW OF LITERATURE
Mr.Madhu T, made a study on ULIPs hold edge over mutual funds.The findings shows
that distributors would push unit linked insurance plans (ULIPs) to earn better
commission. ULIPs offer attractive frontend commissions to agents. However,
independent financial advisors believe that though there is a possibility of some
distributors favoring ULIPs in the short term, the new directive would be beneficial for
both the industry and investors in the long run.(Mr.Madhu T, The Economic
Times,June2009).
Mr.Deepak Shenoy ,in his article Comparing ULIP returns to Mutual Funds, he reveals
that, over the last three years, their growth mutual fund has given better returns than the
"MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investors Blog,
August 2006).
Mr.Murthaza and Sony, in their article An Overview on ULIP, This article is an initiative
from Bajaj Allianz to create better understanding of ULIPs and its benefits so that
investors can avail maximum returns from their investments.
Mr.Bernz Jayma P, made a study on Mutual Fund disadvantages. He suggested that ,If
you're new to stock market investing you may have heard that mutual funds would be a
good way for you to get started. That's actually good advice, but mutual funds have their
own pitfalls to watch out for.
DATA INTERPRETATION
AND
ANALYSIS
(A) Gender:
Gender
Cumulative
Frequency Percent Valid Percent Percent
Valid Male 37 74.0 74.0 74.0
Marital
Cumulative
Frequency Percent Valid Percent Percent
Valid Married 33 66.0 66.0 66.0
Unmarried 17 34.0 34.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, 66% of the policy holders are unmarried and the rest
34% of the policy holders are married.
(C) Age:
Age
Cumulative
Frequency Percent Valid Percent Percent
Valid 20-30 6 12.0 12.0 12.0
30-40 14 28.0 28.0 40.0
40-50 17 34.0 34.0 74.0
50-60 11 22.0 22.0 96.0
60-70 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
The graph shows that majority of the sample respondents were in the age group of 40-50
yrs ie,34%, 12% were in the age group of 20-30 yrs & 28% of them were 30-40 yrs, 22%
were in the age group of 50-60 yrs and 4% were in the age group of 60-70 yrs.
(D) Occupation:
Occupation
Cumulative
Frequency Percent Valid Percent Percent
Valid Government 18 36.0 36.0 36.0
Private service 14 28.0 28.0 64.0
Business 11 22.0 22.0 86.0
NRIs 3 6.0 6.0 92.0
Others 4 8.0 8.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
The graph shows that majority of the policy holders are working in the Government
sector i.e.36% , 28% of them are engaged in Private service, 22% of them are business
field, 6% of them are NRIs and 8% of them are engaged other works.
Annual income
Cumulative
Frequency Percent Valid Percent Percent
Valid Below 2 lakhs 19 38.0 38.0 38.0
2-4 lakhs 23 46.0 46.0 84.0
4-6 lakhs 6 12.0 12.0 96.0
6-8 lakhs 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
The graph shows that 46% of the policy holders get a salary of 2-4 lakhs, 38% of the
policy holders get a salary of below 2 lakhs, 12% of the policy holders get a salary of 4-6
lakhs, 3 of the policy holders get a salary below 2 lakhs and 4% of them above 6-8 lakhs.
INTERPRETATION :
54% customers agree that the tax benefit is influence them to buy policy ,28%
looks the rate of return what they will earn, variety of products from the company attracts
8% customers, and high reputation of the company attracts 6% of the customers, and
remaining 4% pointing out the attractive schemes.
INTERPRETATION :
From a sample of 50 customers, 56% of the customers invest money in bank deposit,
26% in insurance sector,12% in mutual fund, then 4% in both insurance and mutual
fund,and remaining 2% in stock market.
4. According to you who among the following life insurance company is best.
According to you who among the following life insurance companies is best.
Cumulative
Frequency Percent Valid Percent Percent
Valid Bajaj Allianz 27 54.0 54.0 54.0
HDFC Standard life 5 10.0 10.0 64.0
Tata AIG 4 8.0 8.0 72.0
Aviva Life 3 6.0 6.0 78.0
SBI Life 11 22.0 22.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers,54% customers select Bajaj Allianz is the best insurance
company, and 22% customers choose SBI Life,10% select HDFC,8% for Tata AIG and
remaining 6% stands for Aviva life insurance company.
Safety
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 4 8.0 8.0 8.0
Agree 26 52.0 52.0 60.0
Neutral 2 4.0 4.0 64.0
Disagree 15 30.0 30.0 94.0
Strongly disagree 3 6.0 6.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers,52% customers agree,8% strongly agree,30% customers
were disagree with that fact,6% strongly disagree, and remaining 4% have no opinion
about safety factor is important in the investment of ULIP.
12. Do you think the Liquidity factor is important in your investment in ULIP.
Liquidity
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 3 6.0 6.0 6.0
Agree 5 10.0 10.0 16.0
Neutral 5 10.0 10.0 26.0
Disagree 30 60.0 60.0 86.0
Strongly disagree 7 14.0 14.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, majority of the customers disagree i.e. 60%, 14%
strongly disagree with that fact. And 6% strongly agree,10% agree,and remaining 10%
neither agree nor disagree with that statement.
Rate of return
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 6 12.0 12.0 12.0
Agree 21 42.0 42.0 54.0
Neutral 3 6.0 6.0 60.0
Disagree 12 24.0 24.0 84.0
Strongly disagree 8 16.0 16.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly
agree with that fact. And 24% disagree,16% strongly disagree, and remaining 6% neither
agree nor disagree with that statement
14. Do you think the Tax savings is influence your investment decision in
ULIP.
Tax savings
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 6 12.0 12.0 12.0
Agree 21 42.0 42.0 54.0
Neutral 5 10.0 10.0 64.0
Disagree 16 32.0 32.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly
agree with that fact. And 32% disagree,4% strongly disagree, and remaining 10% neither
agree nor disagree with that statement
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Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 9 18.0 18.0 18.0
Agree 11 22.0 22.0 40.0
Neutral 19 38.0 38.0 78.0
Disagree 5 10.0 10.0 88.0
Strongly disagree 6 12.0 12.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, 22%agree, 18% strongly agree with that fact. And 10%
disagree,12% strongly disagree, and remaining 38% neither agree nor disagree with that
statement.
Safety
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 2 4.0 4.0 4.0
Agree 4 8.0 8.0 12.0
Neutral 8 16.0 16.0 28.0
Disagree 30 60.0 60.0 88.0
Strongly disagree 6 12.0 12.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers,8% customers agree,4% strongly agree,60% customers
were disagree with that fact 12% strongly disagree, and remaining 16% have no opinion
about safety factor is important in the investment of mutual fund.
Liquidity
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 7 14.0 14.0 14.0
Agree 19 38.0 38.0 52.0
Neutral 15 30.0 30.0 82.0
Disagree 6 12.0 12.0 94.0
Strongly disagree 3 6.0 6.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 38%, 14% strongly
agree with that fact. And 12% disagree,6% strongly disagree, and remaining 30% neither
agree nor disagree with that statement.
Rate of return
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 2 4.0 4.0 4.0
Agree 7 14.0 14.0 18.0
Neutral 21 42.0 42.0 60.0
Disagree 15 30.0 30.0 90.0
Strongly disagree 5 10.0 10.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, 30% disagree, 10% strongly disagree with that fact. And
14% agree,4% strongly agree, and remaining 42% neither agree nor disagree with that
statement.
20. Do you think the Tax savings is influence your investment decision in
mutual fund.
Tax savings
Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 3 6.0 6.0 6.0
Agree 6 12.0 12.0 18.0
Neutral 23 46.0 46.0 64.0
Disagree 12 24.0 24.0 88.0
Strongly disagree 6 12.0 12.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, 24% disagree, 12% strongly disagree with that fact. And
12% agree,6% strongly agree, and remaining 46% neither agree nor disagree with that
statement.
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Cumulative
Frequency Percent Valid Percent Percent
Valid Strongly agree 4 8.0 8.0 8.0
Agree 16 32.0 32.0 40.0
Neutral 24 48.0 48.0 88.0
Disagree 4 8.0 8.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION :
From a sample of 50 customers, 8% strongly agree,32% agree with that fact. And 8%
strongly disagree,4% disagree, and remaining 24% neither agree nor disagree with that
statement.
HYPOTHESIS-1
CORRELATIONS
Correlations
I would like to Reason for
invest money in choosing ULIPs
ULIP. because of
insurance
coverage.
I would like to invest money Pearson Correlation 1 .729**
in ULIP. Sig. (2-tailed) .000
N 50 50
**
Reason for choosing ULIPs Pearson Correlation .729 1
because of insurance Sig. (2-tailed) .000
coverage. N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).
INTERPRETATION:
The above table shows that the reason for choosing ULIPs because of
insurance coverage is 0.000 which shows that there is a relationship between
investment of ULIP and insurance coverage.We can choose alternate
hypothesis because the significant value is less than 0.005.Hence it is very
clear that most of the customers choosing ULIP product because which
provide insurance coverage over their investment. So we can conclude that
most of the customers prefer ULIP products than Mutual funds because of
insurance coverage.
HYPOTHESIS-2
T-Test
Group Statistics
Annuaincome N Mean Std. Deviation Std. Error Mean
I would like to invest money Below 2 lakhs 19 2.26 .806 .185
in ULIP. 6-8 lakhs 2 2.00 .000 .000
I would like to invest money Below 2 lakhs 19 3.37 .955 .219
in mutual funds. 6-8 lakhs 2 4.00 .000 .000
F Sig. t
I would like to invest money Equal variances assumed 1.428 .247 .451
in ULIP.
Equal variances not assumed 1.424
I would like to invest money Equal variances assumed 3.956 .061 -.914
in mutual funds.
Equal variances not assumed -2.882
The above table shows the significance value of the relationship between
investment pattern and annual income is 0.247 for ULIP and 0.061 for
Mutual Funds.Which shows that there is no relationship between the
investment pattern and annual income level of the customers.We can choose
Null hypothesis because the significant value is greater than 0.005.Hence it
is very clear that the income level does not take part in the investment
decision.It may be change the premium of the policy,but not the decision.
As insurance sector is growing rapidly so most of the life insurance players are
selling ULIP plans. And the awareness about ULIP is growing most of the people
knows the ULIP of life insurance. Since last 4-5 years the returns provided by
ULIP were very good so people tend more towords ULIP
Middle class people who are interested in investment but they are not aware of
such options so more awareness should be there, as main target customer are the
middle class peoples.
While investing any insurance company customer prefers for good branded
company Bajaj is Indias one of the most famous and richest family. And second
preference is given to SBI life as many people perceive that SBI Life is a govt.
owned company so people want security for their investment.
As now till date people in India dont wanted to invest in share market because
then were thinking that it is a bad thing but as the awareness about Mutual fund is
increasing as more and more private players are entering in the market. So
awareness about MF is not very good and it can be improved.
While survey I found that many all customers had already invested in ULIP and
Mutual Fund some people had invested in both options. 12% of people had
invested in Mutual Fund and 26% people had invested in ULIP and 4% people
had invested in both the options.
While investing in mutual fund 44% of the customers looks their return,42%
customers observe the schemes performance in past years.
In future people will be more preferring to the security of their money means they
want a secured option which should provide good returns. As ULIP are the option
in which you can have the security also and good returns. The second choice of
the investors is return of their money.
54% of people given Best rating to the Bajaj Allianz Life Insurance ULIP, so from
this we can analyze that Bajaj Allianz Life Insurance is doing good but it is
having good potential in Market. To improve its market share they should
improve the awareness level of the common people.
Innovative Products and good brand name are the main success factor for Bajaj
Allianz Life Insurance. 6% customers are attracted due to the high reputation of
the company. So if BALIC wants to penetrate its market share they should
improve the marketing strategy, improving the distribution channel etc.
Investors in Bajaj Allianz Life ULIP will be getting the advantage of life
insurance cover.
People are turning towords the ULIP as a good investment option but as ULIP is
in its
starting phase so customers are preferring only big brands.
Mutual fund is having good growth but many customers from rural areas dont
have any
knowledge about Mutual fund.They think it is very risky.
Even investors from cities like Changanacherry dont have that much of
Knowledge about fund selection they all are depend on Brokers.
Deriving the right feedback from customers and bringing out innovative products
which
cater to customer demands will go a long way in tapping the market potential of
the
insurance and Mutual fund sector.
For Bajaj Allianz Life Insurance They should go for creating more awareness
about its ULIP as now also people are just investing because Bajaj is Indias most
Known and
Favorite brand in past.
Bajaj Allianz should go for innovating more and more products and improving the
distribution channels as per the area of sales.
BIBLIOGRAPHY
REFERENCE:
1) Research Methodology, C.R Kothari, 2nd edition
WEBSITE
www.irdaindia.gov
www.bajajallianzlife.co.in
www.quickmba.com
www.amfindia.com
www.mba.com
www.articlebase.com
QUESTIONNAIRE
I am RAJEEV JOSEPH student of Karunya School of Management, Coimbatore
doing a project on A COMPARATIVE STUDY OF ULIP PLANS OF
BAJAJ ALLIANZ LIFE INSURANCE WITH MUTUAL FUNDS and this
questionnaire is a part of the project and the information collected through this
questionnaire would be used only for academic purposes and strictly confidential
PERSONNAL INFORMATION
1. Name:
2. Gender:
3. Marital status:
4. Age:
(e) 60-70
5. Occupation:
(e) Others
6. Annual Income:
(e) Consultants