CONTENTS OF THE PROJECT

PAGE NO.

1. Introduction

• Synopsis
• Need of the study
• Scope of the study
• Objectives of the study
• Research methodology
• Limitations

2. Industry Profile

3. Company Profile

4. Conceptual and theoretical framework

5. Data Analysis and Interpretation

6. Findings & Suggestions

7. Case study

8. Bibliography

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 CHAPTER-1
INTRODUCTION

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 1. INTRODUCTION

1.1 Synopsis:
The introduction of unit linked insurance plans (ULIPs) is possibly, the single largest
innovation in the field of life insurance in the past several decades. In a swoop, it has
addressed and overcome several concerns that customers had about life insurance –
liquidity, flexibility and transparency and the lack thereof. These benefits are possible
because ULIPs are differently structured products and leave many choices to the
policyholders. Broadly speaking, ULIPs are best suited for those who have a
conceptual understanding of financial markets and are genuinely looking for a
flexible, long term savings-cum-insurance solution.

What is a Unit Linked Insurance Plan?

A ULIP is a linked insurance plan where the characteristics of insurance and Mutual
Fund are combined. An allocated portion of fund amount goes into insurance and the
remaining into asset class.

Ulip features:

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

ULIP provides multiple benefit to the consumer, the benefits include:

 Life protection
 Investment and savings
 Flexibility
 Adjustable life cover
 Investment options
 Transparency
 Options to take additional cover against death due to accident
 Disability

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  Critical illness
 Surgeries
 Liquidity
 Tax planning

Funds of Ulip:

 Liquid fund
 Secure managed fund
 Defensive managed fund
 Equity managed fund
 Growth fund

1.2 Need of the Study:

The introduction of unit-linked insurance plans (ULIPs) has been, possibly, the
single-largest innovation in the field of life insurance in the past several decades. In a
swoop, it has addressed and overcome several concerns that customers had about life
insurance-liquidity, flexibility and transparency and the lack thereof. These benefits
are possible because ULIPs are differently structured products and leave many
choices to the policyholder. Broadly speaking, ULIPs are best suited for those who
have a conceptual understanding of financial markets and are genuinely looking for a
flexible, long-term savings-cum-insurance solution.

1.3 Scope of the Study:

• The study delves into the concept of ulip plan.
• It studies the various investment avenues like mutual funds, traditional plans
and other savings schemes.
• The study evaluates the performance of ulip schemes provided by Kotak life
insurance.

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 • The study focuses on creating awareness among the investors about the right
investment products and helping investors understand the risk and return in the
plan.
• The study also analyses the superiority of ULIPs over Fixed deposits.
• It also compares ULIPs with other Investment avenues.

1.4 Objectives of the Study:

• Primary objectives:
1. To evaluate the performance of basic ULIPs of Kotak Life
Insurance on the basis of returns and risk.
2. To analyze the superiority of ULIPs over Fixed deposits.

• Secondary objectives:
1. To Study the Concept of ULIPs

2. To Study about the basic ULIPs of KOTAK LIFE INSURANCE and their
Key Advantages

3. To Study the Advantages of ULIPs over Mutual Funds

4. To Study the Advantages of ULIPs over Traditional Plans

5. To Study the Role of ULIPs as a Saving Insurance-cum-Investment Plan

1.5 Research Methodology:

The data for the study is collected from two main sources.
1. Primary source
2. Secondary source

Primary source:
The data is collected through interaction with the official in the company.

Secondary source:
The secondary source has been collected through the following source.

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 • Booklets on ulips
• Broachers of the company
• Insurance magazines
• Insurance books
• Internet (web site)

1.6 Limitations:
Every study has some limitations but the effectiveness of the project comes
from how well these limitations have been handled to bring out the
result, which are pertinent and are adding value to the already existing studies.
This project also has some limitation but my attempt would be to strive hard to
overcome these limitation so that the results prove out be prolific and useful to the
organization. Some of these limitations are:

• The study is for a limited period of 45 days

• The study relies on secondary data.
• The data and figures shown are as given by the bank.
• The study does not attempt to analyze the insurance sector as a whole, but is
limited to ULIPs.

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 CHAPTER-2
INDUSTRY PROFILE

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 2. INDUSTRY PROFILE
2.1 Insurance:
Insurance may be described as to protect the economic value of asset. It can be said to
be a system of spreading the losses of an individual over a group of individuals.
Since it is an intangible product, Insurance Industry is a service industry.
Insurance Industry do not produce any goods but sell the promise. A promise to take
care of the customers or their dependents in case they suffer a loss due to some peril
during the term of policy.

What Is Insurance?

Mankind is exposed to many serious perils such as property losses from fire and
windstorm and personal losses from disability and premature death. Although it is
impossible for an individual to foretell or completely prevent their occurrence but it is
possible to provide against their financial effect the loss of property and earnings.

From the point of view of the individual the life Insurance may be defined as a
contract whereby for a Consideration amount called the premium, one party (the
insurer) agrees to pay to the other (the insured) or a beneficiary a particular amount
upon the occurrence of death or any other agreed event.

 Insurance is the method of spreading and transfer of risks

 Losses of few unfortunate are shared by and spread over to many exposed to
the same risk.

 Assets created by the owner in expectation of future needs

have a value.

 Losses of assets for any reason deprive the owner of the expected benefits.

 It acts as a form of a safeguard against misfortunes.

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  From the point of view of community life insurance may be defined as a social
device to make accumulations to meet uncertain losses resulting from
premature death or disability.

2.2 Purpose and Need of Insurance :

As said earlier that the making is exposed to many serious perils which risk the
security of their belongings. The risk here means that there is a possibility of
occurrence of loss or damage to the property, it may happen or may not happen.
Insurance is relevant only in the contingency of uncertainty. If there is no uncertainly
about the occurrence of the loss it can’t be insured against:

 Assets are likely to be destroyed or made non-functional due to perils like

firefloods, breakdowns, lightning and earthquake.

 Damage to assets caused by any perils is the risk that assets are exposed to.

 Insurance become relevant only if there is uncertainly of occurrence of event

leading to loss.

 No uncertainty No insurance.

 We can say that the human life value is an ongoing generating asset, which
can be lost on early death or disability caused by accidents.

 Insurance doesn’t protect the assets but only compensates the economic or
financial loss.

 Basically insurance covers tangible assets but the concept can be extended to
intangible also.

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 2.3 Functions of Insurance:

The functions of Insurance can be bifurcated into two parts:

1. Primary Functions
2. Secondary Functions

The primary functions of insurance include the following:

Provide Protection - The primary function of insurance is to provide protection

against future risk, accidents and uncertainty. Insurance cannot check the happening
of the risk, but can certainly provide for the losses of risk. Insurance is actually a
protection against economic loss, by sharing the risk with others.

Collective bearing of risk - Insurance is a device to share the financial loss of few
among many others. Insurance is a mean by which few losses are shared among larger
number of people.

Assessment of risk - Insurance determines the probable volume of risk by evaluating

various factors that give rise to risk. Risk is the basis for determining the premium
rate also.

Provide Certainty - Insurance is a device, which helps to change from uncertainty to

certainty. Insurance is device whereby the uncertain risks may be made more certain.

The secondary functions of insurance include the following:

Prevention of Losses - Insurance cautions individuals and businessmen to adopt

suitable device to prevent unfortunate consequences of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc. Prevention of
losses cause lesser payment to the assured by the insurer and this will encourage for

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more savings by way of premium. Reduced rate of premiums stimulate for more
business and better protection to the insured.

Small capital to cover larger risks - Insurance relieves the businessmen from
security investments, by paying small amount of premium against larger risks and
uncertainty.

Contributes towards the development of larger industries - Insurance provides

development opportunity to those larger industries having more risks in their setting
up. Even the financial institutions may be prepared to give credit to sick industrial
units which have insured their assets including plant and machinery.

2.4 Life Insurance:

Life insurance is a contract where the person requiring and insurance pays a
consideration / premium to maintain a policy and the insurer promises to pay a sum
assured or a guaranteed amount on the happening of an eventuality. If no eventuality
occurs then the insured may be eligible for some bonus also.

Why life insurance:

1. Protection of the interest of the family member.

2. Provision for education and marriage of the children.

3. Post retirement income for self and dependents

4. Special needs for medical expenses.

5. Provision for health /illness.

6. Provision for housing.

7. Provision for income tax rebate.

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 2.5 Benefits of life insurance:
Insurance not only serves the ends of individuals or of special groups of individuals
but also is advantageous to the society as a whole.

Benefits to the Individual:

Superior to any other saving plans:

Unlike any other saving plan, a life insurance policy affords full protection against
risk of death. In the event of death of a policy holder, the insurance company makes
available the full sum assured to the near and dear of policy holder. In comparison,
any other saving plan would amount the total saving accumulated till date. If the death
occurs prematurely, such saving can be much lesser than sum assured. Evidently, the
potential financial loss of the family of the policy holder is sizable.

Encourages and forces thrift:

A saving deposit can easily be withdrawn. The payment of Life insurance premiums,
however, is considered sacrosanct and is viewed with the same seriousness as the
payment of interest on a mortgage. Thus, a life insurance policy in effect brings about
compulsory saving.

Easy Settlement and Protection against Creditors:

A life insurance policy is the only financial instrument, the proceeds of which can be
protected against the claims of a creditor of the assured by affecting a valid
assignment of the policy.

Administering the legacy for beneficiaries:

Speculative or otherwise, expenses can quickly cause the proceeds to be squandered.
Several policies have foreseen this possibility and provide for payment over a period
of years or in a combination of installments and lump sum amounts.

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Ready marketing and suitability for quick borrowing:
A life insurance policy can, after a certain period (generally Three years), is
surrendered for a cash value. The policy is also acceptable as a security for
commercial loans, for example, a student loan.

Disability benefits:
Death is not only hazard that is insured; many policies may include disability benefits.
Typically, these provide for waiver of future premiums and payment of monthly
installment periods.

Accidental death benefits:

Many policies can also provide for an extra sum to be paid (typically equal to the sum
assured) if death occurs as a result of accident.

Tax relief:
Under the Indian income tax act, the following tax relief is available

1. 20% of premium can be deducted from total income tax

liability.

2. 100% of the premium paid is deductible from your total

taxable income.

When these benefits are factored in, it is found that most Policies offer returns that are
comparable /or even better than other saving modes such as PPF, NSC etc. moreover,
the cost of insurance is a very negligible.

Benefits to business:
Insurance results in business continuation and welfare of employees. Uncertainty of
business losses is reduced by insurance.

Benefits of society:
The welfare of the society is protected. Insurance results in economic growth of the
country and reduction in inflation.

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 2.6 Insurance Industry profile

Life Insurance:
As is evident from its very name, it deals with insurance of human life. “Life
insurance corporation of India”- a public sector undertaking has the monopoly in this
sector since its nationalization.
In our wordily life, whenever there is uncertainty, there is an involvement of risk. The
instinct for security against such risk is one of the basic motivating forces determining
human attitudes. As a squeal to this quest for Security, the concept of insurance must
have been born. The urge to provide insurance or protection against the loss of life &
property must have prompted people to make some sort of sacrifice willingly in order
to achieve security through “COLLECTIVE CO-OPERATION”, in this sense; story
of insurance is probably as old as THE story of mankind.

Insurance Industry in India

India is marching ahead to more prosperous future. The economy is on a

high growth path, domestic savings are growing, exports have risen and inflation has
stabilized. Infrastructure sector, which even today is woefully inadequate to meet the
expected increased industrial activities, has been accorded top priority by the
government. All this should reflect in a growth rate of 7 to 8% for the next 3-4 years.
With this scenario of high economic growth further reforms in the financial sector are
in the Common Minimum Program of the Government.

India is regarded as under- insured country with insurance penetration at a very low
level of 0.6% of GDP. Insurance, as a rule, has always been given very low priority
by corporate India. It is always taken with reluctance, usually only when it is

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compulsory, and then only by big industrial houses. Without exception it is always
inadequate to meet the needs of the corporate sector.

In addition to the tradition exposure of fire, floods, workers compensation and the
interruption, Corporate India also has to address unpredictable changes in areas such
as environment; security; occupational health and safety; public liabilities; Directors
and Officers Liability and product liability
It therefore becomes quite obvious that purchase of insurance, in itself, will not
substitute for a soundly based and property implemented Risk Management
Program as insurance can only offer some financial relief by replacing the plants; it
cannot replace the loss in development of a business or development of the market.

The likely private players:

A number of foreign insurance companies have set up representative office in India

and have also tied up with various asset management companies. They have either
signed Memorandum of Understanding with Indian companies or are trying to do the
same. A few of them have been around for the last four to five years. Some have
carried out extensive research on the Indian insurance sector. Others have set up
liaison offices. All of them are waiting with bated breathe for the opening up of the
sector and taking a bite of the great Indian Insurance pie.

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 19% ICICI
32%
BIRLASUNLIFE
7%
HDFC STANDARD
MAX NEWYORK LIFE
9% TATA AIG
11% 22% OTHERS

Various Players Presents In The Market

1. Bajaj Allianz Life Insurance Company Limited.

2. Birla Sun Life Insurance Co. Ltd.
3. HDFC Standard Life Insurance Co. Ltd.
4. ICICI Prudential Life Insurance Co. Ltd.
5. ING Vysya Life Insurance Company pvt. Ltd.
6. Life Insurance Corporation of India.
7. Max New York Life Insurance Co. Ltd.
8. Kotak Mahindra Old Mutual Life Insurance Limited.
9. SBI Life Insurance Co. Ltd.
10. Tata AIG Life Insurance Company Limited.
11. Reliance Life Insurance Company Limited.
12. Aviva Life Insurance Co. India Pvt.Ltd.
13. Sahara India Life Insurance Co.Ltd.
14. Shriram Life Insurance Co.Ltd.
15. Bharti AXA Life insurance Company Ltd.

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 16. Met Life India Insurance Company Pvt. Ltd.

Introduction to IRDA

Insurance regulatory authority, 1996 (IRA):

• The IRA was set up in January 1996

• The IRA bill has first to be passed by parliament to make the IRA a statutory
body.
• Second, the powers of the erstwhile controller of insurance have to be conferred
on the IRA.
• Third, comprehensive legislation aimed at reviewing the insurance act of 1938 and
repealing the LIFE INSURANCE CORPORATION ACT of 1956 and the general
insurance (Nationalization) act of 1972 have to be passed.

Government’s pronouncements:

• Post statutory status, IRA to be centre piece for future insurance sector reforms
• IRA will be sole authority, which will be responsible for awarding of licensing i.e.
little or no government or political interference in licensing in process.
• No restriction on the no. of licenses.
• No composite licenses for life and non life business.

IRDA was set up to protect the interests of the policyholders, to regulate, promote and
ensure orderly growth of the insurance industry. After this the private players started
entering the market.

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 CHAPTER-3
COMPANY PROFILE

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 3. Company profile
3.1 Kotak Mahindra Life Insurance

Stock broking businesses in the UK. Kotak Group was established in

1985.Kotak Mahindra Bank is the parent company of the group. Kotak Group entered
into the life insurance business in 2001. Kotak Mahindra Old Mutual Life Insurance
Ltd. is a joint venture between Kotak Mahindra Bank Ltd. (76%) and Old Mutual plc.
(24%) Old Mutual plc is a world-Class international financial services company. It
was established in South Africa before 160 years.

OLD MUTUAL is the largest financial services business in South Africa,

through its life insurance, asset management, banking and general insurance
operations. The company serves 4 million life insurance policyholders and employs
over 13 000 South Africans in its local operations.

In the USA, OLD MUTUAL is one of the top ten fixed annuity businesses
offering an array of specialist asset management skills through its 23 asset
management businesses. The company’s US Life business recorded sales of $4 billion

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at the end of 2002. Operations in the United Kingdom are focused on wealth
management, through Gerrard as one of the leading private client .

The OLD MUTUAL Group has the ability to cater for a variety of consumer
segments and offers a comprehensive and innovative range of products for all income
groups Kotak Mahindra Life Insurance actually termed as Kotak Mahindra Old
Mutual Life Insurance Ltd is a joint venture between Kotak Mahindra Bank Ltd., its
affiliates and Old Mutual. Kotak Mahindra Old Mutual Life Insurance is one of the
fastest growing insurance companies in India and has shown remarkable growth since
its inception in 2001.The Kotak Mahindra group is one of India’s leading banking and
financial services organizations, with offerings across personal financial services;
commercial banking; corporate and investment banking and markets; stock broking;
asset management and life insurance. The Kotak Group has over 1,300 offices, and
services around 5.9 million customer accounts across India. Kotak also has offices in
London, New York, San Francisco, Singapore, Dubai and Mauritius. Old Mutual is an
international savings and wealth management company based in the UK. Originating
in South Africa in 1845, it is among the top 100 largest companies in the FTSE100.
The group has a balanced portfolio of businesses offering Asset Management, Life
Assurance, Banking and General Insurance Services in over 40 countries, with a focus
on South Africa, Europe and the United States, and a growing presence in Asia
Pacific. Old Mutual employs approximately 54,000 employees worldwide with its
primary listing on the London, secondary listing on the Johannesburg stock exchanges
as well as in Namibia, Malawi and Zimbabwe.

Kotak Mahindra Old Mutual Life Insurance Ltd is a company that combines
its international strengths and local advantages to offer its customers a wide range of
innovative life insurance products, helping them in taking important financial
decisions at every stage in life and stay financially independent. It believes in offering
its customers a lifetime of value. A commitment that has made it a leading financial
services group with, employing around 10,800 people in its various businesses and
has a distribution network of branches, franchisees, representative offices and satellite
offices across 300 cities and towns in India and offices in New York, London, Dubai,
Mauritius and Singapore. The Group services around 2.6 million customer accounts.

3.2 Kotak’s Strengths

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 • Financial Acumen - Holds a stable and diversified portfolio and has received
some of the highest ratings in financial strength from industry’s independent
rating agencies.
• Disciplined fund management - Years of experience in asset management, and a
strong track record in managing funds - backed by the acclaimed expertise of
Old Mutual plc
• Innovativeness - Known for being an innovator in providing world-class
pragmatic financial solutions, with a constant focus on customization and
flexibility
• Unrelenting Customer Focus - A highly committed sales force, with customer
satisfaction as the key driving force - a major differentiator
• Transparency in Services - Daily declaration of fund performances, regular
performance benchmarking, well regulated asset management, and monthly
newsletter on market updates
3.3 Kotak’s Values, Mission and Vision

Values: Every member of the Kotak Group team is committed to 5 core values:
Integrity, Customer First, Boundary less, Ownership, and Passion. These values shine
forth in all we do, and have become the keystones of our success.

Mission: “At Kotak Life Insurance, we aim to help customers take important
financial decisions at every stage in life by offering them a wide range of innovative
life insurance products, to make them financially independent. We focus on the needs
of our customers and create confidence, trust and loyalty Strengthened by our
commitment to professional management; we ensure the continued growth and
advancement of our employees.”

Vision: Kotak Life Insurance has a deep rooted commitment to improve the
quality of life of its customers, employees and stakeholders. We aim at improving the
long term value in our relationship by continuous innovation and improvements. We
do this by our three-prong effort which strives to make Kotak Life Insurance a
corporate with values.

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 A. Increase Customer Value: Kotak Life Insurance has gone to the heart of its
customer's requirements and developed products which are unique and serve the
customer needs perfectly. We built a relationship of mutual trust and benefit to
serve the Indian customer. At Kotak the customer always comes first.
B. Cohesive Work Environment: We form long-term partnership with our
employees by offering them an invigorating work experience. We not only demand
loyalty, sincerity and values but also give it back in equal measures. Kotak will like
to offer its employees space to grow, innovate and build a long-term career
C. Work with Honor: We deliver everyday services in the marketplace with the
high sense of duty and commitment. Our employees strive to build the long-term
value for all those come in contact with Kotak. Our consumers, distributors,
employees, shareholders and the nation have our commitment that we will uphold
the values of trust, integrity and a Sense of Honor in every thought, act and deed in
order to positively contribute to individual, society and nation growth.

3.4 Achievements of the Company so far:

1. Listed in the stock exchange since 1992

2. Leading financial brand
3. India’s first NBFC to convert into a bank
4. Top 3 in several financial services
5. AAA rated by credit agencies
6. Customer Base of over 5 Lakh
7. 3500 Professional Employees
8. Several National and International Awards

3.5 Management Overview

We at Kotak Life Insurance work as a team and have a flat management

structure. Our top management has many years of experience which has helped guide
the company into a position of leadership. The top management of the organization is
as follows:

Mr. Uday Kotak --- Chief Executive Officer

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 Mr. Gaurang Shah --- Managing Director
Mr. G Muralidhar --- Chief Operating Officer
Mr. Pankaj Desai --- Executive Director
Mr. Subhasish Ghosh --- Sr. VP, Financial Institutions Group
Mr. Sugata Dutta --- Head Human Resources
Ms. Elizabeth Venkataraman --- Sr. Vice President Marketing
Mr. Andrew Cartwright --- Appointed Actuary
Mr. Suresh Agarwal --- Head of Alternate channel
Mr. Shekhar Bhandari --- Head of Tied channel
Mr. Anand Dewan --- Head Business Impact Group (BIG)
Mr. Sandip Shrikhande --- Senior Vice President - Group Business
Mr. Dhiresh Rustogi --- Chief Technology Officer
Mr. Sudhakar Shanbag --- Chief Investment Officer

3.6 Products of Kotak Life Insurance

Being one of the top private players in the insurance industry Kotak provides
various products aiming at all kinds of target customers. A brief overview of the
products it offers are:

Protection Plans:
• Kotak Loan Protection Plan: Kotak Loan Protection Plan is a protection plan
that helps share the burden of your loan.
• Kotak Eternal Life Plans: Kotak Eternal Life Plans are participating whole
life plans that provide enhanced protection till the golden age of 99.
• Kotak Term/Preferred Term Plan: The Kotak Term/Preferred Term Plan is
a pure risk cover plan that provides you with a high level of protection at
nominal costs.

Savings & Investment Plans:

• Kotak Safe Investment Plan II: Equity investments although attractive are
given to volatility and can often result in loss of capital. Therefore, as a
prudent investor you would be inclined to avoid such investments or limit
your exposure to them.

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 • Kotak Platinum Edge: You've lived life on your own terms; always done
what you've believed in. You are used to having the luxury of choice and the
power to control.
• Kotak Single Invest: Life has the ability to surprise you pleasantly with
financial windfall and surplus. As an individual, who is aware of his
responsibilities and aspirations, it is now up to you to make the best use of it.
• Kotak Capital Multiplier Plan: The Kotak Capital Multiplier Plan is the
only plan of its kind that allows you to enjoy returns even beyond maturity.
• Kotak Money Back Plan: This plan offers the key benefit of cash lump sums
at periodic intervals of five years ensuring that you are able to meet any of
your financial obligations.
• Kotak Endowment Plan: Kotak Endowment Plan is a participating
endowment plan that provides you an avenue for long term regular
investments to accumulate a lump sum on maturity.

Children’s Plans:
• Kotak Headstart Child Plans: The headstart child plans are specially
tailored, cost effective plans that aim to give your children the financial means
to pursue his or her dreams
• Kotak Child Advantage Plan: The Kotak Child Advantage Plan is an
investment plan designed to meet your child's future financial needs

Retirement Plans:
• Kotak Long Life Wealth Plus: Life has several shades. Some known, some
unknown; some planned, some unplanned. Life may not always be the way
you want it to be.
• Kotak Long Life Secure Plus: Protecting your family and ensuring their
comfort has always been your primary concern and key responsibility.
• Kotak Second Innings Plan: With a comfortable lifestyle and a happy
family, today you are enjoying life to the full.

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• Kotak Guaranteed Pension Builder: Kotak Guaranteed Pension Builder
works for your security and financial independence by allowing you to save
systematically for your golden years.
• Kotak Retirement Income Plan: The Kotak Retirement Income Plan is a
savings plan designed to meet your post-retirement needs. It is a plan that
gives you "Jeene ki azaadi".

CHAPTER-4
CONCEPTUAL AND THEORETICAL
FRAMEWORK

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 4. Conceptual and theoretical framework

4.1 Unit Linked Insurance Plans (ULIPs)

ULIPS:

• ULIPs are market-linked life insurance products that provide a combination of

life cover and wealth creation options.
• A part of the amount that people invest in a ULIP goes toward providing life
cover, while the rest is invested in the equity & debt instruments for
maximizing returns.
• They provide the flexibility of choosing from a variety of fund options
depending on the customers risk appetite. One can opt from aggressive funds
(invested largely in the equity market with the objective of high capital
appreciation) to conservative funds (invested in debt markets, cash, bank
deposits and other instruments, with the aim of preserving capital while
providing steady returns).
• ULIPs can be useful for achieving various long term financial goals such as
planning for retirement, child’s education, marriage etc.

Unit linked insurance plan (ULIP) is a life insurance solution that provides the client
with the benefits of protection and flexibility in investment. It is a solution which
provides for life insurance where the policy value at any time varies according to the
value of the underlying assets at the time .

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The investment is denoted as unit and is represented by the value that it has attained
called as Net Asset Value (NAV).

UNITS
UNIT
UNDERLYING
LINKED
IN
INSURANCE
INVESTMENT
POLICIES
FUNDS

ULIP came into play in 1960s and became very popular in Western Europe and
America. The reason that is attributed to the wide spread popularity of ULIP is
because of the transparency and the flexibility which it offers to the clients .

As time progressed the plans were also successfully mapped along with life insurance
needs to retirement planning.

In today’s times ULIP provides solution for all the needs of a client like insurance
planning, financial needs, financial planning for children’s future and retirement
planning.

4.2 Structure of Ulip

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 PREMIUM

LESS CHARGE

INVESTMENT LIFE
REPRESENTED AS COVER
UNITS

4.3 Benefits of Unit Linked Plan

ULIP distinguishes itself through the multiple benefits that it provides to the
consumer. The plan is a one stop solution providing
1. Life protection
2. Investment and Savings
a. Market linked fund based on risk profile
b. Switch option
c. Premium redirection
d. Automatic transfer plan (ATP)
3. Flexibility of cover continuance
4. Transparency
5. Extra protection with riders
a. Death due to accident
b. Disability
c. Critical illness
6. Liquidity
a. During the term partial withdrawals
b. At Maturity
7. Tax planning

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 4.4 Charges under ULIP

Contribution related charges:

These are the charges that are represented as a percentage of the regular or single
contribution paid. In case of a regular contribution plan, it is usually high in the first
year to pay for the distribution cost. These charges pay for the issuance and for
distribution commissions. These charges are running for the policy.

Administrative charges:
These are charges that are levied for the administration of the policy and the related
cost of administration of the insurance company, itself. They are more related to the
cost like IT, operational, etc cost of continuing the policy.

Fund management charges:

These are the charges for buying and selling debt and equity. These are the charges
are adjusted in NAV it self.

Mortality charges:
This covers the cost of providing life protection for the insured and may be paid once
at the start of the policy for a recurrent manner for example this charges levied to
provide the insurance cover under the plan. Normally these charges are one year
charges as per the age of the holder.

Rider charges:
Rider charges are similar in nature to the mortality charges as they are levied to pay
for the other protection benefits that the policy holder has chosen for- like the critical
illness benefit or the accident benefit, etc.

Surrender charges:

29
When the policy holder decides to surrender the policy or partially withdraw some of
the units for cash, a surrender charge may be apply.
Surrender charges are used to cover initial expenses that have been incurred by the
company but not yet recovered from the policyholder yet.

Bid offer charges:

In ULIP specifically certain insurers might create a difference in the price at which
they sell the unit and the price at which they buy the units. Investor’s contribution is
used to buy units in the investment fund at the offer price and is sold when benefits
are required at the bid price. The difference between the offer and bid prices is known
as the “bid-offer spread", this is used to cover expenses when setting up the policy.

Transactional specific charges:

These charges are levied when the client does some specific transaction like changing
funds, topping up the investment component or withdrawals.

4.5 Steps to select the right ULIP

Unit linked Insurance Plans (ULIPs) were seen as a “wonder product” that
simultaneously fulfilled an individual’s needs for investment and insurance.

• Understand the concept of ULIP

• Focus on your requirement and risk profile
• Compare ULIPs of different insurance companies
• Go for an experienced insurance advisor.
• Does your ULIP offer a minimum guarantee?

4.6 Comparison of ULIPs with Traditional plans

Unit Linked Insurance Product:

ULIPs have gained high acceptance due to attractive features they offer. These
include:

30
  Flexibility
o Flexibility to choose Sum Assured.
o Flexibility to choose premium amount.
o Option to change level of Premium /Sum Assured even after the plan
has started.
o Flexibility to change asset allocation by switching between funds
 Transparency
o Charges in the plan & net amount invested are known to the customer
o Convenience of tracking one’s investment performance on a daily
basis.
 Liquidity
o Option to withdraw money after few years (comfort required in case of
exigency)
o Low minimum tenure.
o Partial / Systematic withdrawal allowed
 Fund Options
o A choice of funds (ranging from equity, debt, cash or a combination)
o Option to choose your fund mix based on desired asset allocation

Traditional Plans :

These are the oldest types of plans available. These plans cater to customers
with a low risk appetite. Some of the common features of traditional plans are:

 Steady Investment
o Major chunk of investible funds are in debt instruments
o Steady and almost assured returns over the long term
 Features
o Death benefit is Sum Assured + guaranteed & vested bonus
o Helps in asset creation as they are for a long tenure
o Premium to Sum Assured ratios are fixed for each plan and age.
o Generally withdrawals are not allowed before maturity.

31
 Point of difference ULIP Traditional Policy
Market related (May be
IRDA? Determined
Investment stock market or debt
investments
market)
Transparency in costs Yes No
Flexibility in payment Yes No
Assured Bonus No Yes
Assured Sum on survival No Yes
Option to increase
Yes No
investment/premium

ULIPs better than traditional policies:

Until a couple of years ago, when ULIPs were a rare commodity, nobody knew how
life insurance companies charged policyholders for expenses. And nobody seemed to
want to know either. Then came the ULIPs with good intentions to make
policyholders aware of how much they would pay as expenses. But that move
backfired. Policyholders were taken aback by the high amount of fees that ULIPs
charged.
While the charge structure on ULIPs is something that is open to debate, the issue is
that ULIPs alone cannot be isolated. Traditional policies too charge high
administrative and management expenses. In ULIPs, the first year charges range from
20-70%, one does not know how much traditional policies charge.
This can have a bearing on returns as well. A ULIP may charge you upfront but
thereafter, all the returns on the fund are yours while a traditional policy may charge
less but share a smaller portion of returns with you.
So if you were substituting a traditional endowment with a ULIP, you would be
better off with the latter since you would know your charges and your returns.

We recommend traditional policies:

Where the objective is only Risk cover and not savings and cost has to be minimum.

We recommend Unit Linked products where:

• The intention is to provide security for a goal.

32
 • The purpose is to make the savings grow at a better rate seeking the best
solution.

• It is a market linked investment where the premium paid is invested in funds

• Different options are available, like 100% Equity, Balanced, Debt, Liquid etc
and according to the fund selected, the risks and returns vary.
• The costs are upfront and are transparent, the investment made is known to the
investor (As he is the one who decides where his money should be invested).
• There is a greater flexibility in terms of premium payments ie. A premium
holiday is possible.
• You can also invest surplus money by way of top ups which will increase your
investment in the fund and thereby provide a push to returns as well.
• There is no assured Sum on survival, the higher of the Sum Assured or Fund
Value is paid at the maturity or incase of death.

4.7 Unit Linked Insurance Plans VS Mutual Funds:

Differences between ULIPs and a Mutual Fund:

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to

mutual funds in terms of their structure and functioning. As is the case with mutual
funds, the insurance company allots units investors in ulips and a net asset value (NAV)

is declared for the same on a daily basis .

Similarly ULIP investor 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 constructed that barring the insurance element there is
nothing differentiating mutual funds from ULIPs.

Despite the seemingly comparable structures there are various factors wherein the two
differ.
1. Mode of investment/ investment amounts:

33
Mutual fund investors have the option of either making lump sum investments or
investing using the systematic investment plan (SIP) route, which entails commitments
over longer time horizons. The fund house lays out the minimum investment amounts.
ULIP investors also have the choice of investing in a lump sum (single premium) or
using the conventional route, i.e. making premium payment on an annual, half-yearly,
quarterly or monthly basis. In ULIPs, determine the premium paid is often the starting
point for the investment activity.
ULIP investors also have the flexibility to alter the premium amounts during the
policy’s tenure. For example an individual with access to surplus funds can enhance the
contribution thereby ensuring that his surplus funds are gainfully invested; conversely
an individual faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his UILP). The freedom to
modify premium payments at one’s convenience clearly gives UILP investors an edge
over their mutual fund counterparts.
2. Expenses:
In mutual fund investments, expenses charged for various activities like fund
management, sales and marketing, administration among others are subject to
predetermined 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
structure on UILP 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.
Expenses can have far-reaching consequences on investors since higher expenses
translate into lower amounts being invested and a smaller corpus being accumulated.

3. Portfolio disclosure:

34
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

ULIPs MUTUAL FUNDS

Investment amounts Determined by the Minimum investment
investor and can be amounts are determined by
modified as well the fund house
Expenses No upper limits, expenses Upper limits for expenses
determined by the chargeable to investors
insurance companies have been set by the
regulator
Portfolio disclosure Not mandatory Quarterly disclosures are
mandatory
Modifying asset allocation Generally permitted for Entry/ exit loads have to
free or at a nominal costs be borne by the investor
Tax benefits Sec 80C benefits are Sec 80C benefits are
available on all UILP available only on
investments investments in tax saving
funds
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 insures 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.
Some insurance companies do declare their portfolios on a monthly/ quarterly basis.
However the lack of transparency in ULIP investments could be a cause for concern
considering that the amount invested in insurance policies in essentially meant to
provide for contingencies and for long-term needs like retirements; regular portfolio
disclosures on the other hand can enable investors to make timely investment decisions.

Table: ULIPs vs MUTUAL FUNDS

35
 4.8 What makes ULIPs a total financial planning package?

o Potential for Superior returns by switching between Equity & Debt

o Anytime Liquidity
o No Long Term Commitments
o Flexible Insurance Cover
o 100% Tax Free Returns on Withdrawals & Maturity

4.9 Comparison of ULIP with other Investment Modules:

OTHER RATE OF TIME RISK MIN. MAX TAX TAX

INSTRUMENT RETURN PERIOD INVEST INVEST FREE BENE
MENT MENT RETUR FIT
N
NSC 8% 6years No 100 No limit No Yes
PPF 8% 15years No 500 70000 Yes Yes
ELSS Market 3years Risky 500 No limit Yes Yes
return
ULIP Market 5years Risky 500 No limit Yes Yes
return Module
FD 9.5% 5years No 10000 No limit No Yes

Market Open High 500 No limit Capital Only in

MUTUAL Return Ended gain ELSS
FUND @10% Funds
for time
less than
1year
STOCK Variable No time Very Variable No limit Capital No
frame high gain
@10%
for time
less than
1 year

36
 4.10 ULIPs- Systematic Insurance cum Investment Plan

Any individual who has purchased a life insurance policy in the last year or so surely
would have a Unit Linked Insurance Plan (ULIP). ULIPs have been selling like
Wonder Products in the recent past and they are likely to continue to outsell their
plain vanilla counterparts going ahead.

A ULIP is a market-linked insurance plan. The difference between a ULIP and other
insurance plans is the way in which the premium money is invested. Premium from,
say, an endowment plan, is invested primarily in risk-free instruments like
government securities (gsecs) and AAA rated corporate paper, while ULIP premiums
can be invested in stock markets in addition to corporate bonds and gsecs. So what
else apart from this reason makes ULIPs so attractive to the individual? Here, we have
explored some reasons, which have made ULIPs so irresistible.

Transparency:
However, ULIPs offer a transparent option for customers to plan their various life
stage needs through market-led investments as compared to traditional investment
plans.

Insurance cover plus saving:

ULIPs serve the purpose of providing life insurance combined with savings at market-
linked returns. To that extent, ULIPs can be termed as a two-in-one plan in terms of
giving an individual the twin benefits of life insurance plus savings. This is unlike
comparable instruments like a mutual fund for instance, which does not offer a life
cover.

Multiple investment options:

ULIPs offer variety than traditional life insurance plans. So there are multiple options
at the individual's disposal. ULIPs generally come in three broad variants:

• Aggressive ULIPs (which invest 80%-100% in equities, balance in debt)

37
• Balanced ULIPs (invest around 40%-60% in equities)
• Conservative ULIPs (invest upto 20% in equities)

Although this is how the ULIP options are generally designed, the exact debt/equity
allocations may vary across insurance companies. A ULIP policyholder has the option
to invest in a variety of funds, depending on his risk profile. If one does not have the
appetite to invest in equity, they can choose a debt or balanced fund.

Flexibility:
Individuals can switch between the ULIP variants outlined above to capitalize on
investment opportunities across the equity and debt markets. Some insurance
companies allow a certain number of free' switches. This is an important feature that
allows the informed individual/investor to benefit from the vagaries of stock/debt
markets. For instance, when stock markets were on the brink of 7,000 points (Sensex),
the informed investor could have shifted his assets from an Aggressive ULIP to a low-
risk Conservative ULIP.

Switching also helps individuals on another front. They can shift from an Aggressive
to a Balanced or a Conservative ULIP as they approach retirement. This is a reflection
of the change in their risk appetite, as they grow older.

Works like a SIP:

Rupee cost-averaging is another important benefit associated with ULIPs. Individuals
have probably already heard of the Systematic Investment Plan (SIP), which is
increasingly being advocated by the mutual fund industry. With an SIP, individuals
invest their monies regularly over time intervals of a month/quarter and don't have to
worry about `timing' the stock markets. These are not benefits peculiar to mutual
funds. Not many realise that ULIPs also tend to do the same, albeit on a
quarterly/half-yearly basis. As a matter of fact, even the annual premium in a ULIP
works on the rupee cost-averaging principle. An added benefit with ULIPs is that
individuals can also invest a one-time amount in the ULIP either to benefit from
opportunities in the stock markets or if they have an investible surplus in a particular
year that they wish to put aside for the future. When you're buying a ULIP, make sure
you select one that works well for you. The important thing is to look for and

38
understand the nuances, which can considerably alter the way the product works for
you. Take the following into consideration:

Charges:
Understand all the charges levied on the product over its tenure, not just the initial
charges. A complete charge structure would include the initial charges, the fixed
administrative charges, the fund management charges, mortality charges and spreads,
and that too, not only in the first year but also through the term of the policy.

Fund Options and Management:

Understand the various fund options available to you and the fund management
philosophy and objectives of each of them. Examine the track record of the funds and
how they are performing in comparison to benchmarks. Who manages the funds and
what experience do they have? Are there adequate controls? Importantly, look at how
easily you can access information about your fund's performance when you need it --
are their daily NAVs? Is the portfolio disclosed regularly?

Features:
Most ULIPs are rich in features such as allowing one to top-up or switch between
funds, increase or decrease the protection level, or premium holidays. Carefully
understand the conditions and charges associated with each of these. For instance, is
there a minimum amount that must be switched? Is there a charge on the same? Must
you go through medical underwriting if you want to increase the sum assured?

Company:
Last but not least, insure with a brand you can trust to honour its commitment and
service you according to your requirements

First and foremost, investors need to understand that a ULIP is a bundled product of
their investments and their insurance proceeds. Since privatization in 2000 and the
introduction of ULIPs as a life insurance product category, the overall insurance
penetration in the country has grown from around 2% to 4%. Today, more than 70 per
cent of the new business premium for life insurers comes from Ulips.

39
All Ulips have several funds in which your money can be put to work, much like a
mutual fund. Assuming that you choose the growth or the equity plan, ask for the
NAV performance for the last two years at least. Choose three with the highest
performance track record vis-a-vis the benchmark. Now choose the best performing
policy in terms of returns with the lowest cost.

CHAPTER-5
DATA ANALYSIS AND INTERPRETATION

40
 Superiority of Ulips over fixed deposits:

An investment gives you financial freedom. If you invest your money from the
beginning, you need not to worry about the future financial necessities. As future is
uncertain, and there may be a situation in your life where you require a large amount
of money to get out of that situation with minimal loss. So to effectively protect
yourself from such type of situation, you must inculcate the habits of saving and
investing. It may be because of your children's education, marriage or medication.

Let it be anything which demands lot of money, you may outdo it if you have invested
your money from the beginning itself. Hence, investment gives you more financial
freedom to rely upon. If you have a desire for having a luxurious apartment and a
luxurious car of your own, then it is obvious that these desires may be fulfilled by a
planned investment and savings. As you invest more, you tend to become richer. And
as you become richer, you may find no difficulty in achieving your personal goal.
Achieving personal goals is the essence of your success in every aspect of your life.

A good investment strategy requires choosing the right mix of safe and risky
investments. Among safe investments, fixed deposits (FD) are the most popular. But
think before investing in FD because there are some other investment avenues that

41
provide you much better returns such as ULIPs and Mutual Funds. Following are the
factors that you have to consider before investing in FD;

· What is the Rate of return you need to satisfy your future needs?
· Whether the returns generated by FD are sufficient to meet your future financial
needs?
· Is there any other better investment option than FD?
· Tax benefits on the returns

With FDs you deposit a lump sum of money for a fixed period ranging from a few
weeks to a few years and earn a pre-determined rate of interest. In ULIPs you invest
money regularly and after a period of time you will receive the lump sum amount.
The return on ULIPs will be normally greater than the return on FD. Following
illustration will help you to understand the return on FD and ULIP.

Interest Rate on FD

Bank Upto 1 year Upto 2 year Upto 3 year Upto 4 year Upto 5 year
ICICI 7.25% 7.75% 7.75% 7.75% 8.25%
Canara 7.25% 7.50% 6.00% 8.00% 8.00%
SBI 7.00% 5.00% 5.00% 7.25% 7.75%
HSBC 5.00% 5.50% 6.25% 6.25% 7.50%
Citi Bank 3.35% 3.75% 3.75% 7.00% 7.00%

· If you are investing in FD for 1 year you will get a maximum of 7.25% return
· If you are investing in FD for 2 year you will get a maximum of 7.75% return
· If you are investing in FD for 3 year you will get a maximum of 7.75% return
· If you are investing in FD for 4 year you will get a maximum of 8% return
· If you are investing in FD for 5 year you will get a maximum of 8.25% return

42
Company Fund Last 1 year Last 2 years Last 3 years
Birla Sun Life Creator 21.40% 18.40% 19.30%
Birla Sun Life Balancer 20.60% 15.80% 14.70%
ICICI Balancer II 10.20% 11.30% 13.70%
Prudential
HDFC Life Time Flexi Growth 6.50% 8.50% 12.90%
HDFC Life Balanced Managed 6.40% 8.10% 12.50%

Returns on ULIPs

ULIPs are always given more return than FD to the investors. It is always a
better option to the investors as it is generating comparatively more return than
FD.

Example:
Let us understand the performance of FDs and ULIPs with the help of following
example:
Mr. Rahul is working with a multinational software company; he wants to save a
good amount of money for his child’s education. He is looking to invest his money in
a profitable avenue so that he can withdraw back his money with huge returns after a
period of five years. He has approached some financial Planners and most of them
have guided him to invest in two different avenues such as Fixed Deposit and ULIP.
At last he decided to invest Rs, 1,00,000 every year in ULIP and Rs. 1,00,000 every
year in Fixed Deposit. But in FD he doesn’t have the option to invest every year. So
he has to deposit Rs. 100000 for one year. At the end of first year he has to withdraw
the money and again he has to invest Rs.100000 plus last year’s return (i.e.
Rs.100000+Interest) in the second year. Below given table will help you to find out
the returns generated from both the investments.
(In this example we have considered the average return from FD as 7% and Average
return from ULIP as 14%).

43
Returns from Fixed Deposit (FD):
Below given table will provide you details about the performance of Fixed Deposit
return over a period of 10 years

* Money Deposited every year = Last year’s FV + 1,00,000

Above given table shows that the return from FD over a period of 5 years is Rs.
6,15,329.07. If Rahul is investing for a period of 10 years the return will be Rs.
14,78,359.93. Compared to ULIPs Fixed Deposits doesn’t carry any charges like
Allocation charges or Fund Management charged. But on the other hand the return
generated is very less moreover he has to pay tax on the returns. The interest rate on
FD is taken as 7% because you cannot invest Rs. 100000 every year in FD. So you
have to invest for 1 year after that you have to withdraw it and reinvest (i.e.
withdrawn amount + 100000).

44
Returns from ULIPs:
Below given table will provide you details about the performance of Fixed Deposit
return over a period of 10 years.

Above mentioned table shows that the investment of Rahul has gone up to Rs.
6,88,851.14 in a period of 5 years. During a period of 10 years this will grow upto Rs.
19, 32,922.87.

Analysis of Returns:
Returns Over a period of 5 years:
· Return on ULIPs – Rs. 6, 88,851.14
· Return on FD – Rs. 6, 15,329.07
(By looking at the figure we can make out that the performance of ULIP is much
better than the performance of FD)

Returns Over a period of 10 years:

· Return on ULIPs – Rs. 19,32,922.87
· Return on FD – Rs. 14,78,359.93

45
(By looking at the figure we can make out that the performance of ULIP is much
better than the performance of FD)

Difference in Returns:

Investment 5 year returns 10 year returns

ULIP 6,88,851.14 19,32,922.87
FD 6,15,329.07 14,78,359.93
Difference 73522.07* 454562.94**

*Return on ULIP is Rs. 73522.07 more than the return on FD

** Return on ULIP is Rs. 454562.94 more than the return on FD

Return over a period of 5 years = 6,88,851.14 - 6,15,329.07 = 73522.07

Return over a period of 10 years = 19,32,922.87 - 14,78,359.93 = 454562.94

Absolute Return :
To find out the absolute return on the investment we should deduct Tax from the
actual return. From the below given table we can clearly find out the absolute return
on ULIP and absolute return on FD.

Over a period of 5 years:

PARTICULARS ULIP FD
5 year Return 6,88,851.14 6,15,329.07
Tax (30%) Nil* 1,84,598.72
Absolute return 68,88,51.14 4,30,730.35
Profit of investing in ULIPs-Rs. 258120.79
*Returns on ULIPs are Tax free

Over a period of 10 years:

PARTICULARS ULIP FD
10 year Return 19,32,922.87 14,78,359.93
Tax (30%) Nil* 443507.98
Absolute return 19,32,922.87 10,34,851..95

46
Profit of investing in FD-Rs.8,98,070.92
*Returns on ULIPs are Tax free

At the end of 5th year Rahul will receive Rs. 6, 88,851.14 fromULIPs and Rs. 4,
30,730.35 from FD. The return from ULIP is Rs. 2, 58,120.79 more than the return
from FD. If he is investing for a period of 10 years at the end of the term he will
receive Rs. 19, 32,922.87 from ULIPs and Rs. 10, 34,851.95 from FD. The return
from ULIP is RS. 8, 98,070.92 more than the return from FD.

Graphical Representation:
From the below given table you can understand the difference in return from ULIP
and FD.

Why ULIPs are the best:

Unit-linked insurance plans have caught the fancy of investors in urban centers.
ULIPs not only provided life cover, but also brought in a lot of transparency in the
way the policyholders' money is invested. Birla Sun Life Insurance Company
revolutionalised the life insurance industry in India with its decision to offer only
ULIPs. The rest of the life insurers followed, including the public sector Life
Insurance Corporation (LIC). The key stock market indices are touching newer peaks
and it is the time to take a look at how ULIPs are performing. The returns from

47
 growth funds of leading private sector players like, Birla Sun Life, HDFC Standard
Life, ICICI Prudential Life and Bajaj Allianz, are performing very good. - 48 -The
returns on ULIPs are normally higher than the mutual funds. ULIPs do not face
redemption pressures as the insurance money is for longer term and hence offers room
for fund managers to design better, disciplined investment strategies.

Inference:
1. From the above analysis it can be inferred that, the returns from Ulips over a period
of 5years are Rs.2, 58,120.79 more than that of fixed deposits.
2. Over a period of 10years, the returns from Ulips are Rs.8, 98,070.92 more than that
of fixed deposits.

Kotak pension floating rate

48
 Kotak pension floating rate
sensex ROR(X) nav ROR(Y)
2007 JAN 14090.92 11.46
FEB 12938.09 -8.18137 11.41 -0.4363
MAR 13072.1 1.035779 11.49 0.701139
APR 13872.37 6.12197 11.59 0.870322
MAY 14544.46 4.84481 11.65 0.517688
JUN 14650.51 0.729144 11.82 1.459227
JUL 15550.99 6.146407 12.17 2.961083
AUG 15318.6 -1.49437 11.87 -2.46508
SEP 17291.1 12.8765 11.92 0.42123
OCT 19837.99 14.72949 12 0.671141
NOV 19363.19 -2.39339 12.1 0.833333
DEC 20286 4.765795 12.19 0.743802
2008 JAN 17648.71 -13.0005 12.27 0.656276
FEB 17578.72 -0.39657 12.34 0.570497
MAR 15644.44 -11.0035 12.41 0.567261
APR 17125.98 9.470074 12.45 0.322321
MAY 16415.57 -4.14814 12.51 0.481928
JUN 13802.22 -15.9199 12.53 0.159872
JUL 14274.94 3.424956 12.61 0.638468
AUG 14564.53 2.02866 12.7 0.713719
SEP 12860.43 -11.7003 12.82 0.944882
OCT 9788.06 -23.8901 12.99 1.326053
NOV 9092.72 -7.10396 13.12 1.00077
DEC 9647.31 6.099275 13.42 2.286585
2009 JAN 9424.24 -2.31225 13.44 0.149031
FEB 8891.61 -5.6517 13.55 0.818452
MAR 9708.5 9.1872 13.54 -0.0738
APR 11403.25 17.45635 13.69 1.107829
MAY 14625.25 28.2551 13.74 0.36523
JUN 14493.84 -0.89851 13.75 0.07278
JUL 15670.31 8.117035 13.79 0.290909
AUG 15666.64 -0.02342 13.79 0
SEP 17126.84 9.320441 13.85 0.435098
OCT 15896.28 -7.18498 13.89 0.288809
NOV 16,926.22 6.479126 13.99 0.719942
DEC 17464.81 3.181986 14.02 0.214439

SUM 38.96696 20.33494

AVERAGE 1.113342 0.580998

STD DEV 10.11858 0.82186

49
50
 Kotak pension floating rate returns 0.580998

Market returns 1.113342

COMPARISON WITH MARKET RETURNS

1.2
1 kotak pension floating
0.8 rate
0.6
0.4 market returns
0.2
0
kotak pension market returns
floating rate

Kotak pension floating rate risk 0.82186

Market risk 10.11858

COMPARISON WITH MARKET RISK

12
10 kotak pension floating
8 rate risk
6
4 market risk
2
0
kotak pension market risk
floating rate risk

 Interpretation:

1. As the above table and chart shows, the market returns (1.11) were
higher than the Kotak pension floating rate (0.58), it indicates that the
fund underperformed when compared to market.
2. In comparison with market risk, the fund (0.82) was less riskier than
the market (10.12).

51
 Kotak advantage plus fund

kotak advantage plus fund

sensex ROR(X) nav ROR(Y)
2007 JAN 14090.92 10.97
FEB 12938.09 -8.18137 10.51 -4.19325
MAR 13072.1 1.035779 10.54 0.285442
APR 13872.37 6.12197 10.78 2.27704
MAY 14544.46 4.84481 11.08 2.782931
JUN 14650.51 0.729144 11.16 0.722022
JUL 15550.99 6.146407 11.56 3.584229
AUG 15318.6 -1.49437 11.36 -1.7301
SEP 17291.1 12.8765 12.06 6.161972
OCT 19837.99 14.72949 13.44 11.44279
NOV 19363.19 -2.39339 13.24 -1.4881
DEC 20286 4.765795 13.8 4.229607
2008 JAN 17648.71 -13.0005 11.88 -13.913
FEB 17578.72 -0.39657 11.92 0.3367
MAR 15644.44 -11.0035 11.06 -7.21477
APR 17125.98 9.470074 11.44 3.435805
MAY 16415.57 -4.14814 11.09 -3.05944
JUN 13802.22 -15.9199 10.44 -5.86114
JUL 14274.94 3.424956 10.47 0.287356
AUG 14564.53 2.02866 10.5 0.286533
SEP 12860.43 -11.7003 10.43 -0.66667
OCT 9788.06 -23.8901 10.33 -0.95877
NOV 9092.72 -7.10396 10.48 1.452081
DEC 9647.31 6.099275 11.26 7.442748
2009 JAN 9424.24 -2.31225 10.92 -3.01954
FEB 8891.61 -5.6517 10.9 -0.18315
MAR 9708.5 9.1872 10.95 0.458716
APR 11403.25 17.45635 11.49 4.931507
MAY 14625.25 28.2551 12.17 5.91819
JUN 14493.84 -0.89851 11.97 -1.64339
JUL 15670.31 8.117035 12.3 2.756892
AUG 15666.64 -0.02342 12.21 -0.73171
SEP 17126.84 9.320441 12.67 3.767404
OCT 15896.28 -7.18498 12.27 -3.15706
NOV 16,926.22 6.479126 12.62 2.852486
DEC 17464.81 3.181986 12.72 0.792393

SUM 38.96696 18.38472

AVERAGE 1.113342 0.525278

STD DEV 10.11858 4.534398

52
 Kotak advantage plus fund returns 0.525278

Market returns 1.113342

COMPARISON WITH MARKET RETURNS

1.2
1 kotak advantage plus
0.8 fund returns
0.6
0.4 market returns
0.2
0
kotak advantage plus market returns
fund returns

Kotak advantage plus fund risk 4.534398

Market risk 10.11858

COMPARISON WITH MARKET RISK

12
10 kotak advantage plus
8 fund risk
6
4 market risk
2
0
kotak advantage plus market risk
fund risk

 Interpretation:

1. As the above table and chart shows, the Kotak Advantage Plus Fund’s
returns (0.53) were comparatively lower than market returns (1.11).
2. Based on risk, the fund was found to be less riskier (4.53) when compared
to market (10.12).

53
 Kotak group money market

kotak group money market

sensex ROR(X) nav ROR(Y)
2007 JAN 14090.92 12.47
FEB 12938.09 -8.18137 12.55 0.64154
MAR 13072.1 1.035779 12.65 0.796813
APR 13872.37 6.12197 12.74 0.711462
MAY 14544.46 4.84481 12.85 0.863422
JUN 14650.51 0.729144 12.95 0.77821
JUL 15550.99 6.146407 13.05 0.772201
AUG 15318.6 -1.49437 13.16 0.842912
SEP 17291.1 12.8765 13.26 0.759878
OCT 19837.99 14.72949 13.37 0.829563
NOV 19363.19 -2.39339 13.48 0.822737
DEC 20286 4.765795 13.59 0.816024
2008 JAN 17648.71 -13.0005 13.7 0.809419
FEB 17578.72 -0.39657 13.8 0.729927
MAR 15644.44 -11.0035 13.96 1.15942
APR 17125.98 9.470074 14.06 0.716332
MAY 16415.57 -4.14814 14.17 0.782361
JUN 13802.22 -15.9199 14.32 1.058574
JUL 14274.94 3.424956 14.59 1.885475
AUG 14564.53 2.02866 14.71 0.822481
SEP 12860.43 -11.7003 14.85 0.951734
OCT 9788.06 -23.8901 14.99 0.942761
NOV 9092.72 -7.10396 15.13 0.933956
DEC 9647.31 6.099275 15.29 1.057502
2009 JAN 9424.24 -2.31225 15.44 0.981033
FEB 8891.61 -5.6517 15.58 0.906736
MAR 9708.5 9.1872 15.74 1.026958
APR 11403.25 17.45635 15.88 0.889454
MAY 14625.25 28.2551 16.02 0.881612
JUN 14493.84 -0.89851 16.17 0.93633
JUL 15670.31 8.117035 16.32 0.927644
AUG 15666.64 -0.02342 16.47 0.919118
SEP 17126.84 9.320441 16.62 0.910747
OCT 15896.28 -7.18498 16.8 1.083032
NOV 16,926.22 6.479126 16.95 0.892857
DEC 17464.81 3.181986 16.94 -0.059

SUM 38.96696 30.78123

AVERAGE 1.113342 0.879464

STD DEV 10.11858 0.262083

54
 Kotak group money market returns 0.879464

Market returns 1.113342

COMPARISON WITH MARKET RETURNS

1.2
1 kotak group money
0.8 market returns
0.6
0.4 market returns
0.2
0
kotak group money market returns
market returns

Kotak group money market risk 0.262083

Market risk 10.11858

COMPARISON WITH MARKET RISK

12
10 kotak group money
8 market risk
6
4 market risk
2
0
kotak group money market risk
market risk

 Interpretation:

1. From the above table and chart, we can infer that the fund underperformed
when compared to market as the fund’s returns (0.88) were lower than the
market’s (1.11).

55
2. In comparison with market risk, the fund was found to be less riskier with
standard deviation (0.26).

Kotak aggressive growth fund

kotak aggressive growth fund

sensex ROR(X) nav ROR(Y)
2007 JAN 14090.92 24.38
FEB 12938.09 -8.18137 22.4 -8.12141
MAR 13072.1 1.035779 22.78 1.696429
APR 13872.37 6.12197 24.11 5.838455
MAY 14544.46 4.84481 25.71 6.636251
JUN 14650.51 0.729144 26.23 2.022559
JUL 15550.99 6.146407 27.74 5.756767
AUG 15318.6 -1.49437 27.3 -1.58616
SEP 17291.1 12.8765 31.04 13.69963
OCT 19837.99 14.72949 36.43 17.36469
NOV 19363.19 -2.39339 36.41 -0.0549
DEC 20286 4.765795 39.22 7.71766
2008 JAN 17648.71 -13.0005 32.28 -17.6951
FEB 17578.72 -0.39657 32.77 1.517968
MAR 15644.44 -11.0035 28.59 -12.7556
APR 17125.98 9.470074 31.48 10.10843
MAY 16415.57 -4.14814 30.07 -4.47903
JUN 13802.22 -15.9199 24.52 -18.4569
JUL 14274.94 3.424956 26.19 6.810767
AUG 14564.53 2.02866 26.63 1.680031
SEP 12860.43 -11.7003 23.78 -10.7022
OCT 9788.06 -23.8901 18.67 -21.4886
NOV 9092.72 -7.10396 17.73 -5.03482
DEC 9647.31 6.099275 18.86 6.373378
2009 JAN 9424.24 -2.31225 18.33 -2.81018
FEB 8891.61 -5.6517 17.64 -3.76432
MAR 9708.5 9.1872 18.89 7.086168
APR 11403.25 17.45635 21.39 13.23452
MAY 14625.25 28.2551 26.24 22.67415
JUN 14493.84 -0.89851 26.36 0.457317
JUL 15670.31 8.117035 28.64 8.649469
AUG 15666.64 -0.02342 28.8 0.558659
SEP 17126.84 9.320441 31.31 8.715278
OCT 15896.28 -7.18498 29.97 -4.27978
NOV 16,926.22 6.479126 31.81 6.139473
DEC 17464.81 3.181986 32.69 2.766426

SUM 38.96696 46.27545

AVERAGE 1.113342 1.322156

56
 STD DEV 10.11858 9.826898

Kotak aggressive growth fund returns 1.322156

Market returns 1.113342

COMPARISON WITH MARKET RETURNS

1.4
1.3 kotak aggressive
growth fund returns
1.2
market returns
1.1
1
kotak aggressive market returns
growth fund returns

Kotak aggressive growth fund risk 9.826898

Market risk 10.11858

COMPARISON WITH MARKET RISK

10.2
10.1 kotak aggressive
10 growth fund risk
9.9
9.8 market risk
9.7
9.6
kotak aggressive market risk
growth fund risk

 Interpretation:

57
 1. In comparison with market returns, the returns of Kotak Aggressive Growth
fund (1.32) were higher which indicates that the fund overperformed when
compared to market (1.11).
2. The standard deviation of the fund (9.83) was found to be less than that of
market (10.12) which indicates that the fund is less riskier.

Comparison of returns of the ulips considered

ULIPS AVERAGE RETURNS

Kotak pension floating rate 0.580998
Kotak advantage plus fund 0.525278
Kotak group money market 0.879464
Kotak aggressive growth fund 1.322156

COMPARISON OF AVERAGE RETURNS

1.5 Kotak pension floating

1 rate

0.5 Kotak advantage plus

fund
0
Kotak group money
pension

money
market
floating

Kotak
group
Kotak

market
rate

Kotak aggressive
growth fund

 Interpretation:

Comparing the returns of all the ULIPs, the returns of Kotak Aggressive Growth
Fund (1.32) were comparatively higher than the other three funds and Kotak
Advantage Plus Fund (0.53) was found to be least performing.

58
 Comparison of risks of the ulips considered

ULIPS RISK(STANDARD DEVIATION)

Kotak pension floating rate 0.82186
Kotak advantage plus fund 4.534398
Kotak group money market 0.262083
Kotak aggressive growth fund 9.826898

COMPARISON OF RISK

12 Kotak pension floating

10 rate
8
6 Kotak advantage plus
4
2 fund
0
Kotak group money
pension

money
market
floating

Kotak
group
Kotak

market
rate

Kotak aggressive
growth fund

 Interpretation:

Among all the ULIPS considered, Kotak Aggressive Growth Fund was found to
be the most riskier fund with a standard deviation of 9.83 and Kotak Group
Money Market with a standard deviation of 0.26 was found to be the least riskier.

59
 CHAPTER-6

FINDINGS AND SUGGESTIONS

60
 6.1 Findings:

1. In the comparative analysis of ULIPs and Fixed deposits, over a period of both
5years and 10years, the returns of ULIPs were found to be higher than that of fixed
deposits.

2. Among all the ULIPS, Kotak Aggressive Growth Fund was found to be the most
profitable fund and Kotak Advantage Fund was the least profitable for the company
for the duration 2007-2009.

3. In terms of risk (standard deviation), Kotak Group Money Market was found to
be the least riskier fund and the most riskier fund was found to be the Kotak
Aggressive Growth Fund for the period 2007-2009.

4. Among all the ULIPS, Kotak Aggressive Growth Fund was the only fund which
overperformed when compared to the market.

5. In terms of risk, all the funds were found to be less riskier when compared to the
market.

61
 6.2 Suggestions:

• Equity mutual funds have large exposure to equities including mid-cap

stocks, technology stocks and growth stocks. On the other hand, ULIPs
avoid such investments.

• As per the new guide lines, no loans can be granted under ULIP schemes.
Further, insurance advisors who sell ULIPs have to be given separate
training before they are authorized to sell them.

• Also, advertisements have to clearly bring out the fact that ULIPs are
different from traditional insurance products.

• An important factor one need to bear in mind with ULIPs is that, these are
a combination of insurance and investment.

• A word of caution here while switching funds in ULIP plans since it is

ones protection cover that one would be tampering with, decision to switch
needs to be well thought out before exercising it.

• ULIPs now do not seek to replace mutual funds, they offer protection
against the risk of dying too early, and also help people save for
retirement. Insurance has to be an integral part of ones one’s wealth
management portfolio.

• Further, exposure of Indian households to capital markets is limited.

ULIPs and mutual funds are, therefore, not likely to cannibalize each other
in the long run.
• While ULIPs as an investment avenue is closest to mutual funds un terms
of their functioning and structure, the first and foremost purpose of
insurance is and will always be ‘protection’.

• Ideally ULIPs are considered for those classes of investors who want to
put money in a investment product that earns them returns by further
investing the money in the market, and at the same time ensure a life cover
and tax efficiency.

62
 6.3 Conclusions:

As ULIP’s are a long-term investment, the underlying funds are managed with the
philosophy of delivering long term risk adjusted returns.

ULIPs are essentially long-term instruments where an investor will systematically

invest every year with a certain lock-in period. ULIPs are a way of systematic
investment as one pays premium on a monthly, quarterly, bi-annual or annual basis.

Mutual funds are more aggressive players. Equity mutual funds have large exposure
to equities including mid-cap stocks, technology stocks and growth stocks. On the
other hand, ULIP,s avoid such investments. Considering these factors ULIP is
considered a better alternative for good returns, irrespective of market levels.

Some of the points to be confronted before going in for ULIP plan include:

• It is prudent to make equity-oriented investments based on an established track

record of at least 3 yrs over different market cycles. Ulips do not fulfill this
criterion.
• Insurance and savings are two different goals and it is better to address them
separately rather than bundle into a single product. A combination of a term
plan and a mutual fund could give better results over long term.
• If investment returns are one’s priority, one should compare alternative
investment products before locking in money.
• Tax advantages do work in favour of ULIP,s for debt-oriented funds. For
equity-oriented funds, equity-linked saving products, which enjoy tax
advantages and provide market-linked returns, are comparable.
• The expense structure of insurance products does significantly dent returns.

• ULIP,s cannot be compared with mutual funds, as their ideologies of

investment differ.

• The investment pattern of mutual funds and life insurance differs. Mutual
funds are more aggressive players.

• As per IRDA new guidelines, ULIP,s needs to have a minimum lock-in period
of 3 yrs.

• Mutual funds are essentially short to medium term products. The liquidity that
these products offer is valuable for investors. ULIP’s, in contrast, are
positioned as long-term products and going ahead, there will be separate
playing fields for ULIP’s and MF’s, with the product differentiation between
them becoming more pronounced.

63
CHAPTER-7

CASE STUDY

64
 Case Study:
Mr.X aged 38 years with an “above average” risk appetite wants to avail
himself of an insurance cover for 50 lakhs. He is recommended a ULIP plan by his
insurance agent with a sum assured of Rs 50 lakhs till he reaches the age of 84 years.
This works out to the client being insured for tenure of 46 years (i.e 84_38). With the
premium paying term however being only ten years, the actual premium he could be
paying per annum is about Rs 894000. The client has also been adviced by his agent
to consider his premium in the “Aggressive option”, which allows him an exposure
upto 35% exposure to equities.

Maintaining the fact that ones interest should be served best, if he keeps his
life insurance and insurance and investment needs distinct. Given below is the
possible solution for the clients needs.

The Insurance Component:

Client in this case seems to be underinsured (based on human life value
calculations). The need of the moment is to buy a term plan, moreover considering his
annual income he needs to buy a term plan for more than the recommended on the
ULIP (i.e 500000).
Sol: To begin with; we knew from our interaction with the client and based on
Human Life Value Calculations that he is underinsured. An immediate action point
for him would be for him to buy a term plan. And considering his annual income, he
would need to buy a term plan for more than the sum assured to be Rs 500000 (as per
the ULIP) for a term plan, the annual premium he would have to shell out would be
approximately Rs 30000 per annum for a 30-yrs period.

The Investment Component:

Having taken care of the clients insurance needs, now let’s shift our focus to his
investments; we took into consideration the client’s current financial portfolio. He had
a sizable portion of his portfolio invested in fixed income instruments like bonds and
fixed deposits. Bearing this in mind, our view was he did not need to have another
debt-heavy

65
(Ulip with a 65%debt component) product in his portfolio. Instead what his portfolio
needed was a higher equity component: this would not only ‘balance’ his portfolio but
also insure that the portfolio reflects his true risk profile.
It was also relevant that the client invest in equities since he was considering his
investments from a long term (over 30 yrs) horizon. This could be achieved by
investing in equity oriented mutual funds. Mutual funds can offer several benefits:

 Several studies have shown that over the long term, equities give a higher
return vis-à-vis fixed income instruments like bonds and gsecs, and given that
the clients investment horizon is of 30 yrs, this is an ideal time frame to recap
the rewards of investing in equities. Also, over a 39-yr period, a 100% equity
mutual fund is better geared to outperform a ULIP portfolio with a 65% debt
component.

 ULIP tend to be expensive proportions (vis-à-vis mutual funds) during the

initial years. However, over long time horizons, the expensive balance out and
ULIP vis-à-vis that of a mutual fund scheme were to be considered, the latter
would still surface as the better option.

 Several mutual funds also have a track record to boast off. Personal fn’s
recommended equity-oriented funds have a proven track record extending
over several years and across Markey cycles/ ULIP’s are yet to experience a
bear phase.

 Investing in a mutual fund portfolio will offer the benefit of diversification to

the client. The investor will reap the reward of diversifying across several fund
management styles. On the other hand, by investing all his money in just one
ULIP, the client would be committing his entire corpus to just one style of
investment. This can prove to be quite risky over the long term.

 You can make adjustments to your mutual fund portfolio. If you believe you
have made a wrong investment decision, you can redeem your investment in a
Particular mutual fund and invest in another one. Such adjustments are not
entirely feasible in a ULIP.

66
  The Tax Aspect:

We also had to contend with section 80C tax benefits. However, given the clients
annual income, the Section 80C tax benefits were being taken care of by way of
Employee’s Provident Fund (EPE) as well the recommended term plan. The client
therefore can invest in regular diversified mutual funds and not necessarily in tax
saving funds (ELSS).
As can be seen, term plans combined with mutual funds have the potential to add
considerable value to an investor’s portfolio. In our view individuals should should
first insure that they are adequately covered by opting for a term plan. Then they can
either opt for ULIP’s for the investment component or as we have shown, they can
consider mutual funds.

67
 CHAPTER-8
BIBLIOGRAPHY

68
 Bibliography
• www.kotaklifeinsurance.com
• www.outlookmoney.com
• www.amphi.com
• www.hdfcfund.com
• www.businesstoday.com
• www.google.com
• www.aboutulips.com
• www.financialexpress.com
• www.bseindia.com
• www.moneycontrol.com/sensex/bse/sensex-live

69
70