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.

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.

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.

SCOPE OF THE STUDY:

Subject matter is related to the investors 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 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 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 its great chance for me to observed different product launch by other competitor companies like LIC, TATA AIG etc. In all, it is to understand the overall working of Life insurance sector. of KOTAK and customers preference

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.

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: 5

 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 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:

There are two types of data collection method use in my project report. Primary data 7

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. 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.

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

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Car Finance 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 11

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 bankKotak 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 noninstitutional 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, Kotaks international arm is suitably positioned for managing assets in the Indian Capital markets. 14

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 employees24 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: 16

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-commerceallows companies to buy and sell products and services online. Business intelligenceallows companies to acquire data about their customers to provide better service. Customer relationship managementprovides the ability to support and retain profitable customers. Supply chain managementstreamlines 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 stateof-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 on investment, and make Intel suited for your business objectives. 18

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 individual, IT organizations, business processes, organizational behavior, and key 19

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)

When no business continuity, disaster recovery, or emergency management plan exists 20

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. Thats 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 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 21

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

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 22

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:

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 23

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: Telemarketing and Sales: We use predictive dialing to connect to customers. Our telesales 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 24

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 Kotak Retirement Income Plan Kotak Premium Return Plan Unit Linked Plans Kotak Retirement Income Plan (Unit-linked) Kotak Safe Investment Plan II 25

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.

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.

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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 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

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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. 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 29

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 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. 30

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

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

Figure 1.2

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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 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.

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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. 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.

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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 They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds.

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Some of the AMCs operating currently are: Table 1.0 Name of the AMC Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Can bank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company Limited Dundee Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Escorts Asset Management Limited First India Asset Management Limited GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited Unit Trust of India Zurich Asset Management Company (I) Limited Nature of ownership Private foreign Private Indian Banks Banks Banks Private foreign Private foreign Private foreign Private Indian Private Indian Institutions Institutions Banks Private foreign Private Indian Private foreign Private Indian Private Indian Institutions Private foreign Banks Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign Institutions Private foreign

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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 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.

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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 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 hardearned 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

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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 nondiscriminatory. 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. 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. 38

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

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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:

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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.

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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 LargeCap 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.

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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.

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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 44

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

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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 46

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.

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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.

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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 49

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 closedend 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. 50

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:

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Figure 1.4 FREQUENTLY USED TERMS Advisor - Is employed by a mutual fund organization to give professional advice on the funds 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. 52

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.

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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 54

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. 55

(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.

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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.

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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 youre 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 youve 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 58

above the regular premium. To understand the significance and mystery of top-ups, For the purpose of tax deduction under section 80C, theres 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, youve 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 youve 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.

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

Table 1.1

ULIP Type 2 Good for On Maturity More than 10 Years Investments Fund Value

ELSS + Term Less than 10 years investments. Fund Value will be paid by ELSS and No Survival Benefit on Term Fund Value and Term Life Sum assured will be paid Mutual Funds charge close to 2.25% of Annual Fund Management charge till you remain invested.

On Death

Fund Value + Death Benefit will be paid Good for long term investing as there are high upfront charges. In the Long term total charges are lower than Mutual Funds

Long Term Costs

Switching Costs During a Mostly ULIPs have 3 long tenure of investment, Switches Free switching funds is very important. Switching Tax Costs Discipline No Tax Implication Compulsion of Investment every year. Helps you plan you childs future or retirement. All profits are tax free

Switches are charged at 34%.

Profits on switching are charged at 10% No Compulsion. Planning to be implemented by you.

Tax

Tax payable on short term gains

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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 kicks in. These long-term investment products have high initial charges so an early exit isnt usually a sensible decision. With Free Switching option and Tax free returns it is a good investment for the Long Term.

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Figure 1.5

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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 ULIPs invest are:

Table 1.2

GENERAL DISCRIPTION Equity Funds

NATURE OF INVESTMENT Primarily invested in company stocks with the general aim of capital appreciation Invested in pure debt market

RISK CATEGORY Medium to High

Debt Funds Money market Fund

Low

Invested in Money market and govt Low institutions

Balanced Funds Combining equity investment with Medium fixed interest instruments

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 ULIPs are a long term 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.

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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 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.

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 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. 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

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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 estimate of 6%. Now clients will have to sign on these illustrations, because agents were violating these guidelines and projecting higher returns.

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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 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. 68

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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ULIPs 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.

Figure 1.6 70

 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.

Surrender Charges A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

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 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 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.

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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, halfyearly, 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 policys tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at ones 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 predetermined upper limits as prescribed by the Securities and Exchange Board of India. 73

For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors. Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times unwieldy expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article Understanding ULIP expenses.

3. Portfolio disclosure Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.

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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

Minimum investment Investment Determined by the investor and can be amounts are determined amounts modified as well by the fund house Upper limits for expenses chargeable to No upper limits, expenses determined by the investors have been set Expenses insurance company by the regulator Portfolio Quarterly disclosures disclosure Not mandatory* are mandatory Modifying asset Generally permitted for free or at a nominal Entry/exit loads have to allocation cost be borne by the investor Section 80C benefits are available only on Section 80C benefits are available on all ULIP investments in taxTax benefits investments saving funds 75

4. Flexibility in altering the asset allocation As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load. On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. This can prove to be very useful for investors, for example in a bull market when the ULIP investors 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.

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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 investors 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.

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Growth of Ulips and Mutual Funds

Figure 1.7

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ULIPS VERSUS MUTUAL FUNDS

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 dont provide you with insurance cover. A point in favor of ULIPs. But let me tell you that you dont 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. 79

Taxes saving MF (Popularly called as Equity Linked Saving Scheme or ELSS) come with a lock-in period of 3 years. Other MFs dont 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 dont have any compulsion on future investments.If you have invested in a MF this year, and in the next year you dont 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 exposure ULIPs give you both moderate and aggressive exposure to equity market Debt and Liquid MF let invest with low risk, but dont 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 dont 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 wont allow you to wait.

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DATA ANALYSIS
1) How many people invest their money in Mutual Funds? a) Invest b) not invest Table 1.4 Response Invest Frequency Percentage 19 62% 38% 100

Not invest 31 Total 50

38% yes no 62%

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.

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2) What is your source of information while investing in mutual funds? a) Internet b) Advertisement c) Newspaper d) Financial Advisor Table 1.5

Options Internet Advertisement Newspapers Financial Advisor Total

Frequency 22 12 7 9

percentage 44% 24% 14% 18%

50

100

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

44%

24% 18% 14% 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%

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3) In which sector do you prefer to invest your money? a) Government Sector b) Private Sector Table 1.6

Options

Frequency Percentages 54 46 100

Government sector 27 Private sector Total 23 50

frequency

46% 54%

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 %.

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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

Options Flexibility returns Professional people Risk diversion total

Frequency 25 12 5

percentage 50% 24% 10%

8 50

16% 100

50% 40% 30% 20% 10% 0%

50% 24% 10% 1 2 3 16% S1 4

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.

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5) What type of return you expect? A) Monthly B)Quarterly C) Semi annual D) Annual Table 1.8

Options Monthly Quarterly Semi annual Annual total

Frequency 12 16 10 12 50

percentage 24% 32% 20% 24% 100

35% 30% 25% 20% 32% 15% 10% 5% 0% 1 2 3 4 24% 20% 24% Series1

Figure 2.1 Interpretation: From the investors point of view, maximum investors are interested to have quarterly return i.e. 32% which is highest in remaining all.

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6) Most preferred form of investment? A)Ulips B) Mutual Funds C) Post Office Table 1.9 Options Ulips Mutual Funds Post office Equity trading total Frequency 12 22 7 9 50 percentage 24% 44% 14% 18% 100 D)Equity Trading

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 2 3 4 14% 24% 18% Series1 44%

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%

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7) How long do you plan to stay invested in ULIP? A)3-5 years B)5-7 years C) 7-10 years Table 1.10 Options 3-5yrs 5-7yrs 7-10yrs 10-20yrs Total Frequency 25 12 5 8 50 percentage 50% 24% 10% 16% 100 D)10-20 years

16%

10% 50%

1 2 3 4

24%

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%

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8) Which factor do you consider before investing in mutual fund or Ulips (tick?) A)Safety of principal D) Maturity period Table 1.11 B) low risk C) higher returns

Options Safety of principal Low risk Higher returns Maturity period Total

frequency 14 15 14 4 50

percentages 28 30 28 8 100

frequency

8%

6% 28%

safety of principal low risk high returns

28% 30%

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%

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9) What percentage of your income do you invest? A)0-5% B) 5-10% C)10-15%

Table 1.12

Options Frequency percentages 0- 5% 5-10% 26 13 52 26 22 100

10-15% 11 Total 50

frequency

22% upto 5% 5-10% 52% 26% 10% % above

Figure 2.5 Interpretation: Mostly maximum people are from middle class, so there invest only 05% of income which is nearly i.e. 52% compares to others sectors.

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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 Options Withdraw Wait and watch Invest more Total 50 100 16 32% frequency 8 26 percentages 16% 52%

16% 32% 1 2 3

52%

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 investors waits and watch. 91

CONCLUSION
A mutual fund is the ideal investment vehicle for todays 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.

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.

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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. Most of the people between the age group of 25 35 invest their money in share market.

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BIBLIOGRAPHY
I. TEXT BOOKS Donald E Fischer Ronald J Jordan H.Sadhak Peraswamy.P Mutual Fund in India Principles & Practices of

Security Analysis Portfolio Management

insurance , 1st Edition, Himalaya Publishing House 2003 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

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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/ 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/2010-0215/news/28477631_1_kotak-life-insurance-retirement-plan-fund-value 15) http://www.kotaksecurities.com/university/Mutualfund.html

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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 3)Hindustan Times 4) Business Today 5) Times Of India 6) Fortune India 7) Financial Express

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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 3) 31 to 45 4) 46 to above 3) Gender 1) male ____) female____ 4) Occupation: 1)Service 2)Business 3)Professional 4) Other 5) Family member 1) 2 to 4 2) 5 to 8 3) 8 to above 6) Do u have a life insurance? Yes_______ If yes, No_______

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Which is it? Companys name Term plan LIC ICICI Prudential Birla Sunlife SBI Life HDFC Standard Life Bajaj Alliance TATA AIG Kotak Mahindra ING Vysya Max Newyork Met Life Reliance Shri Ram Sahara Endowment Whole life Money Retirement back Child Plan Unit link Plan

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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