A Project Report

On
“Awareness of Mutual Fund”
Submitted by
Vatsal Zaveri
TYBMS

Submitted to
University of Mumbai
In partial fulfillment of the requirements for the award of
Degree of Bachelor of Management Studies

Project Guide
Prof. Dhara Vora
Kapol Vidhyanidhi College of Management and Technology,
Mumbai-400067

Academic Year
2016-2017
 Certificate

This is to certify that Vatsal Zaveri has successfully completed the project entitled
“Comparison between mutual Fund & ULIP”
For the partial completion of
Degree of Bachelor of Management Studies
For Academic Year 2016-2017 at
Kapol Vidhyanidhi College of Management and Technology
Kandivali(W)

_________________

_______________
College Seal Project Guide
Prof. Dhara Vora

_______________
Internal
Examiner

_______________

______________
Principal External
Examiner
Prof. Dr. Reshma Hedge
 Declaration

I, Miss. Vatsal Zaveri student of Kapol Vidhyanidhi College of Management and

Technology, hereby declare that the project report entitled “Awareness of Mutual Fund” has
been written and submitted under the guidance of Prof. Dhara Vora in the academic year
2016-2017.
I further declare that it is original work done as part of our academic course toward the partial
fulfillment of the requirements for the degree of Bachelor in Management Studies (BMS) of
Mumbai University and has not been submitted elsewhere. The conclusion and interpretation
written in this project are based on the data collection by me while preparing this report.

_______________
Vatsal Zaveri
 Acknowledgement

The Satisfaction and euphoria that accompany the successful completion of my project would
be incomplete without the mention of the people who made it possible and whose constant
guidance and encouragement crowned my efforts with success.
I owe more than I can express to Prof. Dhara Vora for blessing my research project work with
her guidance and valuable insight and sharing her unique knowledge for bringing out the best
in this project.
I am also grateful to who have all been very kind in sparing their valuable time going through
the project, expressing their frank opinion about it and giving suggestions in the areas of
improvement.
I am also thankful to all the respondents for their contribution who helped me in this study

________________
Vatsal Zaveri
 INDEX
Sr No. Particular Pg No.

1 Introduction
1.1. Executive summary
1.2. Introduction to ULIP
1.3. Introduction to mutual fund
1.4. Difference between MF & ULIP
2 Literature review
3 Introduction to Mutual funds
3.1 Meaning
3.2 Features
3.3 Types
3.4 Objectives
4 Unit linked insurance plan (ULIP)
4.1 Meaning
4.2 Features
4.3 Types
4.4 Objectives
5 Difference between MF & ULIP
6 Research Methodology
7 Data collection
8 Data analysis and interpretation
9 Finding and suggestions
10 Conclusion
11 Annexure
12 Reference

CHAPTER 1:
INTRODUCTION
1.1 EXECUTIVE SUMMARY

Unit Linked Insurance Plans and the Mutual Funds are the needs of the present world as we
can see that in the today’s scenario people have both,the resources and the way to use
it.Investment is not a new term as it has got a long history.In the present time there is several
sectors in which people are easily ready to invest their hard earned money.And this is only
the reason why financial sector is growing like anything.

Mutual Fund is an instrument of investing money.One of the options is to invest the money in
stock market. But a common investor is not informed and competent enough to understand
the intricacies of stock market. This is where mutual funds come to the rescue.
The study has been conducted to analyze the investments offerings of the Kotak life
insurance. The study focuses on the analyzing investments in ULIP and what are the
consideration or deliberation by an individual before taking any investments plan.
The top priority of every insurance company is to have insurance cum investment plan which
must suit the requirement of individual .
The methodology conducted by enhancing the policies taken by individuals is to appoint LA
(life advisors cum insurance agents) which has a great contacts within the society and advise
them based on their need and the risk appetite.
Insurance industry grow on “contacts” which is the foundation of every insurance company
to spread across the length and breadth of country. The industry has attracted a lot of people
in the industry due to its monetary value it carries.

1.2 INTRODUCTION TO ULIP

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that,
unlike a pure insurance policy, gives investors both insurance and investment under a single
integrated plan.
The first ULIP was launched in India in 1971 by Unit Trust of India (UTI). With the
Government of India opening up the insurance sector to foreign investors in 2001 and the
subsequent issue of major guidelines for ULIPs by the Insurance Regulatory and
Development Authority (IRDA), now Insurance Regulatory and Development Authority of
India (IRDAI), in 2005,several insurance companies forayed into the ULIP business leading
to an over abundance of ULIP schemes being launched to serve the investment needs of those
looking to invest in an investment cum insurance product.

1.3 INTRODUCTION TO MUTUAL FUNDS

A mutual fund is a professionally managed investment funds that pools money from many
investors to purchase securities.While there is no legal definition of the term "mutual fund", it
is most commonly applied to so-called open-end investment companies, which are collective
investment vehicles that are regulated and sold to the general public on a daily basis.

Mutual funds have both advantages and disadvantages compared to direct investing in
individual securities. Today they play an important role in household finances, most notably
in retirement planning.

1.4 DIFFERENCE BETWEEN ULIP & MUTUAL FUNDS

ULIP stands for Unit Linked Insurance Plan. Its biggest benefit is that it combines the
features of both insurance cover and investment opportunities under a single plan. When the
premium is paid, part of the amount goes towards providing the policy holder insurance
cover, and the other part is invested in stocks and bonds so that the policy holder will get
wealth appreciation. As a policy holder, you have the freedom to choose which asset class the
investment should be made in. Policy holders who are risk averse can choose to have their
money invested in bonds, while those who don’t mind sacrificing risk for higher returns can
opt to have the money to be invested in equities.
On the other hand, a mutual fund is a collective investment scheme. Many investors invest
their money in the fund to form a pool, which is then invested in stocks, bonds and other asset
classes by a fund manager. From time to time, the mutual fund distributes dividend to its
investors. However, there are funds where the dividend is reinvested in the scheme and the
investor gets a lump sum at the time of exit.
The key difference between mutual funds and ULIPs is the insurance cover provided by the
latter. While mutual funds are pure investment products, ULIPs provide cover and
investments. In addition, while most mutual funds don’t guarantee any returns, some ULIPs
offer a minimum amount in the form of a sum assured in case of death of the policy holder or
the fund value, whichever is higher. In this way, ULIPs are superior to mutual funds.
While ULIPs may be more expensive than mutual funds in the initial years, being a long-term
product, this cost is spread over a longer period and hence, becomes similar to the cost of
investing in mutual funds.

CHAPTER 2:
LITERATURE
REVIEW
CHAPTER 2:
LITERATURE
REVIEW
CHAPTER 2- LITERATURE REVIEW

A Mutual fund is a pure intermediary which performs a basic function of buying and selling
securities on behalf of its unit holders, which the latter also can perform but not as easily,
conventionally, economically and profitably. The aim of this article is to review the existing
literature on Mutual Funds. I have reviewed the studies conducted on various aspects of
mutual funds. I have summarized the conclusions of all the studies so that the reader will get
the idea on what studies has been conducted on mutual funds. I have categorized the studies
into different sub topics. All the related studies are presented under one head. Due to
tremendous growth of Mutual fund Industry it has gained the interest of investors as well as
researchers. Lots of studies have been conducted on various areas of mutual funds. The
objective of this article is to throw a light on the existing literature on mutual funds
Karuna (2009) highlighted on ‘Relevance of ULIPs as a good investment tool’ to observe
traditional life insurance plans offered by LIC took care of only the insurance needs of
people. However, with the ever changing demands of customers a new product called ULIP
was launched which combines the benefits of insurance, investment and tax benefits. The
author observed that ULIPs were better suited to investors who have 15-20 years as their time
horizon to spread the expense over the longer period and reap the benefits.Divya Y. Lakhani
(2011) had conducted a research study to identify the relation between returns and Sensex,
investors’ preference for ULIP and Equity, growth and penetration of ICICI Prudential and
the performance of some of its ULIP schemes. The major finding of this study was that the
NAV for equity based fund options moves in tandem with Sensex while for debt based fund
options it is not much affected by the movement of Sensex.
 CHAPTER 3:
MUTUAL FUNDS
3.1 MEANING

A mutual fund is an investment vehicle made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market
instruments and similar assets. Mutual funds are operated by money managers, who invest
the fund's capital and attempt to produce capital gains and income for the fund's investors. A
mutual fund's portfolio is structured and maintained to match the investment objectives stated
in its prospectus.

A mutual fund is a pool of money from numerous investors who wish to save or make money
just like you. Investing in a mutual fund can be a lot easier than buying and selling individual
stocks and bonds on your own. Investors can sell their shares when they want.Mutual Funds
have high liquidity.

3.2 FEATURES

 MOBILIZING SMALL SAVINGS

Mutual Funds mobilize funds by selling their own shares known as units.Mutual
Fund invest in various securities and pass on the return to the investors.

 INVESTMENT AVENUE
The basic characteristics of mutual fund is that it provides an ideal avenue for
investment for investors and enables them to earn a reasonable return with better
liquidity.

 PROFESSIONAL MANAGEMENT
Mutual Funds provides investors with the benefit of professional and expert
management of their funds.

 DIVERSIFIED INVESTMENT
Mutual Funds have the advantage of diversified investment of funds in various
industries and sectors.This is beneficial to small investors who cannot afford to
buy shares of established companies at high prices.
  LIQUIDITY
Mutual Fund have better liquidity.There is always a market available for Mutual
Funds.Therefore high level of liquidity is possible for fund holder.

 SWITCHING FACILITY
Mutual Funds provide switching facility from one scheme to another scheme.This
facility enables the investors to switch from income scheme to growth scheme and
from close ended scheme to open ended scheme.

 LOW TRANSACTION COST

The cost of purchase and sale of Mutual Fund’s is Relatively less.

3.3 TYPES
  SCHEMES ACCORDING TO MATURITY PERIOD
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.

1) OPEN ENDED FUND

An open-ended Mutual Fund is one that is available for subscription and repurchase on a
continuous basis .These funds do not have a fixed maturity period.

2) CLOSE ENDED FUND

A close ended mutual fund has a stipulated maturity period e.g.5-7 years.The fund is open for
subscription only during a specified period at the time of launch of the scheme.

FUND ACCORDING TO INVESTMENT OBJECTIVE

GROWTH/EQUITY ORIENTED SCHEME

The aim of growth funds is to provide capital appreciation over the medium to long-
term.Such funds have comparatively high risks.These schemes provide different options to
the investors like dividend options,capital appreciation,etc.

INCOME/DEBT ORIENTED SCHEME

The aim of income funds is to provide regular and steady income to investors.Such schemes
generally invest in fixed income securities such as bonds,corporate debentures,Government
securities and money market instruments.Such funds are less risky compared to equity
schemes.

BALANCED FUND
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents.These are appropriate for investors looking for moderate growth.

MONEY MARKET
These funds are also income funds and their aim is to provide easy liquidity,preservation of
capital and moderate income.These schemes invest exclusively in safer short term
investments such as treasury bills,commercial paper and government securities,etc.These
funds are appropriate for corporate and individual investors.

GILT FUNDS
These funds invest exclusively in government securities.Government securities have no
default risk.

INDEX FUNDS
This schemes invest in the securities in the same weightage comprising of an index.This
schemes would rise or fall in accordance with the rise or fall in the index.

3.4 OBJECTIVES

The general objective of any Mutual Fund (MF) is maximizing the returns at a certain level of
risk. 
There are specific objectives as well and Funds are usually classified as per their objectives and
the investment style. Here are some of the common forms of mutual fund objectives:

Growth Funds: The most common objective of investment is growth. The primary objective of
any growth fund is capital appreciation over the medium to long term. Growth mutual funds are
generally invested primarily in small to large cap stocks.

Income Funds: Here the objective is current income in certain invervals as opposed to capital
appreciation.These funds are suitable for investors, who are looking for cash flow to supplement
their income. To ensure steady income, major portion of the asset is invested in income
instruments viz. fixed interest debentures, bonds, preference stocks and dividend paying stocks
etc.

Sector/Industry Funds: These funds aims at investing only in specific sectors or industries, such
as real estate or healthcare. The main objective behind these funds is to maximizing the return by
exploiting the growth of booming sectors.

Value Funds: This funds generally aims at investing in stocks that are deemed to be undervalued
in price because  of some inherent inefficiencies of the Market. It is expected that, once the
market corrects these inefficiencies, the stock price will rise thus benefitting the investor. 

These funds are sometimes further classified with different level of risks. 

The investment objective of a MF is not be confused with the investment style. The fund manager
may practice a particular investing style, to meet the objective of a Fund. Two funds with growth
objective might differ in terms of investment style. One fund manager may choose to invest in
Blue chip funds while the other can choose to invest in undervalued securites or even a blend of
both. A mutual fund scheme's goal and investing rationale are determined by itsinvestment objective.
It could include the long-term capital appreciation, regular monthly income or steady returns. 

2) The fund invests according to the stated objective. So an equity fund will invest in equity shares for
long-term capital appreciation, whereas a debt fund will invest in government securities andcorporate
bonds to generate return. 

3) The risk and return of the fund will depend on the investment objective since the portfolio of
securities held and its management will be driven by the objective. 

4) Investors must use the objective to match the scheme's risk and return profile with their own
requirements. They must also use it to identify similar schemes for comparing and evaluating
performance. 

5) A change in the scheme's investment objectives has to be approved by the trustees. The investors
have to be informed of the change through individual communication and should be given the option
to exit the scheme without paying any exit load. 
CHAPTER 4: UNIT
LINKED
INSURANCE
POLICY (ULIP)
4.1. MEANING OF ULIP
A Unit-Linked Insurance Plan or a ULIP is a hybrid type of plan offered insurance companies
that gives you the benefit of both Insurance as well as Investments. In a ULIP, a part of the
premium that you pay is allocated towards insurance and the remaining is utilized for
investment in funds available within the plan. In this way, ULIP gives you both insurance
cover as well as returns on investment through a singular medium.Max Life Fast Track Plan
by Axis Bank is a good example of a ULIP where you get to select from six funds and shorter
payment terms for quicker accumulation of returns through investment along with the
insurance cover

ULIP stands for unit linked insurance plans. ULIP is a combination of insurance and
investment. Here policyholder can pay a premium monthly or annually. A small amount of
the premium goes to secure life insurance and rest of the money is invested just like a mutual
fund does. Policyholder goes on investing through the term of the policy – 5,10 or 15 years
and accumulates the units. ULIP offers investors options that invest in equity and debt. An
aggressive investor can pick equity oriented fund option whereas a conservative one can go
with debt option. “If you have a long term ULIP, go for equity oriented fund option – which
is called a growth option,” says Deepak Yohannan, CEO of myinsuranceclub.com He further
points out that the recently launched ULIP are better than the older ULIP due to lower
charges. One can pick and choose the low cost ULIP. While traditional insurance plans offer
4% to 6% returns, ULIP can offer you double digit returns if you are invested in equity funds,
says Deepak Yohannan.

4.2. FEATURES OF ULIP

The new Ulip regulations, undoubtedly, improve customer value proposition. However, this
does not mean that every product offered before the change was bad. In fact, it would be
incorrect to term any products good or bad per se.

Passing a sweeping judgment on a product category pre or post an event would be flawed
most of the time. Can we say that an analog camera is worse than a digital camera? In most
cases, in today's time, time you may say yes, but was that the case when digital cameras were
not available? Ultimately both analog and digital photography serves the same purpose of
capturing memories for posterity. The relevance of a product depends on the environment and
needs of an individual.

Before we analyse the new Ulips, I would like to focus on processes, which every individual
should go through to take an informed decision.
» Understand your needs-Identify your short-term and long-term needs, your assets and
liabilities and fund requirement at various points in your life.

» Understand your risk profile-Every individual has different life conditions, which drive his
risk taking ability. Understanding them would help you in choosing the right product.

» Understand the product solution-It is important to understand what you are buying. Spend
some time in doing research. As part of this exercise, it becomes important to understand the
impact of new Ulip guidelines.

The new guidelines bring a clear focus on long term requirements and enhanced protection,
exactly what a life insurance product should do. Let us now look at how these changes will
affect the lives of consumers.

LOOK BEYOND THE DAY

The new guidelines have increased the lock-in period to five years from the earlier three
years. In fact, today, when the average life span is 75 years and beyond, there is a need to
view the tenure of financial planning within the time frame of a life span. This change makes
the customer understand the need remain invested for the full tenure.

REMAIN PROTECTED, ALWAYS

This change is to reiterate the basic purpose of life insurance-protection. The minimum sum
assured multiples under the new regulations have been increased. This reiterates the fact that
life insurance is the only financial product that provides protection against uncertainty.

GREATER FLEXIBILITY

This new guideline stipulates the maximum net reduction in yield every year from the fifth
year. This will allow you to buy the product with confidence with the maximum reduction on
account of charges in the product. This change does not make any difference over the long-
term but provides flexibility in case of exigency.

SUPERIOR PRE-SALES ENGAGEMENT

Irda has introduced a cap on surrender charge based on the year of discontinuance and annual
premium. This has effectively put a huge value on persistency management in the industry.
 This leaves life insurers with no option but to sell right and appropriately communicate the
features of the product to customers so that they remain invested for the full term. 

However, it is also the responsibility of the customer to refrain from buying a long-term
policy with the intention of surrendering it after completion of the lock-in period.

There has only been a marginal change in Ulips post September 2010. The real difference
will emerge not in terms of returns due to product features but due to selling right and buying
right after understanding the product and keeping it for the long term.

4.3. TYPES OF ULIP

1. Equity Funds: These ULIPs invest primarily in high-risk equities and stocks on
companies. They are the riskiest ULIP investment, and also the one offering the highest
rewards. If you have a medium-to-high risk appetite, and think that fortune favours the
bold – go for one of these plans. If you win here you win big.
High risk, high reward.
2. Income, fixed-interest, and bond funds: Under these ULIPs, your funds will be
invested in government securities, fixed-income securities, corporate bonds, and the like,
which offer a medium and risk, and medium reward.
Medium risk, low to medium reward.
3. Cash Funds: Investments in these ULIPs will see your corpus directed towards
money market funds, cash and bank deposits and other money market instruments which
are in the lowest risk category.
Low risk (almost no risk) and low reward.
4. Balanced Funds: These are the most stable and prudent investment based on the very
fact that they vary the amount of investment that goes to different places. It invests in
proportion, and divides the total investible amount between equity investments in high risk
equities, company stocks, etc. and fixed-interest instruments which pose a lower risk.
Medium risk, high reward.
1. To fund your child’s education: This is one of the more popular reasons for choosing a
ULIP – as it meets the requirements of securing your children and dependents against
financial suffering in the event of your death, and plans pay-outs in such a way that they
will be used for the intended purpose. These ULIPs usually pay benefits out once a year,
when it’s needed for the specific purpose for which it was taken.
2. To build a corpus of funds: Idle savings can be put to work through investment plans,
and one that also gives you the option of life insurance cover basically kills two birds with
one stone. Instead of navigating through hell to find the right investment at the right
interest rate and the right tenure, people tend to let the insurance company manage their
funds. Building a large corpus is a time consuming venture, when approached through the
regular method of hard work, ULIPs limit your involvement in the management of funds
and let your enjoy a piece of the profit cake.
3. Life stage based s/ non-life stage based: These plans consider themselves to be your
financial aides, and vary your investments between different levels of risk as you get older.
The plan understands that priorities change over time, and that risk appetite is highest in
your youth. Investments will be staggered between equity & debt instruments in different
proportions at different times.
4. Guarantee / non-guarantee: ULIPs today offer guaranteed additions and benefits, but
these are generally very long term. Guaranteed ULIPs also separate the investor from any
kind of risk, although the reward is slightly lesser. Non-guaranteed ULIPs offer a range of
investment to choose from, ranging between varying levels of risk. While these make no
promises, they afford you the opportunity to decide where your money goes, and when.
5. Single premium / regular premium: Everyone has their own premium paying capacity.
Single premium plans require one lump sum of premium to be paid at the start of the plan,
and regular premium plans divide and stagger the premium payments over regular
intervals.
6. To plan for retirement: When your regular source of income stops, and you’re past the
part of your life when you were able to work, retirement corpus building ULIPs can come
rescue you. There are specific ULIP plans designed to take care of you in your twilight
years. They offer regular pay-outs after the plan ends, and you will still receive an amount
that can keep you comfortable. It is when these payments start that you will truly realise
the benefit of working for money, and having money work for you.
7. To meet medical or personal emergencies: Sometimes there are huge, unavoidable
expenses that we must bear. Medical emergencies, accidents, legal fees, settlement
amounts, debt, etc. can really hit you hard when you least expect it. There are plans that
help you build a corpus and use it as you would a health insurance policy. When you’re in
the hospital and in need of quick cash, fast, the plan allows you to partially withdraw from
your larger maturity corpus to meet the immediate expense.

4.4. OBJECTIVES OF ULIP

Prime objective of ULIP  is to give insurance and  market linked returns to the policy holders.
The traditional plans give guaranteed returns where the underlying asset is mostly
government securities,, so the retuens are limited.
In ULIPs, the underlying assets are mostly equities, so returns are inline with markets and are
also mostly non guaranteed.

Benefits of ULIPs
ULIPs are diverse life insurance products which offer the following benefits:

Multiple Benefit Plan

The biggest advantage of buying ULIPs is that it provides multiple benefits under one
umbrella which offer life cover integrated with a market-linked fund investment. Benefits
such as risk cover, add on riders, long-term investment, tax benefits, etc. furnished in one
plan which makes it a comprehensive financial tool.

Flexibility in Investments
ULIPs have a variety of high, medium and low-risk investment options to choose from under
the same policy. You can opt for appropriate investment options or funds as per your risk
appetite. The policyholder may also elect to switch between fund options without any cost for
a specified number of switches. Also policyholder may redirect his new premiums as per the
desired investment pattern. This provides the elasticity to enhance the investment portfolio,
via top-ups to get additional investment opportunity.

Transparency

The charge construction, the value of investment and fund performance and other associated
things are transparent in nature. With the insurer providing the regular account statements of
our investment portfolio and its respective NAV allows you to know the status of your
investment assortment at all the times. Many Insurers offer latest NAVs on their website on a
daily basis.

Liquidity

ULIPs offer a great deal of liquidity to take care of the unexpected and unforeseen
circumstances; It allows the benefit of partial withdrawals which suggests that you can
withdraw a specified amount from your fund value after completion of the stipulated policy
period.

Ensures Disciplined Savings

ULIPs helps you to indulge in a regular, disciplined saving habit which in turn advantage you
to cater to your life's financial objectives.

Spread of Risk

ULIPs are the perfect financial solution in case you are interested in availing the benefit of
market linked growth without directly participating in the stock market. The main advantage
of unit-linked products is that it permit you to shield your investment against the fluctuations
of the market through the fund switch and redirect option and allows you to spread your risk
evenly.
 CHAPTER 5:
DIFFERENCE
BETWEEN MF &
ULIP
DIFFERENCE BETWEEN ULIP AND MF
Despite the seemingly comparable structures there are various factors wherein the two differ.

In this article we evaluate the two avenues on certain common parameters and find out how
they measure up.

1. Mode of investment/ investment amounts

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 minimum investment amounts are laid out by the fund house.

ULIP investors also have the choice of investing in a lump sum (single premium) or using the
conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or
monthly basis. In ULIPs, determining the premium paid is often the starting point for the
investment activity.

This is in stark contrast to conventional insurance plans where the sum assured is the starting
point and premiums to be paid are determined thereafter.

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 ULIP). The freedom to modify premium payments at
one's convenience clearly gives ULIP 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 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.

Expenses can have far-reaching consequences on investors since higher expenses translate
into lower amounts being invested and a smaller corpus being accumulated. ULIP-related
expenses have been dealt with in detail in the article "Understanding ULIP expenses".

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.

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 is essentially meant to provide for contingencies
and for long-term needs like retirement; regular portfolio disclosures on the other hand can
enable investors to make timely investment decisions.

There is lack of consensus on whether ULIPs are required to disclose their portfolios. While
some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state
that there is no legal obligation to do so.

4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are
largely comparable. For example plans that invest their entire corpus in equities (diversified
equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those
investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds.
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.

ULIPs vs Mutual Funds

  ULIPs Mutual Funds

Minimum investment amounts

Determined by the investor are determined by the fund
Investment amounts and can be modified as well house
 No upper limits, expenses Upper limits for expenses
determined by the insurance chargeable to investors have
Expenses company been set by the regulator

Quarterly disclosures are

Portfolio disclosure Not mandatory* mandatory

Generally permitted for free Entry/exit loads have to be

Modifying asset allocation or at a nominal cost borne by the investor

Section 80C benefits are Section 80C benefits are

available on all ULIP available only on investments in
Tax benefits investments tax-saving funds

*
In the long term, ULIPs take over Mutual funds in terms of return. There is a bigger picture though that
needs to be considered. There is a much greater chance for the value of this ULIP to grow
higher . In our case above, the return has been assumed at 8% market growth for ULIP. Let’s
look at the cost structure to take a view clear of this assumption.

ULIP on premium MF + Term on MF + Term on

Year paid premium ULIP on FV FV

1 9% 4% 10% 4%

2 11% 7% 5.35% 3.11%

3 12% 9% 3.92% 2.83%

4 14% 12% 3.21% 2.68%

5 14% 15% 2.58% 2.60%

6 12% 19% 1.75% 2.54%

 ULIP on premium MF + Term on MF + Term on
Year paid premium ULIP on FV FV

7 14% 22% 1.67% 2.50%

8 16% 25% 1.62% 2.47%

9 19% 29% 1.59% 2.45%

10 21% 33% 1.58% 2.43%

11 24% 37% 1.57% 2.41%

12 27% 42% 1.55% 2.40%

13 30% 47% 1.55% 2.39%

14 34% 51% 1.54% 2.38%

15 37% 57% 1.53% 2.38%

16 41% 62% 1.53% 2.37%

17 45% 68% 1.52% 2.36%

18 50% 74% 1.47% 2.36%

19 56% 81% 1.47% 2.35%

20 56% 87% 1.31% 2.35%

Here it is clearly evident that the ULIP has higher cost in the initial 4 years post which MF
plus term takes over. 
Also, please note that term cover will have a constant life cover of 5 lakhs here throughout
these 20 years whereas ULIP product has 5 Lakhs or Fund value whichever is higher paid
out. Hence, in later years life cover of ULIP has decreased. There are few ULIPs (Typre II
Ulip) which has a constant life cover too. Those have not been taken into account in this
calculation.
Another point is that tax saving has not been taken into consideration in this illustration.
ULIPS have a much stronger case in such instances. If you want a glimpse of this, simply
 deduct the tax saving from the premium you pay to get a glimpse of what that offers. The
return is tax free as well.
Note that ULIPs have a lock in for 5 years. The regulators believed the risk may be too
high in case policyholders decide to opt out of the policy in the initial 5 years. Thus this
restriction has been put in place. In Mutual fund there is no such restriction. Policyholders
can opt out any time they wishes to. However for someone who does not track market that
often, this could turn out to be a very risky business.
In my opinion, the most valuable point offered by ULIPs is investment discipline. You
know that you have to pay premium by due date in order to avoid the policy from getting
lapsed. This will make you pay these premiums. Thus a regularized saving is ensured giving
you a big corpus amount by the end. In Mutual funds there is no such restriction. You can opt
for Systematic Investment Plans to keep up the habit of putting money aside. In case you opt
out, there are no penalties involved.
So to summarize, one should look up to investing in ULIPs if they belong to any of these
categories:
 They have tax savings to do under 80C
 They plan to invest longer than 10 years. 
 Also, the above calculations have been done using ULIPs made for online
purchase. These have a lower cost as compared to those available for retail sale
offline. So buy an online ULIP to reap maximum benefit.  
 CHAPTER 6:
RESEARCH
METHODOLOGY
6.1. RESEARCH METHODOLOGY MEANING
Research ; may be defined as the systematic and objective analyze and recording ofcontrolled
observation that may lead to the developments or generalizations, principles ortheories,
resulting in pre
diction and possibility ultimate control of events”.
 Sometimes research is defined as a movement, a movement from the known to the
unknown.It is an effort to discover something. Some people say that research is a on effort to
know
“more and more about less and less”.
According to CLIFFORD WOODY, research comprises, defining and redefining
problemsformulating hypothesis or suggested solutions; collecting organizing and evaluating
data;making deductions and reaching conclusions; and at as carefully testing the conclusions
todetermine whether they fit the formulating a hypothesis.
Research may also be defined ”
Any organized enquiry discussed and carried out to provide
information for solving a problem”.

6.2. DATA COLLECTION

1) Primary Data : Primary research involves the collection of original primary data
by researchers. It is often undertaken after researchers have gained some insight into an issue
by reviewingsecondary research or by analyzing previously collecte primary data. [clarification
needed]
 It can be accomplished through various methods, including questionnaires and telephone
interviews in market research, or experiments and direct observations in the physical
sciences, amongst others. The distinction between primary research and secondary research is
crucial among market-research professionals.
2) Secondary Data : Secondary data refers to data that was collected by someone other
than the user. Common sources of secondary data for social science include censuses,
information collected by government departments, organisational records and datathat was
originally collected for other research purposes.

6.3. TYPES OF RESEARCH

1) Descriptive Research : Descriptive research is used to describe characteristics of a
population or phenomenon being studied. It does not answer questions about how/when/why
the characteristics occurred.
2) Exploratory Research : Exploratory Research is research conducted for a problem that
has not been clearly defined. It often occurs before we know enough to make conceptual
distinctions or to posit an explanatory relationship. Exploratory research helps determine
the best research design, data-collection method and selection of subjects.
6.4. SAMPLING
1) Sampling framework : The sample framework consists of people who have
knowledge is insurance and ULIP.

2) Sample Size : The sample size is 100 people.

3) Type of Sampling : Cluster type of sampling is used.

Cluster sampling is a sampling technique used when "natural" but relatively

heterogeneous groupings are evident in a statistical population. It is often used in
marketing research. In this technique, the total population is divided into these groups
(or clusters) and a simple randomsample of the groups is selected.

6.5. LIMITATIONS

 Mostly the data is related to the secondary data.

 The product is restricted to Mutual funds and ULIP.
 The data is only limited to financial performance of the Mutual fund and ULIP.
 While conducting the surve there were lot of vege responses which made it
difficult during the data interpretation.
CHAPTER 7: DATA
COLLECTION &
ANALYSIS
Figure 7.1

Do you invest in Mutual funds or ULIP ?

49

55

yes no

Interpretation
The above figure 7.1 shows out of the total bunch of people how many of them invest in
mutual funds or unit linked insurance policy (ULIP). Approximately 52.9% of people do
invest in either mutual funds or unit linked insurance policy (ULIP), the rest of the people i.e.
47.1% of people invest in some other investment avenues but on mutual funds and ULIP.

Figure 7.2

If no, what were the other options where you prefer to invest?

Share Market
6% Share Market
16%

Gold & Silver

24%

Post office Savings

Scheme
6%
Fixed Deposit
47%

Share Market Fixed Deposit Post office Savings Scheme

Gold & Silver Share Market

Interpretation
The above figure shows that the highest number of people would prefer investing in fixed
deposits other than mutual funds and ULIP i.e. 48%. After this the 2 nd highest franked
investment avenue is Gold & Silver.