DEFINITION:

Mutual fund is the pool up savings of small investors to raise funds called mutual funds.

Mutual funds are invested in diversified portfolio to spread risk. While it opens an

investment channel to small investors, it reduces risks, improves liquidity and results in

stable returns and better capital appreciation in the long run.

CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned

through these investments and the capital appreciation realized are shared by its unit

holders in proportion to the number of units owned by them. Thus a Mutual Fund is

the most suitable investment for the common man as it offers an opportunity to invest

in a diversified, professionally managed basket of securities at a relatively low cost.

Mutual fund is a trust that pools money from a group of investors (sharing common

financial goals) and invest the money thus collected into asset classes that match the

stated investment objectives of the scheme. Since the stated investment objective of a

mutual fund scheme generally forms the basis for an investor's decision to contribute

money to the pool, a mutual fund can not deviate from its stated objectives at any

point of time.

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Every Mutual Fund is managed by a fund manager, who using his investment

management skills and necessary research works ensures much better return than

what an investor can manage on his own. The capital appreciation and other incomes

earned from these investments are passed on to the investors (also known as unit

holders) in proportion of the number of units they own.

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UNIT LINKED INSURANCE PLANS

Unit Linked Insurance (ULIP) plans are designed to help you meet your financial

goals by ensuring you the value of your investments, or your nominee sum assured,

which is the life cover of your policy. To make sure that your ULIP is truly working

to assure your goal, you should choose a life cover that provides your family with

adequate finances and hence security even in your absence, so that important life

goals of your family are always secured.

 

Let us take the example of a 35-year-old man with 2 young children. He could begin

with a sum assured of Rs 5 lakh. As the children grow and thereby the financial

liabilities increase, he might want to increase the level of protection, which can be

done by increasing his sum assured.

When you decide the amount of premium to be paid and the amount of life cover you

want from the ULIP, the insurer deducts some portion of the ULIP premium upfront.

This portion is known as the Premium Allocation charge, and varies from product to

product. The rest of the premium is invested in the fund or mixture of funds chosen

by you. Mortality charges and ULIP administration charges are thereafter deducted

on a periodic (mostly monthly) basis by cancellation of units, whereas the ULIP fund

management charges are adjusted from NAV on a daily basis.

 

Since the fund of your choice has an underlying investment – either in equity or debt

or a combination of the two – your fund value will reflect the performance of the 3

underlying asset classes. At the time of maturity of your plan, you are entitled to

receive the fund value as at the time of maturity.

NEED AND IMPORTANCE OF THE STUDY

1. Mutual funds are dynamic financial intuitions which play crucial role in an

economy by mobilizing savings and investing them in the capital market.

2. The activities of mutual funds have both short and long term impact on the savings

in the capital market and the national economy.

3. Mutual funds, trust, assist the process of financial deepening & intermediation.

4. To banking at the same time they also compete with banks and other financial

intuitions.

5. India is one of the few countries to day maintain a study growth rate is domestic

savings.

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SCOPE OF THE STUDY:

Subject matter is related to the investor’s approach towards mutual funds and

Ulips.

A study on comparative analysis of mutual funds in Kotak Mutual Fund

schemes, are effecting on the financial performance of the company.

People of age between 20 to 60 i.e. the range is wide

Area limited to Hyderabad

Demographics include names, age, qualification, occupation, marital status

and annual income.

OBJECTIVES:  

To study the behavior of the investors whether they prefer mutual funds or

ULIPs.

To know how the KOTAK Mutual funds are participating in the stock market.

To know how the KOTAK Mutual funds are effecting on the overall

performance of the KOTAK Company.

To know the brand awareness of KOTAK and customer’s preference

towards KOTAK.

Conduct market survey on a sample selected from the entire population and

derived opinion on that research.

As KOTAK well reputed company in India it’s great chance for me to

observed different product launch by other competitor companies like

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LIC,TATA AIG etc. In all, it is to understand the overall working of Life

insurance sector.

RESEARCH METHODOLGY

Research always starts with a question or a problem. Its purpose is to question

through the application of the scientific method. It is a systematic and intensive

study directed towards a more complete knowledge of the subject studied.

Marketing research is the function which links the consumer, customer and public to

the marketer through information- information used to identify and define marketing

opportunities and problems generate, refine, and evaluate marketing actions,

monitor marketing actions, monitor marketing performance and improve

understanding of market as a process.

Research specifies the information required to address these issues, designs, and the

method for collecting information, manage and implemented the data collection

process, analyses the results and communicate the findings and their implication. I

have prepared our project as descriptive type, as the objective of the study demands

the answers of the question related to find the potentiality of Mutual Funds and

Ulips in Hyderabad. How much potential is there in Hyderabad.

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Research Process

As marketing research is a systemic and formalized process, it follows a certain

sequence of research action. The marketing process has the following steps:

Formulating the problems

Developing objectives of the research

Designing an effective research plan

Data collection techniques

Evaluating the data and preparing a research report

STEPS OF RESEARCH DESIGN :  

Define the information needed: -This first step states that what the

information that is actually required is. Information in this case we require is

that what is the approach of investors while investing their money in mutual

funds and Ulips e.g. what do they consider while deciding as to invest in

which of the two i.e. Mutual funds or Ulips. Also, it studies the extent to

which the investors are aware of the various costs that one bears while making

any investment. So, the information sought and information generated is only

possible after defining the information needed.  

Design the research: -  A research design is a framework or blueprint for

conducting the research project. It details the procedures necessary for

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obtaining the information needed to solve research problems. In this project,

the research design is explorative in nature.

Specify the scaling procedures: - Scaling involves creating a continuum

on which measured objects are located. Both nominal and interval scales have

been used for this purpose.

Construct and pretest a questionnaire: -  A questionnaire is a formalized set

of questions for obtaining information from respondents. Whereas presetting

refers to the testing of the questionnaire on a small sample of respondents in

order to identify and eliminate potential problems.

Sample Unit Investors and non-investors.

Sample Size This study involves 50 respondents. 

Sampling Technique: The sample size has been taken by non-random

convenience sampling technique 

Data Collection: After the research methodology, research problem in

marketing has been identified and selected; the next step is together the

requisite data. There are two types of data collection method – primary data

and secondary data. In our live project; we decided primary data collection

method because our study nature does not permit to apply observational

method. In survey approach we had selected a questionnaire method for taking

a customer view because it is feasible from the point of view of our subject &

survey purpose. Data has been collected both from primary as well as

secondary sources as described below:

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There are two types of data collection method use in my project report.

Primary data

Secondary data.

For my project, I decided on primary data collection method for observing

working of company and approaching customers directly in the field, tele-calling,

cold calling, campaigning and through references to know their interest in business

with company in my project and also make questionnaire for creating database of

business class people is Hyderabad city for company. I decided on Secondary data

collection method was used by referring to various websites, books, magazines,

journals and daily newspapers for collecting information regarding project under

study.

Primary sources

Primary data was obtained through questionnaires filled by

people and through direct communication with respondents in

the form of Interview.

Secondary sources

The secondary sources of data were taken from the various

websites, books, journals reports, articles etc. This mainly

provided information about the mutual fund and ULIPs

industry in India.

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Plan for data analysis: Analysis of data is planned with the

help of mean and analysis of variance.

LIMITATIONS

Mostly the data is related to the secondary data.

To collect the primary data from the company is difficult task and it is a

confidential matter to the company.

The product is restricted to only mutual funds.

The data is only limited to financial performance of the mutual funds.

The collected primary data is only from the one branch head of Hyderabad.

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COMPANY PROFILE

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance

Limited. This company was promoted by Uday Kotak, A.A.Sidney , Pinto and Kotak

& Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in

1986, and that's when the company changed its name to Kotak Mahindra Finance

Limited.

The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to

stock broking, to mutual funds, to life insurance, to investment banking, the group

caters to the financial needs of individuals and corporates.

The group has a net worth of over Rs. 6,799 crore and has a distribution network of

branches, franchisees, representative offices and satellite offices across cities and

towns in India and offices in New York, London, San Francisco, Dubai, Mauritius

and Singapore. The Group services around 6.4 million customer accounts.

Kotak Group Products & Services:

Bank

Life Insurance

Mutual Funds

Car Finance

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Securities

Institutional Equities

Investment Banking

Kotak Mahindra International

Kotak Private Equity

Kotak Realty Fund

Group Management:

Mr. Gaurang Shah - Director

Mr.G Muralidhar – Managing Director

Mr. Andrew Cartwright - Appointed Actuary

Mr. Sudhakar Shanbag - Chief Investment Officer

Mr. Sugata Dutta - Head Human Resources

Mr. Suresh Agarwal - Head of Alternate channel

Ms. Kirti Patil – Sr. Vice-President & Head Information Technology

Mr. Anand Dewan - Head Business Impact Group (BIG)

Mr. Cedric Fernandas – Sr. Vice President & Chief Financial Officer

Ms. Elizabeth Venkataraman - Senior Vice President Marketing

Mr. Hitesh Veera – Sr. Vice President & Head Operations, CustomerService,

Underwriting , Claims

Mr. Sandip Shrikhande - Head of Group Business

Mr. Subhasish Ghosh - Sr. VP, Financial Institutions Group

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Our Corporate Identity

Kotak Mahindra Bank: The Kotak Mahindra Group's flagship company, Kotak

Mahindra Finance Ltd which was established in 1985, was converted into a bank-

Kotak Mahindra Bank Ltd in March 2003 becoming the first Indian company to

convert into a Bank. Its banking operations offer a central platform for customer

relationships across the group's various businesses. The bank has presence in

Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and Housing

Finance.

Kotak Mahindra Capital Company: Kotak Mahindra Capital Company Limited

(KMCC) is India's premier Investment Bank. KMCC's core business areas include

Equity Issuances, Mergers & Acquisitions, Structured Finance and Advisory

Services.

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Kotak Securities: Kotak Securities Ltd. is one of India's largest brokerage and

securities distribution houses. Over the years, Kotak Securities has been one of the

leading investment broking houses catering to the needs of both institutional and non-

institutional investor categories with presence all over the country through franchisees

and coordinators. Kotak Securities Ltd. offers online

(throughwww.kotaksecurities.com) and offline services based on well-researched

expertise and financial products to non-institutional investors.

Kotak Mahindra Prime: Kotak Mahindra Prime Limited (KMP) (formerly known as

Kotak Mahindra Primus Limited) has been formed with the objective of financing the

retail and wholesale trade of passenger and multi utility vehicles in India. KMP offers

customers retail finance for both new as well as used cars and wholesale finance to

dealers in the automobile trade. KMP continues to be among the leading car finance

companies in India.

Kotak Mahindra Asset Management Company: Kotak Mahindra Asset

Management Company Kotak Mahindra Asset Management Company (KMAMC), a

subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra Mutual

Fund (KMMF). KMMF manages funds in excess of Rs 30,000 crore and offers

schemes catering to investors with varying risk-return profiles. It was the first fund

house in the country to launch a dedicated gilt scheme investing only in government

securities.

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Figure 1.0

Kotak Mahindra Old Mutual Life Insurance Limited: Kotak Mahindra Old

Mutual Life Insurance Limited is a joint venture between Kotak Mahindra Bank Ltd.

and Old Mutual plc. Kotak Life Insurance helps customers to 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.

Kotak's International Business With a presence outside India since 1994, the

international subsidiaries of Kotak Mahindra Bank Ltd. operating through offices in

London, New York, Dubai, San Francisco, Singapore and Mauritius specialize in

providing asset management services to specialist overseas investors seeking to invest

into India. The offerings are differentiated India investment solutions that span all

major asset classes including listed equity, private equity and real estate. The

subsidiaries also lead manage and underwrite international issuances of securities.

With its commendable track record, large presence on the ground and a team of

dedicated staff in India, Kotak’s international arm is suitably positioned for managing

assets in the Indian Capital markets.

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Business Strategy:

BUSINESS CONSULTING

The greatest accomplishments begin with an architect plan. We believe that KOTAK

Group is the advisor that the company needs most as you begin to conceptualize the

business road map.

Our business consulting team is the cohesive mortar that unites our various

disciplines. By focusing on company's strategic objectives, we are able to design,

develop, and implement the solutions that will produce measurable change across the

enterprise.

As the foundation of KOTAK Group , this business-centric philosophy permeates our

various discipline leaders. Whether a developer or a designer, the goal of producing

custom business solutions is paramount.

DEFINING DIRECTIONS

Our ability to offer guidance throughout the highest levels of leadership is cultivated

by our ability to architect and execute solutions that matter most. This focus on sound

strategic direction provides a high-level road map that can manage and expand

channels, enhance revenue, and penetrate markets that may have previously been

inaccessible. Our knowledge and use of business intelligence tools allows our clients

to make calculated decisions based on real-time data, thus providing accurate and

effective results.

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FORMING A STRUCTURE

Our skill in analyzing company's internal structure enables KOTAK Group to

enhance business processes, operational efficiencies and manage or reduce overall

costs. By optimizing supply chain through supplier collaboration and rationalization

we can improve the relationships that support business.

EXTENDING RELATIONSHIP

By helping to orientate leadership direction and formulate operational practices,

KOTAK Group can also effectively refine how company goes to market. By

improving the ways in which the company deploy their sales force, manage

traditional customer relationships and build an integrated marketing and

communications plan, we can help the craft every touch point between the company

and customers.

E-Business/Web services:

E-Business is much more than buying and selling over the Web. In the simplest sense,

it is the use of Internet technologies to improve core business processes. And, while

technology makes e-business possible, e-business isn't about technology. It's about

connecting core business systems and processes to customers, suppliers, and

employees—24 hours a day, 7 days a week.

E-business:

E-Business can help companies meet today's business challenges head-on. Whether

it's increasing revenue or decreasing costs, reaching new customers or better serving

existing ones, a solid e-business infrastructure provides the foundation to deliver true

value to stakeholders.

Important reasons to become an e-business include the following:

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Increase revenue

Decrease costs

Improve employee efficiency

Expand market reach

Strengthen business relationships

Improve customer satisfaction

At KOTAK Group, we know that the success of our company depends on our ability

to provide world-class, e-business solutions with real business value to our clients.

We understand the business impact of e-business. Our experts have helped many

companies leverage the Internet with the following solutions:

E-commerce—allows companies to buy and sell products and services online.

Business intelligence—allows companies to acquire data about their customers to

provide better service.

Customer relationship management—provides the ability to support and retain

profitable customers.

Supply chain management—streamlines end-to-end processes associated with the

flow of products.

Enterprise Application Integration

KOTAK Group development team is designed to partner with our clients to address

many business critical issues and objectives. KOTAK Group knows how to use state-

of-the-art technologies to provide targeted, world-class integration solutions that

address unique business needs.

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Integrated Marketing:

Successful Integrated Marketing solutions take three key elements in order to produce

value: solid strategy, quality design, and measurability.

SOLID STRATEGY

By understanding competitive landscapes, identifying audiences, and estimating the

return on investment, KOTAK Group can help out making intelligent marketing

decisions that provide maximum returns. We analyze the company business

objectives and determine a path of communication that will reach the consumer or

client base on a more consistent basis.

QUALITY DESIGN

Integrated Marketing utilizes a variety of media and channels. It employs designers

that understand these mediums and can translate their designs into effective

communications. KOTAK Group designers have the expertise to match visual design

with the appropriate language and elements, essential in improving response rates and

reaching near to intended audience.

MEASURABILITY

KOTAK Group specializes in business intelligence tools that can analyze data,

response rates, and demographics. By having access to this information in real time,

we can effectively tailor communications to increase response rates, measure return

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on investment, and make Intel suited for your business objectives.

KOTAK Group can enable the company to take advantage of the technology and

talent that is available to drive consumer demand, sales, and the message of the

organization.

IT Strategy Development

Over the past few years the role of technology in business has become a critical

success factor. Many organizations leverage information technology to help them

deliver their products and services. But few organizations truly realize the business

benefits that can be achieved from an effective technology strategy. The rapid pace of

change in technology provides companies with new, cost-effective mechanisms to

communicate with their customers, suppliers, employees, and key business partners.

Properly harnessed, technology initiatives can enrich customer relationships, shorten

supply chains, and streamline a number of internal processes so that a true return on

investment is realized. The first step is to create alignment and consensus within the

organization and build an action plan around those initiatives that will deliver the

highest return.

STRATEGIC PLANNING SOLUTIONS

KOTAK Group Strategic solutions leverage a proven methodology to help our clients

fundamentally align and leverage technology in order to achieve enterprise business

objectives. We devise these strategies by examining the current position of the 20

individual, IT organizations, business processes, organizational behavior, and key

stakeholders. Then we align technology solutions in a way that ties these stakeholders

to the business systems and processes within the organization.

Strategic Planning Service Features

Aligns technology infrastructure and initiatives with high-priority business

processes and organizational objectives

Focuses on the needs of the key stakeholders (customers, suppliers,

employees) and not on the limitations of technology.

Provides qualitative and quantitative measures of the success of the strategy or

business continuity plan.

Creates alignment, consensus, and accountability for the prioritized initiatives

among executive leadership and line of business management.

Our strategic planning solutions can be used to help the organization during its annual

planning, or throughout the year as industry and market trends demand. Strategic

planning may be necessary in the following situations:

When a competitive advantage is needed to demonstrate quality of service

When the organization seeks to expand while maintaining existing operational

infrastructure (capital and human resources)

When audits have identified gaps or weaknesses in business or IT capability

When structural organizational changes occur (acquisition, merger, or

divestiture)

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When no business continuity, disaster recovery, or emergency management

plan exists

Process Development

KOTAK Group Business Process Improvement solutions are designed to help the

company to streamline the processes that are critical to managing business.

Organizations need to optimize the business process, but seldom do. That’s where

KOTAK Group Business Process Improvement solutions come in.

Using our proven methodology and toolsets, we deliver key business results in a

timely fashion. We help to achieve improved customer service, cost reductions, and

capacity expansion.

ONSITE MAINTAINENCE

In this approach, the KOTAK Group team at onsite will carry out all the maintenance

and support for the application. However the offshore team based at KOTAK Group

development center will be extending the support for the onsite team on any technical

issues that they may have. They act as a backup and in the event of any emergency;

can immediately act as a replacement.

OFFSHORE / REMOTE MAINTAINENCE

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The remote maintenance approach adopted by KOTAK Group. to carry out the

maintenance is explained below.

Receiving the issue: The onsite technical support team receives the issue from client

either through any of the following media like e-mail, telephone, mobile phone or

instant messenger services. A ticket number generated would help the offsite team

identify each issue.

Study and Analysis: Once the problem Ticket issue is received, the Onsite technical

team makes a careful study of the issue and analyzes its complexity.

Estimation: After a through analysis the work estimation is made and it is placed

before the client through an offsite support Manager. Based on the estimated time and

priority, the issue is then scheduled to be resolved either by the onsite team or by the

offshore team.

Scheduling: Identify the best suitable team member(s) for solving the issue and

assign the tasks to that particular resource(s).

Solution: The assigned team member(s) provides the solution as specified in the

given task document in a scheduled time adhering to the quality standards, he also

provides a standard document describing the work done.

Testing: Test the changed code as per the Maintenance Manual. Update the

documentation as required

Log Maintenance: Logs will be maintained for future use by the offsite as well as

offshore team for all the support issues that have come up.

Our Value Proposition

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KOTAK Group Strategic Partnership with the client would help the client

leverage our Technology and Development facilities, quickly build resource

pools consisting of focused R & D teams for new initiatives in specific

technologies

Our dedicated Technology labs for the client's R&D division acts as Virtual

Extension in terms of Vision, People, and Infrastructure

Protect client's Intellectual Property Rights (IPR) by following established

processes for secure communication and protection

Our strong focus is towards the quality of solution we deliver and support we

offer to our client

Our extensive skills in developing re-usable components, frameworks and

expertise in executing complex solutions gives advantage of high-quality,

cost-effective development to our customers

We make sure that our work is towards minimizing the business risks and

speeding up the entry of new products in the market.

Inbound Teleservices

Our call handling and inbound telemarketing services for business-to-business and

business-to-consumer campaigns will help drive customer acquisition, increase

customer retention, improve sales and rapidly expand your markets. Our inbound

supports include:

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Help Desk: 24 Hours /Day, 365 Days /Year

Technical Support Requests For Maintenance Support

Requests For Maintenance Support

Inbound Telemarketing / Up-Selling & Cross-Selling

Requests for Samples

Order Status: Customers can check on the status of their order at any time

Dealer Locate: Callers are given information on the store or dealer nearest to them.

Ticketing Sales

Subscriptions

Fundraising

Advertising Co-Op Claim Processing

Rebate Processing

Insurance Claims Processing

Product Recall Management

Customized Interactive Voice Services

Overflow, Off-Hour And Weekend Call Handling

Fax on Demand: An access channel for those customers who need documented

answers or written confirmation.

Outbound Teleservices

Our tele-professionals help out to turn the company prospects into customers, and

then our customers into advocates. We focus on building a relationship that lasts by

using a personalized approach that provides the value addition necessary to maintain

and grow your client base. Our outbound capabilities include: 25

Telemarketing and Sales: We use predictive dialing to connect to customers. Our tele-

sales techniques also include:

Reactivation: Approaching your 'expired' customers with the right offer

Targeting: Isolating key decision-makers and discovering their budgets before you

spend resources on more costly mail or sales calls

New Movers: Tapping people who have just moved residence, for example, and

asking them to pre-register for your service or organization

Renewals: for publishing and finance, telemarketing is by far the most efficient way

to secure repeat buyers

Aftermarket Sales: Contacting new customers and securing additional sales, even

when other products are seemingly unrelated.

PRODUCTS

Term Plans

Kotak Term Assurance Plan

Kotak Preferred Term Plan

Endowment Plans

Kotak Endowment Plan

Kotak Money Back Plan

Kotak Child Advantage Plan

Kotak Capital Multiplier Plan 26

Kotak Retirement Income Plan

Kotak Premium Return Plan

Unit Linked Plans

Kotak Retirement Income Plan (Unit-linked)

Kotak Safe Investment Plan II

Kotak Flexi Plan

Kotak Easy Growth Plan

Kotak Privilege Assurance Plan

Group

Employee Benefits

Kotak Term Grouplan

Kotak Credit-Term Grouplan

Kotak Complete Cover Grouplan

Kotak Gratuity Grouplan

Kotak Superannuation Group Plan

Rural

Kotak Gramin Bima Yojana

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INTRODUCTION OF MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned

through these investments and the capital appreciation realized is shared by its unit

holders in proportion to the number of units owned by them. Thus a Mutual Fund is

the most suitable investment for the common man as it offers an opportunity to

invest in a diversified, professionally managed basket of securities at a relatively

low cost. The flow chart below describes broadly the working of mutual funds.

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Figure 1.1

Mutual fund is a mechanism for pooling the resources by issuing units to the

investors and investing funds in securities in accordance with objectives as

disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and

sectors and thus the risk is reduced. Diversification reduces the risk because all

stocks may not move in the same direction in the same proportion at the same time.

Mutual fund issues units to the investors in accordance with quantum of money

invested by them. Investors of mutual funds are known as unit holders.

The investors in proportion to their investments share the profits or losses. The

mutual funds normally come out with a number of schemes with different

investment objectives that are launched from time to time. A mutual fund is required

to be registered with Securities and Exchange Board of India (SEBI), which

regulates securities markets before it can collect funds from the public.

Different investment avenues are available to investors. Mutual funds also offer

good investment opportunities to the investors. Like all investments, they also carry

certain risks. The investors should compare the risks and expected yields after

adjustment of tax on various instruments while taking investment decisions.

History of the Indian Mutual Fund

The Indian mutual fund industry is dominated by the Unit Trust of India, which has

a total corpus of Rs700bn collected from more than 20 million investors. The UTI

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has many funds/schemes in all categories i.e. equity, balanced, income etc with

some being open-ended and some being closed-ended. The Unit Scheme 1964

commonly referred to as US 64, which is a balanced fund, is the biggest scheme

with a corpus of about Rs200bn. Most of its investors believe that the UTI is

government owned and controlled, which, while legally incorrect, is true for all

practical purposes.

The second largest category of mutual funds is the ones floated by nationalized

banks. Can bank Asset Management floated by Canara Bank and SBI Funds

Management floated by the State Bank of India are the largest of these. GIC AMC

floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated

by the LIC are some of the other prominent ones. The mutual fund industry in India

started in 1963 with the formation of Unit Trust of India, at the initiative of the

Government of India and Reserve Bank. The history of mutual funds in India can be

broadly divided into four distinct phases: - 

First Phase – 1964-87  

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by

the Reserve Bank of India and functioned under the Regulatory and administrative

control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and

the Industrial Development Bank of India (IDBI) took over the regulatory and

administrative control in place of RBI. The first scheme launched by UTI was Unit

Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under

management. 

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Second Phase – 1987-1993 (Entry of Public Sector Funds)  

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance

Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund

established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab

National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual

fund in June 1989 while GIC had set up its mutual fund in December 1990. At the

end of 1993, the mutual fund industry had assets under management of Rs.47, 004

cores. 

Third Phase – 1993-2003 (Entry of Private Sector Funds)  

With the entry of private sector funds in 1993, a new era started in the Indian mutual

fund industry, giving the Indian investors a wider choice of fund families. Also, 1993

was the year in which the first Mutual Fund Regulations came into being, under

which all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993. 

   Fourth Phase – since February 2003  

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit

Trust of India with assets under management of Rs.29, 835 crores as at the end of

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January 2003, representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India, functioning

under an administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000

crores of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking

place among different private sector funds, the mutual fund industry has entered its

current phase of consolidation and growth. As at the end of September, 2004, there

were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

STRUCTURE OF MUTUAL FUND

32

There are many entities involved and the diagram below illustrates the structure

 

 

Figure 1.2

SEBI

      The regulation of mutual funds operating in India falls under the preview of

authority of the “Securities and Exchange Board of India” (SEBI). Any person

proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds)

Regulations, 1996 to be registered with the SEBI

Sponsor

      The sponsor should contribute at least 40% to the net worth of the AMC.

However, if any person holds 40% or more of the net worth of an AMC shall be

deemed to be a sponsor and will be required to fulfill the eligibility criteria in the

33

Mutual Fund Regulations. The sponsor or any of its directors or the principal officer

employed by the mutual fund should not be guilty of fraud or guilty of any economic

offence.

Trustees 

      The mutual fund is required to have an independent Board of Trustees, i.e. two

third of the trustees should be independent persons who are not associated with the

sponsors in any manner. An AMC or any of its officers or employees is not eligible to

act as a trustee of any mutual fund. The trustees are responsible for - inter alia –

ensuring that the AMC has all its systems in place, all key personnel, auditors,

registrar etc. have been appointed prior to the launch of any scheme.

Asset Management Company

      The sponsors or the trustees are required to appoint an AMC to manage the assets

of the mutual fund. Under the mutual fund regulations, the applicant must satisfy

certain eligibility criteria in order to qualify to register with SEBI as an AMC.

1. The sponsor must have at least 40% stake in the AMC.

2. The chairman of the AMC is not a trustee of any mutual fund.

3. The AMC should have and must at all times maintain a minimum net worth of

Cr. 100 million.

34

4. The director of the AMC should be a person having adequate professional

experience.

5. The board of directors of such AMC has at least 50% directors who are not

associate of or associated in any manner with the sponsor or any of its

subsidiaries or the trustees.

 

The Transfer Agents

      The transfer agent is contracted by the AMC and is responsible for maintaining

the register of investors / unit holders and every day settlements of purchases and

redemption of units. The role of a transfer agent is to collect data from distributors

relating to daily purchases and redemption of units.

Custodian

      The mutual fund is required, under the Mutual Fund Regulations, to appoint a

custodian to carry out the custodial services for the schemes of the fund. Only

institutions with substantial organizational strength, service capability in terms of

computerization and other infrastructure facilities are approved to act as custodians.

The custodian must be totally delinked from the AMC and must be registered with

SEBI.

Unit Holders 

35

      They are the parties to whom the mutual fund is sold. They are ultimate

beneficiary of the income earned by the mutual funds.  

Some of the AMCs operating currently are:

Table 1.0

Name of the AMC Nature of ownershipAlliance Capital Asset Management (I) Private Limited Private foreignBirla Sun Life Asset Management Company Limited Private IndianBank of Baroda Asset Management Company Limited BanksBank of India Asset Management Company Limited BanksCan bank Investment Management Services Limited BanksCholamandalam Cazenove Asset Management Company Limited Private foreignDundee Asset Management Company Limited Private foreignDSP Merrill Lynch Asset Management Company Limited Private foreignEscorts Asset Management Limited Private IndianFirst India Asset Management Limited Private IndianGIC Asset Management Company Limited Institutions

36

IDBI Investment Management Company Limited InstitutionsIndfund Management Limited BanksING Investment Asset Management Company Private Limited Private foreignJ M Capital Management Limited Private IndianJardine Fleming (I) Asset Management Limited Private foreignKotak Mahindra Asset Management Company Limited Private IndianKothari Pioneer Asset Management Company Limited Private IndianJeevan Bima Sahayog Asset Management Company Limited InstitutionsMorgan Stanley Asset Management Company Private Limited Private foreignPunjab National Bank Asset Management Company Limited BanksReliance Capital Asset Management Company Limited Private IndianState Bank of India Funds Management Limited BanksShriram Asset Management Company Limited Private IndianSun F and C Asset Management (I) Private Limited Private foreignSundaram Newton Asset Management Company Limited Private foreignTata Asset Management Company Limited Private IndianCredit Capital Asset Management Company Limited Private IndianTempleton Asset Management (India) Private Limited Private foreignUnit Trust of India InstitutionsZurich Asset Management Company (I) Limited Private foreign

ADVANTAGES:

The benefits on offer are many with good post-tax returns and reasonable safety

being the hallmark that we normally associate with them. Some of the other major

benefits of investing in them are:

Number of available options

Mutual funds invest according to the underlying investment objective as specified at

the time of launching a scheme. So, we have equity funds, debt funds, gilt funds and

many others that cater to the different needs of the investor. The availability of these

options makes them a good option. While equity funds can be as risky as the stock

markets themselves, debt funds offer the kind of security that aimed at the time of 37

making investments. Money market funds offer the liquidity that desired by big

investors who wish to park surplus funds for very short-term periods. The only

pertinent factor here is that the fund has to selected keeping the risk profile of the

investor in mind because the products listed above have different risks associated

with them. So, while equity funds are a good bet for a long term, they may not find

favor with corporate or High Net worth Individuals (HNIs) who have short-term

needs.

Diversification

Investments spread across a wide cross-section of industries and sectors and so the

risk is reduced. Diversification reduces the risk because not all stocks move in the

same direction at the same time. One can achieve this diversification through a

Mutual Fund with far less money than one can on his own.

Professional Management

Mutual Funds employ the services of skilled professionals who have years of

experience to back them up. They use intensive research techniques to analyze each

investment option for the potential of returns along with their risk levels to come up

with the figures for performance that determine the suitability of any potential

investment.

Potential of Returns

Returns in the mutual funds are generally better than any other option in any other

avenue over a reasonable period. People can pick their investment horizon and stay

put in the chosen fund for the duration. Equity funds can outperform most other

38

investments over long periods by placing long-term calls on fundamentally good

stocks. The debt funds too will outperform other options such as banks.

Get Focused

I will admit that investing in individual stocks can be fun because each company has

a unique story. However, it is important for people to focus on making money.

Investing is not a game. Your financial future depends on where you put you hard-

earned dollars and it should not take lightly.

Efficiency

By pooling investors' monies together, mutual fund companies can take advantage

of economies of scale. With large sums of money to invest, they often trade

commission-free and have personal contacts at the brokerage firms.

Ease of Use

Can you imagine keeping track of a portfolio consisting of hundreds of stocks? The

bookkeeping duties involved with stocks are much more complicated than owning a

mutual fund. If you are doing your own taxes, or are short on time, this can be a big

deal.

Wealthy stock investors get special treatment from brokers and wealthy bank

account holders get special treatment from the banks, but mutual funds are non-

discriminatory. It doesn't matter whether you have $50 or $500,000; you are getting

the exact same manager, the same account access and the same investment.

Risk

In general, mutual funds carry much lower risk than stocks. This is primarily due to

diversification (as mentioned above). Certain mutual funds can be riskier than

individual stocks, but you have to go out of your way to find them.

39

With stocks, one worry is that the company you are investing in goes bankrupt.

With mutual funds, that chance is next to nil. Since mutual funds, typically hold

anywhere from 25-5000 companies, all of the companies that it holds would have to

go bankrupt.

I will not argue that you should not ever invest in individual stocks, but I do hope

you see the advantages of using mutual funds and make the right choice for the

money that you really care about.  

DISADVANTAGES

Mutual funds have their drawbacks and may not be for everyone:

No Guarantees: No investment is risk free. If the entire stock market declines in

value, the value of mutual fund shares will go down as well, no matter how

balanced the portfolio. Investors encounter fewer risks when they invest in mutual

funds than when they buy and sell stocks on their own. However, anyone who

invests through a mutual fund runs the risk of losing money.

Fees and commissions: All funds charge administrative fees to cover their day-to-

day expenses. Some funds also charge sales commissions or "loads" to compensate

brokers, financial consultants, or financial planners. Even if you don't use a broker

or other financial adviser, you will pay a sales commission if you buy shares in a

Load Fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere

from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit

on its sales, you will pay taxes on the income you receive, even if you reinvest the

money you made.

40

Management risk: When you invest in a mutual fund, you depend on the fund's

manager to make the right decisions regarding the fund's portfolio. If the manager

does not perform as well as you had hoped, you might not make as much money on

your investment as you expected. Of course, if you invest in Index Funds, you

forego management risk, because these funds do not employ managers.

TYPES OF MUTUAL FUND SCHEMES

In India, there are many companies, both public and private that are engaged in the

trading of mutual funds. Wide varieties of Mutual Fund Schemes exist to cater to the

needs such as financial position, risk tolerance and return expectations etc.

Investment can be made either in the debt Securities or equity .The table below gives

an overview into the existing types of schemes in the Industry.

41

Figure 1.3

1. Equity Funds 

Equity funds are considered to be the more risky funds as compared to other

fund types, but they also provide higher returns than other funds. It is advisable

that an investor looking to invest in an equity fund should invest for long term

i.e. for 3 years or more. There are different types of equity funds each falling

into different risk bracket. In the order of decreasing risk level, there are

following types of equity funds:

42

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers

aspire for maximum capital appreciation and invest in less researched shares

of speculative nature. Because of these speculative investments Aggressive

Growth Funds become more volatile and thus, are prone to higher risk than

other equity funds.

b. Growth Funds - Growth Funds also invest for capital appreciation (with

time horizon of 3 to 5 years) but they are different from Aggressive Growth

Funds in the sense that they invest in companies that are expected to

outperform the market in the future. Without entirely adopting speculative

strategies, Growth Funds invest in those companies that are expected to post

above average earnings in the future.

c. Specialty Funds - Specialty Funds have stated criteria for investments and

their portfolio comprises of only those companies that meet their criteria.

Criteria for some specialty funds could be to invest/not to invest in

particular regions/companies. Specialty funds are concentrated and thus, are

comparatively riskier than diversified funds.. There are following types of

specialty funds:

i. Sector Funds: Equity funds that invest in a particular sector/industry

of the market are known as Sector Funds. The exposure of these

funds is limited to a particular sector (say Information Technology,

Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods)

which is why they are more risky than equity funds that invest in

multiple sectors.

43

ii. Foreign Securities Funds: Foreign Securities Equity Funds have

the option to invest in one or more foreign companies. Foreign

securities funds achieve international diversification and hence they

are less risky than sector funds. However, foreign securities funds

are exposed to foreign exchange rate risk and country risk.

iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies

having lower market capitalization than large capitalization

companies are called Mid-Cap or Small-Cap Funds. Market

capitalization of Mid-Cap companies is less than that of big, blue

chip companies (less than Rs. 2500crores but more than Rs.500

crores) and Small-Cap companies have market capitalization of less

than Rs. 500crores. Market Capitalization of a company can be

calculated by multiplying the market price of the company's share by

the total number of its outstanding shares in the market. The shares

of Mid-Cap or Small-Cap Companies are not as liquid as of Large-

Cap Companies which gives rise to volatility in share prices of these

companies and consequently, investment gets risky.

iv. Option Income Funds*: While not yet available in India, Option

Income Funds write options on a large fraction of their portfolio.

Proper use of options can help to reduce volatility, which is

otherwise considered as a risky instrument. These funds invest in

big, high dividend yielding companies, and then sell options against

their stock positions, which generate stable income for investors.

44

D.)Diversified Equity Funds - Except for a small portion of

investment in liquid money market, diversified equity funds invest mainly

in equities without any concentration on a particular sector(s). These funds

are well diversified and reduce sector-specific or company-specific risk.

However, like all other funds diversified equity funds too are exposed to

equity market risk. One prominent type of diversified equity fund in India

is Equity Linked Savings Schemes (ELSS). As per the mandate, a

minimum of 90% of investments by ELSS should be in equities at all

times. ELSS investors are eligible to claim deduction from taxable income

(up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually

has a lock-in period and in case of any redemption by the investor before

the expiry of the lock-in period makes him liable to pay income tax on

such income(s) for which he may have received any tax exemption(s) in

the past.

e.)Equity Index Funds - Equity Index Funds have the objective to match

the performance of a specific stock market index. The portfolio of these

funds comprises of the same companies that form the index and is

constituted in the same proportion as the index. Equity index funds that

follow broad indices (like S&P CNX Nifty, Sensex) are less risky than

equity index funds that follow narrow sectored indices (like BSE

BANKEX or CNX Bank Index etc). Narrow indices are less diversified

and therefore, are more risky.

45

f) Value Funds - Value Funds invest in those companies that have sound

fundamentals and whose share prices are currently under-valued. The

portfolio of these funds comprises of shares that are trading at a low Price

to Earning Ratio (Market Price per Share / Earning per Share) and a low

Market to Book Value (Fundamental Value) Ratio. Value Funds may

select companies from diversified sectors and are exposed to lower risk

level as compared to growth funds or specialty funds. Value stocks are

generally from cyclical industries (such as cement, steel, sugar etc.) which

make them volatile in the short-term. Therefore, it is advisable to invest in

Value funds with a long-term time horizon as risk in the long term, to a

large extent, is reduced.

g) Equity Income or Dividend Yield Funds - The objective of Equity

Income or Dividend Yield Equity Funds is to generate high recurring

income and steady capital appreciation for investors by investing in those

companies which issue high dividends (such as Power or Utility

companies whose share prices fluctuate comparatively lesser than other

companies' share prices). Equity Income or Dividend Yield Equity Funds

are generally exposed to the lowest risk level as compared to other equity

funds.

2. Debt / Income Funds

Funds that invest in medium to long-term debt instruments issued by private

companies, banks, financial institutions, governments and other entities

belonging to various sectors (like infrastructure companies etc.) are known as

Debt / Income Funds. Debt funds are low risk profile funds that seek to 46

generate fixed current income (and not capital appreciation) to investors. In

order to ensure regular income to investors, debt (or income) funds distribute

large fraction of their surplus to investors. Although debt securities are

generally less risky than equities, they are subject to credit risk (risk of

default) by the issuer at the time of interest or principal payment. To minimize

the risk of default, debt funds usually invest in securities from issuers who are

rated by credit rating agencies and are considered to be of "Investment

Grade". Debt funds that target high returns are more risky. Based on different

investment objectives, there can be following types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities

issued by entities belonging to all sectors of the market are known as

diversified debt funds. The best feature of diversified debt funds is that

investments are properly diversified into all sectors which results in

risk reduction. Any loss incurred, on account of default by a debt

issuer, is shared by all investors which further reduces risk for an

individual investor.

b. Focused Debt Funds* - Unlike diversified debt funds, focused debt

funds are narrow focus funds that are confined to investments in

selective debt securities, issued by companies of a specific sector or

industry or origin. Some examples of focused debt funds are sector,

specialized and offshore debt funds, funds that invest only in Tax Free

Infrastructure or Municipal Bonds. Because of their narrow

orientation, focused debt funds are more risky as compared to

47

diversified debt funds. Although not yet available in India, these funds

are conceivable and may be offered to investors very soon.

c. High Yield Debt funds - As we now understand that risk of default is

present in all debt funds, and therefore, debt funds generally try to

minimize the risk of default by investing in securities issued by only

those borrowers who are considered to be of "investment grade". But,

High Yield Debt Funds adopt a different strategy and prefer securities

issued by those issuers who are considered to be of "below investment

grade". The motive behind adopting this sort of risky strategy is to

earn higher interest returns from these issuers. These funds are more

volatile and bear higher default risk, although they may earn at times

higher returns for investors.

d. Assured Return Funds - Although it is not necessary that a fund will

meet its objectives or provide assured returns to investors, but there

can be funds that come with a lock-in period and offer assurance of

annual returns to investors during the lock-in period. Any shortfall in

returns is suffered by the sponsors or the Asset Management

Companies (AMCs). These funds are generally debt funds and provide

investors with a low-risk investment opportunity. However, the

security of investments depends upon the net worth of the guarantor

(whose name is specified in advance on the offer document). To

safeguard the interests of investors, SEBI permits only those funds to

offer assured return schemes whose sponsors have adequate net-worth

to guarantee returns in the future. In the past, UTI had offered assured 48

return schemes (i.e. Monthly Income Plans of UTI) that assured

specified returns to investors in the future. UTI was not able to fulfill

its promises and faced large shortfalls in returns. Eventually,

government had to intervene and took over UTI's payment obligations

on itself. Currently, no AMC in India offers assured return schemes to

investors, though possible.

e) Fixed Term Plan Series - Fixed Term Plan Series usually are

closed-end schemes having short term maturity period (of less than

one year) that offer a series of plans and issue units to investors at

regular intervals. Unlike closed-end funds, fixed term plans are not

listed on the exchanges. Fixed term plan series usually invest in debt /

income schemes and target short-term investors. The objective of fixed

term plan schemes is to gratify investors by generating some expected

returns in a short period.

3. Gilt Funds 

Also known as Government Securities in India, Gilt Funds invest in

government papers (named dated securities) having medium to long term

maturity period. Issued by the Government of India, these investments have

little credit risk (risk of default) and provide safety of principal to the

investors. However, like all debt funds, gilt funds too are exposed to interest

rate risk. Interest rates and prices of debt securities are inversely related and

any change in the interest rates results in a change in the NAV of debt/gilt

funds in an opposite direction. 

49

4. Money Market / Liquid Funds

Money market / liquid funds invest in short-term (maturing within one year)

interest bearing debt instruments. These securities are highly liquid and

provide safety of investment, thus making money market / liquid funds the

safest investment option when compared with other mutual fund types.

However, even money market / liquid funds are exposed to the interest rate

risk. The typical investment options for liquid funds include Treasury Bills

(issued by governments), Commercial papers (issued by companies) and

Certificates of Deposit (issued by banks).

5. Hybrid Funds 

As the name suggests, hybrid funds are those funds whose portfolio includes a

blend of equities, debts and money market securities. Hybrid funds have an

equal proportion of debt and equity in their portfolio. There are following

types of hybrid funds in India:

a. Balanced Funds - The portfolio of balanced funds include assets like debt

securities, convertible securities, and equity and preference shares held in a

relatively equal proportion. The objectives of balanced funds are to reward

investors with a regular income, moderate capital appreciation and at the same

time minimizing the risk of capital erosion. Balanced funds are appropriate for

conservative investors having a long term investment horizon.

50

b. Growth-and-Income Funds - Funds that combine features of growth funds

and income funds are known as Growth-and-Income Funds. These funds

invest in companies having potential for capital appreciation and those known

for issuing high dividends. The level of risks involved in these funds is lower

than growth funds and higher than income funds.

c. Asset Allocation Funds - Mutual funds may invest in financial assets like

equity, debt, money market or non-financial (physical) assets like real estate,

commodities etc.. Asset allocation funds adopt a variable asset allocation

strategy that allows fund managers to switch over from one asset class to

another at any time depending upon their outlook for specific markets. In

other words, fund managers may switch over to equity if they expect equity

market to provide good returns and switch over to debt if they expect debt

market to provide better returns. It should be noted that switching over from

one asset class to another is a decision taken by the fund manager on the basis

of his own judgment and understanding of specific markets, and therefore, the

success of these funds depends upon the skill of a fund manager in

anticipating market trends.

6.Commodity Funds

Those funds that focus on investing in different commodities (like metals,

food grains, crude oil etc.) or commodity companies or commodity futures

contracts are termed as Commodity Funds. A commodity fund that invests in

a single commodity or a group of commodities is a specialized commodity

fund and a commodity fund that invests in all available commodities is a

51

diversified commodity fund and bears less risk than a specialized commodity

fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold

futures or shares of gold mines) are common examples of commodity funds. 

7. Real Estate Funds

Funds that invest directly in real estate or lend to real estate developers or

invest in shares/securitized assets of housing finance companies, are known as

Specialized Real Estate Funds. The objective of these funds may be to

generate regular income for investors or capital appreciation. 

8. Exchange Traded Funds (ETF) 

Exchange Traded Funds provide investors with combined benefits of a closed-

end and an open-end mutual fund. Exchange Traded Funds follow stock

market indices and are traded on stock exchanges like a single stock at index

linked prices. The biggest advantage offered by these funds is that they offer

diversification, flexibility of holding a single share (tradable at index linked

prices) at the same time. Recently introduced in India, these funds are quite

popular abroad. 

9. Fund of Funds

Mutual funds that do not invest in financial or physical assets, but do invest in

other mutual fund schemes offered by different AMCs, are known as Fund of

Funds. Fund of Funds maintain a portfolio comprising of units of other mutual

fund schemes, just like conventional mutual funds maintain a portfolio

comprising of equity/debt/money market instruments or non financial assets. 52

Fund of Funds provide investors with an added advantage of diversifying into

different mutual fund schemes with even a small amount of investment, which

further helps in diversification of risks. However, the expenses of Fund of

Funds are quite high on account of compounding expenses of investments into

different mutual fund schemes. 

Risk Hierarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and

investors should know the level of risks associated with these schemes before

investing. The graphical representation hereunder provides a clearer picture of the

relationship between mutual funds and levels of risk associated with these funds:

53

Figure 1.4

FREQUENTLY USED TERMS

 Advisor - Is employed by a mutual fund organization to give professional advice on

the fund’s investments and to supervise the management of its asset.

Diversification – The policy of spreading investments among a range of different

securities to reduce the risk.

Net Asset Value (NAV) - Net Asset Value is the market value of the assets of the

scheme minus its liabilities. The per unit NAV is the net asset value of the scheme

divided by the number of units outstanding on the Valuation Date.  54

Sales Price - Is the price you pay when you invest in a scheme. Also called Offer

Price. It may include a sales load. 

Repurchase Price - Is the price at which a close-ended scheme repurchases its units

and it may include a back-end load. This is also called Bid Price. 

Redemption Price - Is the price at which open-ended schemes repurchase their units

and close-ended schemes redeem their units on maturity. Such prices are NAV

related. 

Sales Load - Is a charge collected by a scheme when it sells the units. Also called

‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

   

55

The Insurance Regulatory and Developmet

Authority (IRDA)

The Insurance Act,1938 had provided for setting up of the Controller of Insurance to

act as a strong and powerful supervisory and regulatory authority for insurance. Post

nationalization, the role of Controller of Insurance diminished considerably in

significance since the Government owned the insurance companies.

But the scenario changed with the private and foreign companies foraying in to the

insurance sector. This necessitated the need for a strong, independent and

autonomous Insurance Regulatory Authority was felt. As the enacting of legislation

would have taken time, the then Government constituted through a Government

resolution an Interim Insurance Regulatory Authority pending the enactment of a

comprehensive legislation.

The Insurance Regulatory and Development Authority Act,1999 is an act to provide

for the establishment of an Authority to protect the interests of holders of insurance

policies, to regulate , promote and ensure orderly growth of the insurance industry

and for matters connected therewith or incidental thereto and further to amend the

Insurance Act,1938, the Life Insurance Corporation Act, 1956 and the General

56

Insurance Business (Nationalization) Act,1972 to end the monopoly of the Life

Insurance Corporation of India ( for life insurance business) and General Insurance

Corporation and its subsidiaries ( for general insurance business).

The act extends to the whole of India and will come into force on such date as the

Central Government may, by notification in the Official Gazette specify. Different

dates may be appointed for different provisions of this Act.

The Act has defined certain terms ; some of the most important ones are as follows

Appointed day means the date on which the authority is establishes under the act.

Authority means the establishes under this Act. Interim Insurance Regulatory

Authority means the Insurance Regulatory Authority setup by the Central

Government through Resolution No . 17(2)/94-Ins-V dated the 23rd January, 1996.

Words and Expressions used and not defined in this Act but defined in the insurance

Act, 1938 or the Life Insurance Corporation Act, 1956 or the General Insurance

Business (Nationalization) Act, 1972 shall have the meanings respectively assigned to

them in those Acts.

A New definition of “Indian Insurance Company” has been inserted. “Indian

Insurance Company” means any insurer being a company : (a)Which is formed and

registered under the companies Act,1956 .

(b) In which the aggregate holdings of equity shares by a foreign company, either by

itself or through its subsidiary companies or its nominees , do not exceed twenty-six

percent (26 %). Paid-up capital in such Indian Insurance Company.

57

(c) Whose sole purpose is to carry on life insurance business , general insurance

business or re-insurance business.

INTRODUCTION OF ULIPS

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life

insurance policy which provides a combination of risk cover and investment. The

dynamics of the capital market have a direct bearing on the performance of the

ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY; THE

INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.

Unit linked insurance plan (ULIP) is life insurance solution that provides for the

benefits of risk 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. 

In a ULIP, the invested amount of the premiums after deducting for all the charges

and premium for risk cover under all policies in a particular fund as chosen by the

policy holders are pooled together to form a Unit fund. A Unit is the component of

the Fund in a Unit Linked Insurance Policy. 

58

The returns in a ULIP depend upon the performance of the fund in the capital market.

ULIP investors have the option of investing across various schemes, i.e, diversified

equity funds, balanced funds, debt funds etc. It is important to remember that in a

ULIP, the investment risk is generally borne by the investor. 

In a ULIP, investors have the choice of investing in a lump sum (single premium) or

making premium payments on an annual, half-yearly, quarterly or monthly basis.

Investors also have the flexibility to alter the premium amounts during the policy's

tenure. For example, if an individual has surplus funds, he can enhance the

contribution in ULIP. 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). ULIP investors can shift their investments across various

plans/asset classes (diversified equity funds, balanced funds, debt funds) either at a

nominal or no cost. 

Ulips vs. Traditional life insurance plans   Unit-linked insurance plans, popularly known as Ulips are life insurance policies

which offer a mix of investment and insurance similar to traditional life insurance

policies such as endowment, money-back and whole-life, but with one major

difference. Unlike traditional policies, in Ulips investment risk lies with the insured

(i.e., policy holder) and not with the insurance company. Put another way, in case of

adverse market conditions, you can even lose your capital invested.

59

1. Potential for better returns: Under IRDA guidelines, traditional plans have to

invest at least 85% in debt instruments which results in low returns. On the other

hand, Ulips invest in market linked instruments with varying debt and equity

proportions and if you wish you can even choose 100% equity option.

2. Greater transparency: Unlike Ulips, in a traditional life insurance policy you’re

not aware of how your money is invested, where it is invested and what is the value

of your investment.

3. Flexibility in investment: The top most advantage which Ulips offer over

traditional plans is the flexibility offered to you to customized the product according

to your needs:

a. Flexibility to invest the money the way you want: Unlike traditional plans,

Ulips allow you full discretion to choose the fund option most appropriate to your

risk appetite.

b. Flexibility to change the fund allocation: Ulips also give you the option to

change the fund allocation at a later stage through fund switching facility.

c. Flexibility to invest more via top-Ups: Unlike traditional plans where you’ve to

invest a ‘FIXED’ premium every year, Ulips allow you flexibility to invest more

than the regular premium via top-ups which are additional investments over and 60

above the regular premium. To understand the significance and mystery of top-ups,

For the purpose of tax deduction under section 80C, there’s no difference between

regular premium and top-ups. In other words, top-ups are also allowed deduction

under section 80C.

d. Flexibility to skip premium: In case of traditional plans, you’ve to pay premium

for the entire duration of the plan. And if by chance you skip even a single premium,

your policy lapses. Whereas Ulips allow you the flexibility to stop paying premium

usually after three policy years. Your life cover continues by deducting the mortality

charges from the existing investment corpus.

4. Flexibility in insurance coverage:

a. Option to choose coverage: While in case of traditional insurance plans, the

premium is calculated based on sum assured, for Ulips premium payment is the key

component based on which you can decide about the insurance coverage. Put

simply, on the basis of premium, Ulips allow you to opt for any amount of sum

assured within the specified range of minimum and maximum life coverage.

b. Option to increase risk cover: Unlike traditional plans where you’ve to buy a

new policy each time you want to increase your risk cover, Ulips allow you to

increase your insurance cover anytime.

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5. Higher Liquidity (Better exit options): The possibility to withdraw your money

before maturity (through surrender or partial withdrawals) is higher in case of Ulips

as compared to traditional plans and also the exit costs are lower. 

TYPES OF ULIPS

One of the big advantages that a ULIP offers is that whatever be your specific

financial objective, chances are that there is a ULIP which is just right for you. The

figure below gives a general guide to the different goals that people have at various

age-groups and thus, various life-stages. Depending on your specific life-stage and

the corresponding goal, there is a ULIP which can help you plan for it

Type I and Type II Ulips

Ulips are life insurance policies where the insurance cover is bundled with

investment. Unlike traditional insurance-cum-investment policies such as

endowment and money-back policies which offer very low returns, Ulips offer

market-linked returns. There are 2 types of ULIP plans. Type 1 is a ULIP where

Sum Assured or Fund Value whichever is higher is paid. In case of Type 2 of a

ULIP, both Sum Assured and Fund Value are paid. However, to derive the full

benefit of such plans, an investor needs to compare important points like structure,

costs and benefits. Below is a brief comparison for the same. 

62

A Comparison of Term Plan + ELSS and ULIP Type 2 will give the best: 

Table 1.1ULIP Type 2 ELSS + Term

Good for More than 10 Years Investments

Less than 10 years investments.

On Maturity Fund Value Fund Value will be paid by ELSS and No Survival Benefit on Term

On Death Fund Value + Death Benefit will be paid

Fund Value and Term Life Sum assured will be paid

Long Term Costs Good for long term investing as there are high upfront charges. In the Long term total charges are lower than Mutual Funds

Mutual Funds charge close to 2.25% of Annual Fund Management charge till you remain invested.

Switching Costs During a long tenure of investment, switching funds is very important.

Mostly ULIPs have 3 Switches Free

Switches are charged at 3-4%.

Switching Tax Costs No Tax Implication Profits on switching are charged at 10%

Discipline Compulsion of Investment every year. Helps you plan you child’s future or retirement.

No Compulsion. Planning to be implemented by you.

Tax All profits are tax free Tax payable on short term gains

Most insurance agents peddle Ulips by telling the investor that he is free to exit from

the plan after three years. But it is only after three years that the real benefit of a Ulip 63

kicks in. These long-term investment products have high initial charges so an early

exit isn’t usually a sensible decision. With Free Switching option and Tax free

returns it is a good investment for the Long Term. 

64

Figure 1.5

TYPES OF FUNDS IN ULIPS

When you will buy any ULIP, the insurer will give you various options of

investment funds and will also allow some free swaps between these funds within a

year. Generally there are four types of funds, each insurer gives the name differently

to them, you can check out with you insurer before investing. The basic four type of

funds in which ULIP’s invest are:

Table 1.2

GENERAL DISCRIPTION

NATURE OF INVESTMENT RISK CATEGORY

Equity Funds Primarily invested in company stocks with the general aim of capital appreciation

Medium to High

Debt Funds Invested in pure debt market Low

Money market Fund

Invested in Money market and govt institutions

Low

Balanced Funds Combining equity investment with fixed interest instruments

Medium

Equity Funds: In this type the investment component of your premium is invested

into a pure equity fund. As the fund invests only in equity the risk is high but if

markets perform well the returns are outstanding. As ULIP’s are a long term

65

instrument you can safely invest into equity funds as it has been proved that over a

long term equities give best returns than any other investment instrument.

Balanced Funds: In this type the investment is made in a mix of equity and debt.

The ratio of investment will be available with the insurer. A person who is not

willing to take much risk but still wants decent returns can opt for this type.

Debt Funds: This type of fund invests in pure debt instruments. The risk is very

low and so are returns from such funds.

Money Market Funds: Few insurers provide this kind of fund. These funds

generally invest into money market which is a short term debt market mainly

governed by institutions. Apart from these insurers can mix and provide other types

of funds for Ulips. With taking into interest your risk appetite and the goal for which

you want to invest you can opt the right fund.

IRDA GUIDELINES FOR ULIPS

As IRDA is a regulating authority for Insurance, so it has its total control over the

business of all Insurance companies. On July 1, 2006, the IRDA introduced revised

ULIP guidelines. The following are the provisions of the latest guidelines:

Term/Tenure

The ULIP client must have the option to choose a term/tenure. If no term is

defined, then the term will be defined as '70 minus the age of the client'. For

66

example if the client is opting for ULIP at the age of 30 then the policy term

would be 40 years. The ULIP must have a minimum tenure of 5 years.

Sum Assured

On the same lines, now there is a sum assured that clients can associate with.

The minimum sum assured is calculated as:

(Term/2 * Annual Premium) or (5 * Annual Premium) whichever is higher.

There is no clarity with regards to the maximum sum assured.

The sum assured is treated as sacred under the new guidelines; it cannot be

reduced at any point during the term of the policy except under certain

conditions - like a partial withdrawal within two years of death or all partial

withdrawals after 60 years of age. This way the client is at ease with regards

to the sum assured at his disposal.

Premium payments

If less than first 3 years premiums are paid, the life cover will lapse and policy

will be terminated by paying the surrender value. However, if at least first 3

years premiums have been paid, then the life cover would have to continue at

the option of the client.

Surrender value

The surrender value would be payable only after completion of 3 policy

years.

67

Top-ups

Insurance companies can accept top-ups only if the client has paid regular

premiums till date. If the top-up amount exceeds 25% of total basic

regular premiums paid till date, then the client has to be given a certain

percentage of sum assured on the excess amount. Top-ups have a lock-in

of 3 years (unless the top-up is made in the last 3 years of the policy).

Partial withdrawals

The client can make partial withdrawals only after 3 policy years.

Settlement

The client has the option to claim the amount accumulated in his account

after maturity of the term of the policy up to a maximum of 5 years. For

instance, if the ULIP matures on January 1, 2007, the client has the option

to claim the ULIP monies till as late as December 31, 2012. However, life

cover will not be available during the extended period.

Loans

No loans will be granted under the new ULIP.

Charges

The insurance company must state the ULIP charges explicitly. They must

also give the method of deduction of charges.

Benefit Illustrations

The client must necessarily sign on the sales benefit illustrations. These

illustrations are shown to the client by the agent to give him an idea about

the returns on his policy. Agents are bound by guidelines to show

illustrations based on an optimistic estimate of 10% and a conservative 68

estimate of 6%. Now clients will have to sign on these illustrations,

because agents were violating these guidelines and projecting higher

returns.

Benefits of Ulips

Unit Linked Plans offer unique opportunity to combine protection with investments.

Some special features of Unit Linked Life Insurance Policies (ULIPs) are:

o Provides flexibility in investments ULIPs offer a complete selection of high, medium and low risk

investment options under the same policy. You can choose an

appropriate policy according to your risk taking appetite,

coupled with the opportunity to switch between fund options

without any additional expense. ULIPs provide the flexibility

to choose the sum assured and investment ratio in the annual

targeted premium. It also offers the flexibility of one time

increase in investment portfolio, through top-ups to avail

investment opportunity offered by external environment or

own income flows.

o Transparency The charge structure, value of investment and expected IRR

based on 6% and 10% rate of returns, for the complete tenure

of the policy are shared with you before you buy a product.

Similarly, the annual account statement, quarterly investment

69

portfolio and daily NAV reporting, ensures that you are aware

of the status of your investment portfolio at all times. Most

companies publish latest NAVs on their respective websites.

o Liquidity

To cope with unforeseen circumstances, ULIPs offer the benefit of

partial withdrawal; wherein after 3 years you can withdraw funds from

our Unit Linked account, retaining only the stipulated minimum amount.

o Disciplined and regular savings

ULIPs help you inculcate a regular saving habit. Also, the

average unit costs tend to be lower than one time investment.

o Multiple benefits bundled in one product

ULIP is an outstanding solution for risk cover, long term

investments with the benefit of various investment

opportunities, coupled with tax benefits.

o Spread of risk

ULIPS are ideal for those investors who wish to avail the

benefit of market linked growth without actually participating

in the stock market, with the added benefit of risk-cover.

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ULIP’s Offer:

1.PERSONAL ACCOUNT BENEFIT

2. FLEXIBILITY

3.LIFE PROTECTION

4.TRANSPARENCY

5.SAVINGS

6.TAX BENEFIT

7.CHOICE

8.INVESTMENT

9.LIQUIDITY

CHARGES, FEES, DEDUCTIONS IN ULIPS

Ulips offered by different insurers have varying charge structures. Broadly, the

different types of fees and charges are given below. However it may be noted that

insurers have the right to revise fees and charges over a period of time.

71

Figure 1.6

Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before

allocating the units under the policy. This charge normally includes initial and

renewal expenses apart from commission expenses.

Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan.

Mortality charges depend on number of factors such as age, amount of coverage,

state of health etc

Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before

arriving at the Net Asset Value (NAV).

Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of

units. This could be flat throughout the policy term or vary at a pre-determined

rate.

72

Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of

units wherever applicable, as mentioned in the policy conditions.

Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without

charge, with subsequent switches, subject to a charge.

Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk

portion of the premium.

Investors may note, that the portion of the premium after deducting for all

charges and premium for risk cover is utilized for purchasing units

COMPARISON BETWEEN ULIPS AND

MUTUAL FUNDS:

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

mutual funds in terms of their structure and functioning. As is the cases with mutual

73

funds, investors in ULIPs are allotted units by the insurance company and a net

asset value (NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes

similar to the ones found in the mutual funds domain, i.e. diversified equity funds,

balanced funds and debt funds to name a few. Generally speaking, ULIPs can be

termed as mutual fund schemes with an insurance component.

However it should not be construed that barring the insurance element there is

nothing differentiating mutual funds from ULIPs.

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

74

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

75

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.

ULIPs vs. Mutual Funds

Table 1.3

ULIPs Mutual Funds 76

Investment amounts

Determined by the investor and can be modified as well

Minimum investment amounts are determined by the fund house

ExpensesNo upper limits, expenses determined by the insurance company

Upper limits for expenses chargeable to investors have been set by the regulator

Portfolio disclosure Not mandatory*

Quarterly disclosures are mandatory

Modifying asset allocation

Generally permitted for free or at a nominal cost

Entry/exit loads have to be borne by the investor

Tax benefitsSection 80C benefits are available on all ULIP investments

Section 80C benefits are available only on investments in tax-saving funds

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.

77

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 well, 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.

78

Growth of Ulips and Mutual Funds

79

Figure 1.7

ULIPS VERSUS MUTUAL FUNDS

80

Unit Links Insurance Plan (ULIP) and Mutual Fund (MF) are the two most

preferred options for a part time investor to invest into equity. But how do we

decide which one should we go for. Though it is very easy to decide, people tend to

confuse themselves most of the time. This article talks about some points that you

need to consider while deciding which option we want to take.

Mutual Fund is pure investments. ULIP are combination of Insurance and

Investment.

Now let us compare ULIP and MF based on certain well known facts:

1) Insurance 

ULIPs provide you with insurance cover. MFs don’t provide you with insurance

cover. A point in favor of ULIPs. But let me tell you that you don’t get this

insurance cover for free. Mortality charges (i.e. the price you pay for the insurance

cover) get deducted from your investment.

2) Entry Load

ULIPs generally come with a huge entry load. For different schemes, this can vary

between 5 to 40% of the first years premium .MFs do not have any entry load. Here

MFs have a huge advantage. If we consider a conservative market return of about

10-15% you may get a zero percent return in the first year in case of ULIPs.

3) Maturity

ULIPs generally come with a maturity of 5 to 20 years. That whatever money you

put in, most of it will be locked-in till the maturity.

81

Taxes saving MF (Popularly called as Equity Linked Saving Scheme or ELSS)

come with a lock-in period of 3 years. Other MFs don’t have a lock-in period.

Again MFs have advantage over ULIPs. ULIPs do allow you to take money out

prematurely but they also put penalties on you for doing that.

4 ) Compulsion of Investing

ULIPs would generally make you pay at least first three premiums.

MFs don’t have any compulsion on future investments.If you have invested in a

MF this year, and in the next year you don’t have enough income or money to do

investments you can decide not to make any investments. Also if you notice that

the MF that you invested in is not giving good returns as compared to some other

Funds scheme, you can decide to invest in some other MF.

5) Tax Saving

Both the ELSS and ULIP come under 80C and can save you tax. Returns in the

both form of investments are tax free.

6) Market exposureULIPs give you both moderate and aggressive exposure to equity market

Debt and Liquid MF let invest with low risk, but don’t give you tax benefit.

ULIPs need not be aggressive in equity exposure. That is ULIPs need not keep

more that 60% of their funds in equity market. ULIPS also allow to change your

equity market exposure. Thus it can help you time the market and still give you tax

savings. If a MF has a less than 60% exposure to equity market the returns from it

are not tax free. Thus you don’t get to take a conservative stand on returns.

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7)   Flexibility of time of redemption

ULIP will get redeemed on maturing. Premature redemption is allowed with some

penalty. In MF premature redemption is not allowed. For a open ended scheme one

can redeem the MF anytime after maturity. This is mainly useful if the market is

down at the maturity time of the investment. In case of ELSS you can wait till the

market comes up again and then redeem them. ULIP scheme won’t allow you to

wait.

83

DATA ANALYSIS

1) How many people invest their money in Mutual Funds?

a) Invest b) not invest

Table 1.4

Response Frequency Percentage

Invest 19 62%

Not

invest

31 38%

Total 50 100

38%

62%

yes

no

  Figure 1.8

INTERPRETATION:

For the above question how many people invest their money in Mutual Funds are

62%. It means more than half of people are aware about the Mutual Funds.

84

2) What is your source of information while investing in mutual funds?

a) Internet

b) Advertisement

c) Newspaper

d) Financial Advisor

Table 1.5

44%

24%

14%

18%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 2 3 4

Series1

Figure 1.9

Interpretation: It means that all the modes of information are not the same. It clearly

shows that internet is the popular mode of information investing in Mutual Funds

i.e.44%

85

Options Frequency percentage

Internet 22 44%

Advertisement 12 24%

Newspapers 7 14%

Financial

Advisor

9 18%

Total 50 100

3) In which sector do you prefer to invest your money?

a) Government Sector b) Private Sector

Table 1.6

frequency

54%

46%government sector

private sector

Figure 1.10

Interpretation: Mostly people invest there money in both the sector, but majority of

people interested to invest there money in Government sector i.e. 54 %.

86

Options Frequenc

y

Percentages

Government sector 27 54

Private sector 23 46

Total 50 100

4) Which Features attract you the most while choosing a specific Mutual Fund?

a) Flexibility

b) Return

c) Managed by professional people

d) Risk Diversion

Table 1.7

50%

24%10% 16%

0%

10%

20%

30%

40%

50%

1 2 3 4

S1

Series1

Figure 2.0

Interpretation: Mostly the investor is interested in having a flexibility feature then any

other features. Flexibility having 50% which is higher than compare to others

features.

87

Options Frequency percentage

Flexibility 25 50%

returns 12 24%

Professional

people

5 10%

Risk diversion 8 16%

total 50 100

5) What type of return you expect?

A) Monthly B)Quarterly C) Semi annual D) Annual

Table 1.8

24%

32%

20%24%

0%

5%

10%

15%

20%

25%

30%

35%

1 2 3 4

Series1

Figure 2.1

Interpretation: From the investor’s point of view, maximum investors are interested

to have quarterly return i.e. 32% which is highest in remaining all.

88

Options Frequency percentage

Monthly 12 24%

Quarterly 16 32%

Semi annual 10 20%

Annual 12 24%

total 50 100

6) Most preferred form of investment?

A)Ulips B) Mutual Funds C) Post Office D)Equity Trading

Table 1.9

   

24%

44%

14%18%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1 2 3 4

Series1

89

Options Frequency percentage

Ulips 12 24%

Mutual Funds 22 44%

Post office 7 14%

Equity trading 9 18%

total 50 100

Figure 2.2

Interpretation: Most of investors are interested in all the different types of investment

police. But from the above it clearly indicates that Mutual Funds has more investment

then compare to others i.e. 44%

7) How long do you plan to

stay invested in ULIP?

A)3-5 years B)5-7 years C) 7-10 years D)10-20 years

Table 1.10

90

Options Frequency percentage

3-5yrs 25 50%

5-7yrs 12 24%

7-10yrs 5 10%

10-20yrs 8 16%

Total 50 100

50%

24%

10%

16%

1

2

3

4

Figure 2.3

Interpretation: From the above its clearly indicates that mostly investors are interested

for period of 3-5 years, so that there can get back the returns. It shows 3-5 years i.e.

50%

8) Which factor do you consider before investing in mutual fund or Ulips (tick?)

A)Safety of principal B) low risk C) higher returns

D) Maturity period

Table 1.11

91

Options frequency percentages

Safety of principal 14 28

Low risk 15 30

Higher returns 14 28

Maturity period 4 8

Total 50 100

frequency

28%

30%

28%

8% 6%safety of principal

low risk

high returns

maturity period

terms and conditions

Figure 2.4

Interpretation: Mostly people before investing in any securities whether its may be

Mutual Funds or ULIPs are interested to have low risk and minimum risk i.e. 30%

9) What percentage of your income do you invest?

A)0-5% B) 5-10% C)10-15%

Table 1.12

92

Options Frequency percentages

0- 5% 26 52

5-10% 13 26

10-15% 11 22

Total 50 100

frequency

52%

26%

22%

upto 5%

5-10%

10% % above

Figure 2.5

Interpretation: Mostly maximum people are from middle class, so there invest only 0-

5% of income which is nearly i.e. 52% compares to others sectors.

10) Imagine that stock market drops immediately after you invest in it then what

will you do?

A)Withdraw your money B) Wait and Watch C) Invest more

 

  Table 1.13

 

 

 

93

Options frequency percentages

Withdraw 8 16%

Wait and

watch

26 52%

Invest

more

16 32%

Total 50 100

16%

52%

32%

1

2

3

Figure 2.6

Interpretation: Mostly investors who have invested money in shares will wait and

watch. In the hope that market will grow. So 52% i.e. majority of investor’s waits and

watch.

CONCLUSION

A mutual fund is the ideal investment vehicle for today’s complex and modern

financial scenario. Markets for equity shares, bonds and other fixes income

instruments, real estate, derivatives and other assets have become mature and

information driven. Today each and every person is fully aware of every kind of

investment proposal. Everybody wants to invest money, which entitled of low risk,

high returns and easy redemption. In my opinion before investing in mutual funds,

one should be fully aware of each and everything.  

94

At the same time Ulips as an investment avenue is good for people who have interest

in staying for a longer period of time, that is around 10 years and above. Also in the

coming times, Ulips will grow faster. Ulips are actually being publicized more and

also the other traditional endowment policies are becoming unattractive because of

lower interest rate. It is good for people who were investing in ULIP policies of

insurance companies as their investments earn them a better return than the other

policies.

Investors who want to invest money after detailed study of equity market

should go ahead for Mutual Funds.

If you feel that you cannot pay the regular investment and need a relaxation

time in your investment plan then Ulip is best.

If you prefer to get life insurance cover along with good returns on investment

then ULIPs would be good.

FINDINGS

Highest number of investors comes from the salaried class.

Highest number of investors comes from the age group of 25-35.

Most of the people have been investing their money n the share markets

belong to Rs.400000 and above income group.

Mostly investors prefer monitoring their investment on monthly basis.

Most of the people invest up to 6% of their annual income in mutual funds.

95

Most of the people between the age group of 25– 35 invest their money in

share market.

BIBLIOGRAPHY

I. TEXT BOOKS

Donald E Fischer

Ronald J Jordan

H.Sadhak Mutual Fund in India

Peraswamy.P Principles & Practices of

insurance , 1st Edition, Himalaya Publishing House 2003

96

Security Analysis Portfolio Management

Sankaran, Sundar in India Mutual Fund.

Websites

www.kotak.com

www.mutualfundsindia.com

www.investorsguide.com

www.irda.com

www.moneycontrol.com

www.google.com

www.yahoo.com

www.wikipedia.com

www.investopedia.com

www.amfi.com

Website Links :

1)http://www.moneycontrol.com/mutualfundsindia/

2)http://www.apnapaisa.com/insurance/1.9

3)http://www.kotaksecurities.com/landingpage/takecontrols/index2.html

4)http://www.moneycontrol.com/stocks/company-info/pricechart.php

5)http://www.moneycontrol.com/india/mutualfunds/minfo/list-graph/MKM003

6) http://insurance.kotak.com/

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7)http://insurance.kotak.com/insurance-guide/staying-insured-while-investing.php

8)http://mutualfund.kotak.com/kmw/index.jsp

9)http://mutualfund.kotak.com/kmw/mf_school/mutualfunds-investments-basics.htm

10)http://mutualfund.kotak.com/kmw/about/corporate-profile.htm

11)http://www.kotak.com/bank/common/branch_hyderabad.htm

12)http://insurance.kotak.com/aboutus/management_new.php

13)http://www.kotak.com/phpapps/flash_magazines/vol2_issue3/

14)

http://articles.economictimes.indiatimes.com/2010-02-15/news/28477631_1_kotak-

life-insurance-retirement-plan-fund-value

15) http://www.kotaksecurities.com/university/Mutualfund.html

Magazines:

1)Life insurance Today volume vii No:8 November 2011 ISSN 0973-4813

2) Insurance Times volume xxxi No: November ,2011 ISSN-0971-4480

Newspapers:

1)Economic Times

2) Times Of India

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3)Hindustan Times

4) Business Today

5) Times Of India

6) Fortune India

7) Financial Express

Questionnaire

I am K.A.N.S.CHANDRASEKHAR student of CSI Institute of PG Studies doing a project on a “ Comparitive Analysis of Mutual funds and ULIPS” and this questionnaire is a part of the project and this information collected through this questionnaire would be used for academic purposes and strictly confidential.

1) Name ______________________________

2) Age _________________________________

1) 18-25

2)26 to 30

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3) 31 to 45

4) 46 to above

3) Gender 1) male ____) female____

4) Occupation:

1)Service2)Business3)Professional4) Other

5) Family member 1) 2 to 42) 5 to 8 3) 8 to above

6) Do u have a life insurance?

Yes_______ No_______

If yes,

Which is it?

Company’s name Term plan

Endowment Whole life Money back

Retirement ChildPlan

Unit linkPlan

LICICICI Prudential Birla Sunlife SBI Life HDFC Standard LifeBajaj AllianceTATA AIGKotak Mahindra

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ING VysyaMax Newyork Met LifeReliance Shri Ram Sahara

7) What is your annual income? 1) 40 K to 70 K 2) 70 K to 1 lakhs 3) 1 lakh to 3 lakhs 4) 3 lakhs to above

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