Comparison of Mutual Funds With Ulips

COMPARISON OF MUTUAL FUNDS WITH ULIPS
1. RESEARCH METHODOLODY
OBJECTIVES:
To study about the mutual funds industry.
To study the approach of investors towards mutual funds and ULIPS.
To study the behavior of the investors whether they prefer mutual funds or ULIPS.
SCOPE OF THE STUDY:
Subject matter is related to the investors approach towards Mutual Funds and ULIPS.
People of age 20 to 60.
Area limited to Mumbai.
STEPS OF RESEARCH DESIGN:
Define the information needed: - This first step states that what is the information
that is actually required. 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
1
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 pretesting refers to the
testing of the questionnaire on a small sample of respondents in order to identify and
eliminate potential problems.
Population: All the clients who are investing money in mutual funds and ULIPS, both.
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:
Data has been collected both from primary as well as secondary sources as
described below:
o Primary sources
Primary data was obtained through questionnaires filled by people and
through direct communication with respondents in the form of Interview.
o Secondary sources
2
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,
Chi-square technique and analysis of variance.
LIMITATIONS:
No study is free from limitations. The limitations of this study can be:
1. Sample size taken is small and may not be sufficient to predict the results with 100% accuracy.
2. The result is based on primary and secondary data that has its own limitations.
3. The study only covers the area of Mumbai that may not be applicable to other areas.
3
2. Mutual Funds
All about Mutual Funds
Before we understand what is mutual fund, its very important to know the area in which mutual
funds works, the basic understanding of stocks and bonds.
Stocks: Stocks represent shares of ownership in a public company. Examples of public

companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common
owned investment traded on the market.
Bonds: Bonds are basically the money which you lend to the government or a company, and in
return you can receive interest on your invested amount, which is back over predetermined
amounts of time. Bonds are considered to be the most common lending investment traded on the
market. There are many other types of investments other than stocks and bonds (including
annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks
and/or bonds.
The mutual fund industry is a lot like the film star of the finance business. Though it is
perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young
industry where there are changes in the rules of the game every day, and there are constant shifts
and upheavals.
The mutual fund is structured around a fairly simple concept, the mitigation of risk
through the spreading of investments across multiple entities, which is achieved by the pooling
of a number of small investments into a large bucket.
Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort
in the history of the country.
4
2.1 What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a
group of investors to pool their money together with a predetermined investment objective. The
mutual fund will have a fund manager who is responsible for investing the gathered money into
specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or
portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the
fund.
Mutual funds are considered as one of the best available investments as compare to others
they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing
risk & maximizing returns.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a relatively
low cost. The flow chart below describes broadly the working of a mutual fund
Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and
started its operations in 1964 with the issue of units under the scheme US-64.
Overview of existing schemes existed in mutual fund category.
5
2.2 Mutual Funds Industry in India
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund
by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987
when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality
wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the
Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family
rose the AUM to Rs. 470 in in March 1993 and till April 2004, it reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than
the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian
banking industry.
The main reason of its poor growth is that the mutual fund industry in India is new in the
country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it
is the prime responsibility of all mutual fund companies, to market the product correctly abreast
of selling.
The mutual fund industry can be broadly put into four phases according to the development of
the sector. Each phase is briefly described as under.
First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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
6
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 Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
Canbank 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
crores.
Third Phase 1993-2003 (Entry of Private Sector Funds)

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.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores.
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.
7
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. Consolidation and growth. As at
the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes.
The mutual fund industry started in India in a small way with the UTI Act creating what was
effectively a small savings division within the RBI. Over a period of 25 years this grew fairly
successfully and gave investors a good return, and therefore in 1989, as the next logical step,
public sector banks and financial institutions were allowed to float mutual funds and their
success emboldened the government to allow the private sector to foray into this area.
The initial years of the industry also saw the emerging years of the Indian equity market, when a
number of mistakes were made and hence the mutual fund schemes, which invested in lesser-
known stocks and at very high levels, became loss leaders for retail investors. From those days to
today the retail investor, for whom the mutual fund is actually intended, has not yet returned to
the industry in a big way. But to be fair, the industry too has focused on brining in the large
investor, so that it can create a significant base corpus, which can make the retail investor feel
more secure.
The Indian MF industry has Rs 5.67 lakh crore of assets under

management. As per data released by Association of Mutual Funds in India,
the asset base of all mutual fund combined has risen by 7.32% in April, the
first month of the current fiscal. As of now, there are more than 33 fund houses in the country
including 16 joint ventures and 3 wholly owned foreign asset managers.
According to a recent McKinsey report, the total AUM of the Indian mutual
fund industry could grow to $350-440 billion by 2012, expanding 33%
annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 million
and $220 million respectively, it is at par with fund houses in developed economies. Operating
profits for AMCs in India, as a percentage of average assets under management, were at 32 basis
points in 2006-07, while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US,
in the same time frame.
8
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the foreign
owned mutual fund companies and the decline of the companies floated by the nationalized
banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early nineties and got off to a
start due to the stock market boom were prevailing. These banks did not really understand the
mutual fund business and they just viewed it as another kind of banking activity. Few hired
specialized staff and generally chose to transfer staff from the parent organizations. The
performance of most of the schemes floated by these funds was not good. Some schemes had
offered guaranteed returns and their parent organizations had to bail out these AMCs by paying
large amounts of money as a difference between the guaranteed and actual returns. The service
levels were also very bad. Most of these AMCs have not been able to retain staff, float new
schemes etc.
9
2.3 Type of Mutual Fund Schemes
Based on your goals and your investment horizon, Mutual Funds give you the option to invest
your money across various asset classes like equity, debt and gold. This allows you to diversify
your investments and strive to reduce your portfolio risk.
The different types of Mutual Funds are as follows -
Equity Funds / Growth Funds:
Funds that invest in equity shares are called equity funds. They carry the principal objective of
capital appreciation of the investment over a medium to long-term investment horizon. Equity
Funds are high risk funds and their returns are linked to the stock markets. They are best suited
for investors who are seeking long term growth. There are different types of equity funds such as
Diversified funds, Sector specific funds and Index based funds.
Diversified Funds:
These funds provide you the benefit of diversification by investing in companies spread across
sectors and market capitalisation. They are generally meant for investors who seek exposure
across the market and do not want to be restricted to any particular sector.
Sector Funds:
These funds invest primarily in equity shares of companies in a particular business sector or
industry. While these funds may give higher returns, they are riskier as compared to diversified
10
funds. Investors need to keep a watch on the performance of those sectors/industries and must
exit at an appropriate time.
Index Funds:
These funds invest in the same pattern as popular stock market indices like CNX Nifty Index and
S&P BSE Sensex. The value of the index fund varies in proportion to the benchmark index. NAV
of such schemes rise and fall in accordance with the rise and fall in the index. This would vary as
compared with the benchmark owing to a factor known as tracking error.
Tax Saving Funds:
These funds offer tax benefits to investors under the Income Tax Act, 2961. Opportunities
provided under this scheme are in the form of tax rebates under section 80 C of the Income Tax
Act, 1961. They are best suited for long investors seeking tax rebate and looking for long term
growth.
Debt Fund / Fixed Income Funds:
These Funds invest predominantly in rated debt / fixed income securities like corporate bonds,
debentures, government securities, commercial papers and other money market instruments.
They are best suited for the medium to long-term investors who are averse to risk and seeking
regular and steady income. They are less risky when compared with equity funds.
Liquid Funds / Money Market Funds:
11
These funds invest in highly liquid money market instruments and provide easy liquidity. The
period of investment in these funds could be as short as a day. They are ideal for Corporates,
institutional investors and business houses who invest their funds for very short periods.
Gilt Funds:
These funds invest in Central and State Government securities and are best suited for the
medium to long-term investors who are averse to risk. Government securities have no default
risk.
Balanced Funds:
These funds invest both in equity shares and debt (fixed income) instruments and strive to
provide both growth and regular income. They are ideal for medium- to long-term investors
willing to take moderate risks.
Exchange Traded Funds (ETFs):
Exchange Traded Funds (ETFs) track an index, a commodity or a basket of assets as closely as
possible, but trade like shares on the stock exchanges. They are backed by physical holdings of
the commodity, and invest in stocks of companies, precious metals or currencies. ETFs give you
the flexibility to buy and sell units throughout the day, on the stock exchanges.
Types of returns
12
There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly
all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the
earnings and get more shares.
2.4 Advantages of Investing In Mutual Funds
1. Professional Management :
The basic advantage of funds is that, they are professional managed, by well qualified
professional. Investors purchase funds because they do not have the time or the expertise to
manage their own portfolio. A mutual fund is considered to be relatively less expensive way to
make and monitor their investments.
2. Diversification :
Purchasing units in a mutual fund instead of buying individual stocks or bonds, the
investors risk is spread out and minimized up to certain extent. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is minimized by
gains in others.
13
3. Economies of Scale :
Mutual fund buy and sell large amounts of securities at a time, thus help to reducing
transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity :
This is the main advantage of mutual fund that is whenever an investor needs money he
can easily get redemption, which is not possible in most of other options of investment. In open-
ended schemes of mutual fund, the investor gets the money back at net asset value and on the
other hand in close-ended schemes the units can be sold in a stock exchange at a prevailing
market price.
5. Simplicity :
Investments in mutual fund is considered to be easy, compare to other available
instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
6. Low Costs:
Mutual funds are a relatively less expensive way to invest as compare to directly
investing in a capital markets because of less amount of brokerage and other fees.
7.Transparency:
In mutual fund, investors get full information of the value of their investment, the
proportion of money invested in each class of assets and the fund managers investment strategy.
8. Flexibility:
Flexibility is also the main advantage of mutual fund. Through this investors can
systematically invest or withdraw funds according to their needs and convenience like regular
investment plans, regular withdrawal plans, and dividend reinvestment plans etc.
9.Convenient Administration:
14
Investing in a mutual fund reduces paperwork and helps investors to avoid many
problems like bad deliveries, delayed payments and follow up with brokers and companies.
Mutual funds save time and make investing easy.
10.Well Regulated :
All mutual funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interest of investors. The operations of mutual funds are
regularly monitored by SEBI.
2.5 Disadvantages of Investing In Mutual Funds
1. Professional Management :
Some funds doesnt perform in neither the market, as their management is not dynamic
enough to explore the available opportunity in the market, thus many investors debate over
whether or not the so-called professionals are any better than mutual fund or investor himself, for
picking up stocks.
2. Costs :
The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging
extra cost under layers of jargon.
3.Dilution :
15
Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of
a successful fund getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.
4. Taxes :
When making decisions about your money, fund managers don't consider your personal
tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered,
which affects how profitable the individual is from the sale. It might have been more
advantageous for the individual to defer the capital gains liability.
5. 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 mutual fund runs the risk of losing the money.
6. Fees and Commissions :
All funds charge administrative fees to cover their day to day expenses. Some funds also
charge sales commissions or loads to compensate brokers, financial consultants, or financial
planners. Even if you dont use a broker or other financial advisor, you will pay a sales
commission if you buy shares in a Load Fund.
16
2.6 Major Players of Mutual Funds In India
(As on: Quarter ended JUNE 2016)
Large Cap Crisil NAV 1 yr

Rank (Rs./Unit Return
) (%)
Rank 1
Birla SL Frontline Equity (G) 180.81 10.7
Rank 1
Birla Sun Life Top 100 (G) 47.34 8.9
Kotak Select Focus Fund - Rank 1

26.61 13.5
Regular (G)
Rank 1 12.9
SBI Blue Chip Fund (G) 32.05
17
Small & Mid Cap Crisil NAV 1 yr

) (%)
Rank 1
DSP-BR Micro Cap Fund - RP (G) 52.65 24.4
Rank 1
Franklin (I) Smaller Cos (G) 48.45 22.3
Mirae Emerging Bluechip Fund Rank 1

38.49 22.7
(G)
Diversified Equity Crisil Rank NAV 1 yr Return

(Rs./Unit) (%)
ICICI Pru Value Discovery Fund Rank 1
124.19 7.9
(G)
Rank 1
L&T India Value Fund (G) 29.07 14.2
Rank 1
Principal Emerging Bluechip(G) 83.02 20.4
Rank 1
SBI Magnum Multicap Fund (G) 37.77 14.9
Rank 1
UTI MNC Fund (G) 157.61 2.8
Thematic - Infrastructure Crisil Rank NAV 1 yr Return

(Rs./Unit) (%)
Rank 1
Franklin Build India Fund (G) 32.77 12.7
Kotak Infras. & Eco Reform Rank 1 17.72 14.4
18
-Standard (G)
ELSS Crisil NAV 1 yr

)
(%)
Rank 1
Birla SL Tax Relief 96 (G) 24.08 11.0
Index Crisil NAV 1 yr

) (%)
Rank 1
Kotak Nifty ETF 861.06 3.3
Debt Long Term Crisil NAV 1 yr

) (%)
Rank 1
HDFC High Interest - Dynamic (G) 55.98 12.3
Rank 1
ICICI Pru Dynamic Bond-RP (G) 18.34 11.9
Debt Short Term Crisil NAV 1 yr

) (%)
Rank 1
Axis Short Term Fund (G) 17.24 9.1
Rank 1
Birla SL Dynamic Bond -RP (G) 28.90 12.6
19
Rank 1
17.45 8.4
ICICI Pru Banking & PSU Debt Rank 1

18.20 11.5
(G)
Rank 1
L&T Short Term Opport. (G) 15.22 8.4
Credit Opportunities Funds Crisil NAV 1 yr

) (%)
Rank 1
Birla SL Short Term Opp-RP (G) 26.54 11.0
Ultra Short Term Debt Crisil NAV 1 yr

) (%)
Rank 1 1,446.9
Axis Banking Debt Fund (G) 8.2
6
Rank 1
L&T Ultra Short Term Fund (G) 25.75 8.6
Gilt Long Term Crisil NAV 1 yr

)
(%)
Rank 1
HDFC Gilt Fund- LTP (G) 33.58 13.9
L&T Gilt Fund (G) Rank 1 41.01 12.5
Balanced Crisil NAV 1 yr
20

)
(%)
Rank 1
Birla Sun Life Bal. 95 Fund (G) 643.43 13.0
A mutual fund is a professionally-managed firm of collective investments that pools money from
many investors and invests it in stocks, bonds, short-term money market instruments, and/or
other securities.in other words we can say that A Mutual Fund is a trust registered with the
Securities and Exchange Board of India (SEBI), which pools up the money from individual /
corporate investors and invests the same on behalf of the investors /unit holders, in equity shares,
Government securities, Bonds, Call money markets etc., and distributes the profits.
The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly
calculated daily based on the total value of the fund divided by the number of shares currently
issued and outstanding. The value of all the securities in the portfolio in calculated daily. From
this, all expenses are deducted and the resultant value divided by the number of units in the fund
is the funds NAV.
NAV = Total value of the fund.

No. of shares currently issued and outstanding
Advantages of a MF
Mutual Funds provide the benefit of cheap access to expensive stocks
Mutual funds diversify the risk of the investor by investing in a basket of assets
A team of professional fund managers manages them with in-depth research

inputs from investment analysts.
21
Being institutions with good bargaining power in markets, mutual funds have
access to crucial corporate information, which individual investors cannot access.
Investment strategies:
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of
a month. Payment is made through post dated cheques or direct debit facilities. The investor gets
fewer units when the NAV is high and more units when the NAV is low. This is called as the
benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual
fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he
can withdraw a fixed amount each month.
22
2.7 STRUCTURE OF MUTUAL FUND
There are many entities involved and the diagram below illustrates the structure of mutual funds:
Structure of Mutual Funds
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
23
of its directors or the principal officer employed by the mutual fund should not be guilty of fraud
or guilty of any economic offence.
Trustees
The mutual fund is required to have an independent Board of Trustees, i.e. two third of the
trustees should be independent persons who are not associated with the sponsors in any manner.
An AMC or any of its officers or employees is not eligible to act as a trustee of any mutual fund.
The trustees are responsible for - inter alia ensuring that the AMC has all its systems in place,
all key personnel, auditors, registrar etc. have been appointed prior to the launch of any scheme.
Asset Management Company
The sponsors or the trustees are required to appoint an AMC to manage the assets of the
mutual fund. Under the mutual fund regulations, the applicant must satisfy certain eligibility
criteria in order to qualify to register with SEBI as an AMC.
1. The sponsor must have at least 40% stake in the AMC.
2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth of Cr. 100
million.
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
24
of a transfer agent is to collect data from distributors relating to daily purchases and redemption
of units.
Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to
carry out the custodial services for the schemes of the fund. Only institutions with substantial
organizational strength, service capability in terms of computerization and other infrastructure
facilities are approved to act as custodians. The custodian must be totally delinked from the
AMC and must be registered with SEBI.
Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the
income earned by the mutual funds.
25
2.8 REGISTRATION OF MUTUAL FUND
1. Application for registration:

An application for registration of a mutual fund shall be made to the Board in Form A by the
sponsor.
2. Application fee to accompany the application:

Every application for registration under regulation 3 shall be accompanied by nonrefundable
application fee as specified in the Second Schedule.
3. Application to conform to the requirements:

An application which is not complete in all respects shall be liable to be rejected:
Provided that, before rejecting any such application, the applicant shall be given an opportunity
to complete such formalities within such time as may be specified by the Board.
4. Furnishing information:
The Board may require the sponsor to furnish such further information or clarification as may be
required by it.
5. Eligibility criteria:
For the purpose of grant of a certificate of registration, the applicant has to fulfill the following,
namely:
(a) The sponsor should have a sound track record and general reputation of fairness and integrity
in all his business transactions.
Explanation: For the purposes of this clause sound track record shall mean the sponsor should,
(i) Be carrying on business in financial services for a period of not less than five years; and
26
(ii) The Net-worth is positive in all the immediately preceding five years; and
(iii) The Net-worth in the immediately preceding year is more than the capital contribution of
the sponsor in the asset management company; and
(iv) The sponsor has profits after providing for depreciation, interest and tax in three out of the
immediately preceding five years, including the fifth year;
(b) In the case of an existing mutual fund, such fund is in the form of a trust and the trust deed
has been approved by the Board;
(c) The sponsor has contributed or contributes at least 40% to the net worth of the asset
management company:
Provided that any person who holds 40% or more of the net worth of an asset management
company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria
specified in these regulations;
(d) The sponsor or any of its directors or the principal officer to be employed by the mutual fund
should not have been guilty of fraud or has not been convicted of an offence involving moral
turpitude or has not been found guilty of any economic offence;
(e) Appointment of trustees to act as trustees for the mutual fund in accordance with the
provisions of the regulations;
(f) Appointment of asset-management Company to manage the mutual fund and operate the
scheme of such funds in accordance with the provisions of these regulations;
(g) Appointment of a custodian in order to keep custody of the securities [gold and gold related
instruments] and carry out the custodian activities as may be authorized by the trustees.
8. Consideration of application:
The Board may on receipt of all information decide the application.
9. Grant of Certificate of Registration:

27
The Board may register the mutual fund and grant a certificate in Form B on the applicant paying
the registration fee as specified in Second Schedule.
10.Terms and conditions of registration:

The registration granted to a mutual fund under regulation 9, shall be subject to the following
terms and conditions:
(a) The trustees, the sponsor, the asset management company and the custodian shall comply
with the provisions of these regulations;
(b) t-e mutual fund shall forthwith inform the Board, if any information or particulars previously
submitted to the Board was misleading or false in any material respect;
(c) t-e mutual fund shall forthwith inform the Board, of any material change in the information or
particulars previously furnished, which have a bearing on the registration granted by it;
(d) Payment of fees as specified in the regulations and the Second Schedule.
11. Rejection of application:

Where the sponsor does not satisfy the eligibility criteria mentioned in regulation 7, the Board
may reject the application and inform the applicant of the same.
12. Payment of annual service fee:

A mutual fund shall pay before the 15th April each year a service fee as specified in the Second
Schedule for every financial year from the year following the year of registration:
Provided that the Board may, on being satisfied with the reasons for the delay permit the mutual
fund to pay the service fee at any time before the expiry of two months from the commencement
of the financial year to which such fee relates.
13.Failure to pay annual service fee:

The Board may not permit a mutual fund that has not paid service fee to launch any scheme.
28
3. ULIPS (UNIT LINKED INSURANCE PLANS)
PLATFORMS OF LIFE INSURANCE-UNIT LINKED INSURANCE PLANS
World over , insurance come in different forms and shapes . although the generic names may find
similar , the difference in product features makes one wonder about the basis on which these
products are designed .With insurance market opened up , Indian customer has suddenly found
himself in a market place where he is bombarded with a lot of jargon as well as marketing
gimmicks with a very little knowledge of what is happening . This module is aimed at clarifying
these underlying concepts and simplifying the different products available in the market.
We have many products like Endowment , Whole life , Money back etc. All these products are
based on following basic platforms or structures viz.
Traditional Life
Universal Life or Unit Linked Policies
ULIP is the Product Innovation of the conventional Insurance product. With the decline in the
popularity of traditional Insurance products & changing Investor needs in terms of life
protection, periodicity, returns & liquidity, it was need of the hour to have an Instrument that
offers all these features bundled into one.
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life
insurance cover and the premium paid is invested in either debt or equity products or a
combination of the two. In other words, it enables the buyer to secure some protection for his
family in the event of his untimely death and at the same time provides him an opportunity to
earn a return on his premium paid. In the event of the insured person's untimely death, his
29
nominees would normally receive an amount that is the higher of the sum assured or the value of
the units (investments).
To put it simply, ULIP attempts to fulfill investment needs of an investor with

protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the
hassles of managing and tracking a portfolio or products. More importantly ULIPs offer
investors the opportunity to select a product which matches their risk profile.
Unit Linked Insurance Plans came into play in the 1960s and became very popular in Western
Europe and Americas. In India The first unit linked Insurance Plan , popularly known as ULIP
Unit Linked Insurance Plan in India was brought out by Unit Trust Of India in the year 1971 by
entering into a group insurance arrangement with LIC o provide for life cover to the investors ,
while UTI , as a mutual was taking care of investing the unit holders money in the capital market
and giving them a fair return .
Subsequently in the year 1989 , another Unit Linked Product was launched by the LIC Mutual
Fund called by the name of DHANARAKSHA which was more or less on the line of ULIP of
UTI . Thereafter LIC itself came out with a Unit Linked Insurance Product known by name
BIMA PLUS in the year 2001-02 .
Presently a number of private life insurance companies have launched Unit Linked Insurance
Products with a variety of new features.
30
3.1 FEATURES OF ULIPS
Premiums paid can be single, regular or variable. The payment period too can be regular or
variable. The risk cover can be increased or decreased.
1. As in all insurance policies, the risk charge (mortality rate) varies with age.
2. The maturity benefit is not typically a fixed amount and the maturity period can be
advanced or extended.
3. Investments can be made in gilt funds, balanced funds, money market funds, growth
funds or bonds.
4. The policyholder can switch between schemes, for instance, balanced to debt or gilt to
equity, etc.
5. The maturity benefit is the net asset value of the units.
6. The costs in ULIP are higher because there is a life insurance component in it as well, in
addition to the investment component.
7. Insurance companies have the discretion to decide on their investment portfolios.
8. Being transparent the policyholder gets the entire episode on the performance of his fund.
9. ULIP products are exempted from tax and they provide life insurance.
10. Provides capital appreciation.
Investor gets an option to choose among debt, balanced and equity funds. It helps to
maintain a smooth growth and protects against the vagaries of the market. In other words it
minimizes the risk of investments for an average individual. He shares his risk with a group of
like-minded individuals.
31
3.2 TYPES OF ULIP
1. Equity Funds: These ULIPs invest primarily in high-risk equities and stocks on companies.
They are the riskiest ULIP investment, and also the one offering the highest rewards. If you have
a medium-to-high risk appetite, and think that fortune favours the bold go for one of these
plans. If you win here you win big. High risk, high reward.
2. Income, fixed-interest, and bond funds: Under these ULIPs, your funds will be invested in
government securities, fixed-income securities, corporate bonds, and the like, which offer a
medium and risk, and medium reward. Medium risk, low to medium reward.
3. Cash Funds: Investments in these ULIPs will see your corpus directed towards money market
funds, cash and bank deposits and other money market instruments which are in the lowest risk
category. Low risk (almost no risk) and low reward.
4. Balanced Funds: These are the most stable and prudent investment based on the very fact that
they vary the amount of investment that goes to different places. It invests in proportion, and
divides the total investible amount between equity investments in high risk equities, company
stocks, etc. and fixed-interest instruments which pose a lower risk. Medium risk, high reward.
5. Life stage based s/ non-life stage based: These plans consider themselves to be your
financial aides, and vary your investments between different levels of risk as you get older. The
plan understands that priorities change over time, and that risk appetite is highest in your youth.
Investments will be staggered between equity & debt instruments in different proportions at
different times.
6. Guarantee / non-guarantee: ULIPs today offer guaranteed additions and benefits, but these
are generally very long term. Guaranteed ULIPs also separate the investor from any kind of risk,
although the reward is slightly lesser. Non-guaranteed ULIPs offer a range of investment to
32
choose from, ranging between varying levels of risk. While these make no promises, they afford
you the opportunity to decide where your money goes, and when.
7. Single premium / regular premium: Everyone has their own premium paying capacity.
Single premium plans require one lump sum of premium to be paid at the start of the plan, and
regular premium plans divide and stagger the premium payments over regular intervals.
8. To plan for retirement: When your regular source of income stops, and youre past the part
of your life when you were able to work, retirement corpus building ULIPs can come rescue you.
There are specific ULIP plans designed to take care of you in your twilight years. They offer
regular pay-outs after the plan ends, and you will still receive an amount that can keep you
comfortable. It is when these payments start that you will truly realise the benefit of working for
money, and having money work for you.
9. To meet medical or personal emergencies: Sometimes there are huge, unavoidable expenses
that we must bear. Medical emergencies, accidents, legal fees, settlement amounts, debt, etc. can
really hit you hard when you least expect it. There are plans that help you build a corpus and use
it as you would a health insurance policy. When youre in the hospital and in need of quick cash,
fast, the plan allows you to partially withdraw from your larger maturity corpus to meet the
immediate expense.
10. Childs education: This is one of the more popular reasons for choosing a ULIP as it
meets the requirements of securing your children and dependents against financial suffering in
the event of your death, and plans pay-outs in such a way that they will be used for the intended
purpose. These ULIPs usually pay benefits out once a year, when its needed for the specific
purpose for which it was taken.
11. Corpus funds: Idle savings can be put to work through investment plans, and one that also
gives you the option of life insurance cover basically kills two birds with one stone. Instead of
navigating through hell to find the right investment at the right interest rate and the right tenure,
people tend to let the insurance company manage their funds. Building a large corpus is a time
consuming venture, when approached through the regular method of hard work, ULIPs limit
your involvement in the management of funds and let your enjoy a piece of the profit cake.
33
34
3.3 HOW ULIP WORKS
ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is
used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance
companies. Units are bought according to the plan chosen by the policyholder. On every
additional premium, more units are allotted to his fund. The policyholder can also switch among
the funds as and when he desires. While some companies allow any number of free switches to
the policyholder, some restrict the number to just three or four. If the number is exceeded, a
certain charge is levied.
Individuals can also make additional investments (besides premium) from time to time to
increase the savings component in their plan. This facility is termed "top-up". The money parked
in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy.
In case of the insured person's untimely death, the amount that the beneficiary is paid is the
higher of the sum assured (insurance cover) or the value of the units (investments). However,
some schemes pay the sum assured plus the prevailing value of the investments.
USP of ULIPS
Insurance cover plus savings:

ULIPs serve the purpose of providing life insurance combined with savings at market-linked
returns. To that extent, ULIPS can be termed as a two-in-one plan in terms of giving an
individual the twin benefits of life insurance plus savings.
ULIPS offer a lot more variety than traditional life insurance plans. So there are multiple options
at the individuals disposal. ULIPS generally come in three broad variants:
Aggressive ULIPS (which can typically invest 80%-100% in equities, balance in debt)
Balanced ULIPS (can typically invest around 40%-60% in equities)
Conservative ULIPS (can typically invest upto 20% in equities)
35
Although this is how the ULIP options are generally designed, the exact debt/equity allocations
may vary across insurance companies. Individuals can opt for a variant based on their risk
profile.
Flexibility:
The flexibility with which individuals can switch between the ULIP variants to capitalise on
investment opportunities across the equity and debt markets is what distinguishes it from other
instruments. Some insurance companies allow a certain number of free switches. Switching
also helps individuals on another front. They can shift from an Aggressive to a Balanced or a
Conservative ULIP as they approach retirement. This is a reflection of the change in their risk
appetite as they grow older.
Works like an SIP:

Rupee cost-averaging is another important benefit associated with ULIPS. With an SIP,
individuals invest their monies regularly over time intervals of a month/quarter and dont have to
worry about timing the stock markets.
36
3.4 HURDLES OF ULIP
No standardization :
All the costs are levied in ways that do not lend to standardisation. If one company calculates
administration cost by a formula, another levies a flat rate. If one company allows a range of the
sum assured (SA), another allows only a multiple of the premium. There was also the problem of
a varying cost structure with age
Lack of flexibility in life cover :
ULIP is known to be more flexible in nature than the traditional plans and, on most counts, they
are. However, some insurance companies do not allow the individual to fix the life cover that he
needs. These rely on a multiplier that is fixed by the insurer
Overstating the yield :
Insurance companies work on illustrations. They are allowed to show you how much your annual
premium will be worth if it grew at 10 per cent per annum. But there are costs, so each company
also gives a post-cost return at the 10 per cent illustration, calling it the yield. some companies
were not including the mortality cost while calculating the yield. This amounts to overstating the
yield.
Internally made sales illustration :
During the process of collecting information, it was found that the sales benefit illustration
shown was not conforming to the Insurance Regulatory and Development Authority (Irda)
format. in many locations30 per cent return illustrations are still rampant
37
Not all show the benchmark return :
To talk about returns without pegging them to a benchmark is misleading the customer. Though
most companies use Sensex, BSE 100 or the Nifty as the benchmark, or the measuring rod of
performance, some companies are not using any benchmark at all.
Early exit options :
The Ulip product works over the long term. The earlier the exit, the worse off is the investor
since he ends up redeeming a high-front-load product and is then encouraged to move into
another higher cost product at that stage. An early exit also takes away the benefit of
compounding from insured.
Creeping costs :
Since the investors are now more aware than before and have begun to ask for costs, some
companies have found a way to answer that without disclosing too much. People are now asking
how much of the premium will go to work. There are plans that are able to say 92 per cent will
be invested, that is, will have a front load of just 8 per cent. What they do not say is the much
higher policy administration cost that is tucked away inside (adjusted from the fund value).
While most insurance companies charge an annual fee of about Rs 600 as administration costs,
that stay fixed over time, there are plans that charge this amount, but it grows by as much as 5
per cent a year over time. There are others that charge a multiple of this amount and that too
grows.
4. COMPARISON BETWEEN ULIPS AND MUTUAL FUNDS

38
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in
terms of their structure and functioning. As is the case with mutual funds, 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.
Points of difference between the two:
1. Mode of investment/ investment amounts:
Mutual fund investors have the option of either making lump sum investments or investing using
the systematic investment plan (SIP) route which entails commitments over longer time
horizons. The minimum investment amounts are laid out by the fund house.
ULIP investors also have the choice of investing in a lump sum (single premium) or using the
conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or
monthly basis. In ULIPs, determining the premium paid is often the starting point for the
investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is the starting
point and premiums to be paid are determined thereafter.
39
ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure.
For example an individual with access to surplus funds can enhance the contribution thereby
ensuring that his surplus funds are gainfully invested; conversely an individual faced with a
liquidity crunch has the option of paying a lower amount (the difference being adjusted in the
accumulated value of his ULIP). The freedom to modify premium payments at one's convenience
clearly gives ULIP investors an edge over their mutual fund counterparts.
2. Expenses:
In mutual fund investments, expenses charged for various activities like fund management, sales
and marketing, administration among others are subject to pre-determined upper limits as
prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on
a recurring basis for all their expenses; any expense above the prescribed limit is borne by the
fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is
applicable). Entry loads are charged at the timing of making an investment while the exit load is
charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with no upper
limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development
Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP
offerings. The only restraint placed is that insurers are required to notify the regulator of all the
expenses that will be charged on their ULIP offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate into
lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses
have been dealt with in detail in the article "Understanding ULIP expenses".
40
3. Portfolio disclosure:
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit
most fund houses do so on a monthly basis. Investors get the opportunity to see where their
monies are being invested and how they have been managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our
interactions with leading insurers we came across divergent views on this issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory,
the other believes that there is no legal obligation to do so and that insurers are required to
disclose their portfolios only on demand.
Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the
lack of transparency in ULIP investments could be a cause for concern considering that the
amount invested in insurance policies is essentially meant to provide for contingencies and for
long-term needs like retirement; regular portfolio disclosures on the other hand can enable
investors to make timely investment decisions.
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.
41
On the other hand most insurance companies permit their ULIP inventors to shift investments
across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are
allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP
investor's equity component has appreciated, he can book profits by simply transferring the
requisite amount to a debt-oriented plan.
5. Tax benefits:
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds
good, irrespective of the nature of the plan chosen by the investor. On the other hand in the
mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked
savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example
diversified equity funds, balanced funds), if the investments are held for a period over 12
months, the gains are tax free; conversely investments sold within a 12-month period attract
short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term
capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have their
unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in
both offerings and make informed decisions.
42
Investing in ulips?
The high returns (above 20 per cent) are definitely not sustainable over a long term, as they
have been generated during the biggest bull run in recent stock market history.
The free hand given to ULIPs might prove risky if the timing of exit happens to coincide with a
bearish market phase, because of the inherently high equity component of these schemes.
While a debt-oriented ULIP scheme might be superior to a debt option in a conventional mutual
fund due to tax concessions that insurance companies enjoy, such tax incentives may not last.
Look beyond NAVs

The appreciation in the net asset value (NAV) of ULIPs barely indicate the actual returns earned
on your investment. The various charges on your policy are deducted either directly from
premiums before investing in units or collected on a monthly basis by knocking off units.
Either way, the charges do not affect the NAV; but the number of units in your account suffers.
You might have access to daily NAVs but your real returns may be substantially lower.
A rough calculation shows that if our investments earn a 12 per cent annualised return over a 20-
year period in a growth fund, when measured by the change in NAV, the real pre- tax returns
might be only 9 per cent. The shorter the term, the lower the real returns.
How charges dent returns

An initial allocation charge is deducted from our premiums for selling, marketing and broker
commissions. These charges could be as high as 65 per cent of the first year premiums. Premium
allocation charges are usually very high (5-65 per cent) in the first couple of years, but taper off
later. The high initial charges mainly go towards funding agent commissions, which could be as
43
high as 40 per cent of the initial premium as per IRDA (Insurance Regulatory and Development
Authority) regulations.
The charges are higher for a linked plan than a non-linked plan, as the former require lot more
servicing than the latter, such as regular disclosure of investments, switches, re-direction of
premiums, withdrawals, and so on. Insurance companies have the discretion to structure their
expenses structure whereas a mutual fund does not have that luxury. The expense ratios in their
case cannot exceed 2.5 per cent for an equity plan and 2.25 per cent for a debt plan respectively.
The lack of regulation on the expense front works to the detriment of investors in ULIPs.
The front-loading of charges does have an impact on overall returns as we lose out on the
compounding benefit. Insurance companies explain that charges get evened out over a long term.
Thus we are forced to stay with the plan for a longer tenure to even out the effect of initial
charges as the shorter the tenure, the lower our real returns.
If we want to withdraw from the plan, you lose out, as you will have to pay withdrawal charges
up to a certain number of years.
In effect, when we lock in our money in a ULIP, despite the promise of flexibility and liquidity,
we are stuck with one fund management style. This is all the more reason to look for an
established track record before committing our hard-earned money.
Evaluate alternative options
As an investor we have to evaluate alternative options that give superior returns before
considering ULIPs.
Insurance companies argue that comparing ULIPs with mutual funds is like comparing oranges
with apples, as the objectives are different for both the products.
Most ULIPs give us the choice of a minimum investment cover so that we can direct maximum
premiums towards investments.
44
Thus, both ULIPs and mutual funds target the same customers. If risk cover is your primary
objective, pure insurance plans are less expensive.
When we choose a mutual fund, we look for an established track record of three to five years of
consistent returns across various market cycles to judge a fund's performance.
It is early days for insurance companies on this score; investing substantially in linked plans
might not be advisable at this juncture.
ULIP's usually have following charges built into it :

a) Up-front Charges
b) Mortality Charges ( Charges for providing the risk cover for life)
c) Administrative Charges
d) Fund Management Charges
Mutual Fund's have the following charges :

a) Up-front charges ( Marketing, Advertising, distributors fee etc.)
b) Fund Management Charges ( expenses for managing your fund)
A few aspects of investing in ULIPs versus MUTUAL FUNDS.
Liquidity:
ULIPs score low on liquidity. According to guidelines of the Insurance Regulatory and
Development Authority (IRDA), ULIPs have a minimum term of five years and a minimum
lockin of three years. You can make partial withdrawals after three years. The surrender value of
a ULIP is low in the initial years, since the insurer deducts a large part of your premium as
marketing and distribution costs. ULIPs are essentially long-term products that make sense only
if your time horizon is 10 to 20 years.
Mutual fund investments, on the other hand, can be redeemed at any time, barring ELSS (equity-
linked savings schemes). Exit loads, if applicable , are generally for six months to a year in
equity funds. So mutual funds score substantially higher on liquidity.
45
Tax efficiency:
ULIPs are often pitched as tax-efficient , because your investment is eligible for exemption under
Section 80C of the Income Tax Act (subject to a limit of Rs 1 lakh). But investments in ELSS
schemes of mutual funds are also eligible for exemption under the same section .Besides the
premium, the maturity amount in ULIPs is also tax-free , irrespective of whether the investment
was in a balanced or debt plan. So they do have an edge on mutual funds, as debt funds are taxed
at 10% without indexation benefits, and 20% with indexation benefits. The point, though, is that
if you invest in a debt plan through a ULIP, despite its tax-efficiency your post-tax returns will be
low, because of high front-end costs. Debt mutual funds dont charge such costs.
Expenses:
Insurance agents get high commissions for ULIPs, and they get them in the initial years, not
staggered over the term. So the insurer recovers most charges from you in the initial years, as it
risks a loss if the policy lapses. Typically , insurers levy enormous selling charges, averaging
more than 20% of the first years premium, and dropping to 10% and 7.5% in subsequent years.
(And this is after investors balked when charges were as high as 65%!) Compare this with
mutual funds fees of 2.25% on entry, uniform for all schemes. Different ULIPs have varying
charges, often not made clear to investors.
For instance, an agent who sells you a ULIP may get 25% of your first years premium, 10% in
the second year, 7.5% in the third and fourth year and 5% thereafter. If your annual premium is
Rs 10,000 and the agents commission in the first year is 25%, it means only Rs 7,500 of your
money is invested in the first year. So even if the NAV of the fund rises, say 20%, that year, your
portfolio would be worth only Rs 9,000much lower than the Rs 10,000 you paid. On the other
hand, if you invest Rs 10,000 in an equity scheme with a 2.25% entry load, Rs 225 is deducted ,
and the rest is invested. If the schemes NAV rises 20%, your portfolio is worth Rs 11,730. This
shows how ULIPs work out expensive for investors. Deduct the cost of a term policy from the
mutual fund returns, and youre still left with a sizeable difference.
6. CONCLUSION
46
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.
7. RECOMMENDATIONS
47
The performance of the mutual fund depends on the previous years Net Asset Value of the fund.
All schemes are doing well. But the future is uncertain. So, the AMC (Asset under Management
Companies) should take the following steps: -
1. The people do not want to take risk. The AMC should launch more diversified
funds so that the risk becomes minimum. This will lure more and more people to
invest in mutual funds.
2. The expectation of the people from the mutual funds is high. So, the portfolio of
the fund should be prepared taking into consideration the expectations of the
people.
3. Try to reduce fund charges, administration charges and other charges which help
to invest more funds in the security market and earn good returns.
4. Different campaigns should be launched to educate people regarding mutual

funds.
5. Companies should give regular dividends as it depicts profitability.
6. Mutual funds should concentrate on differentiating the portfolio of their MF than

their competitors MF
7. Companies should give handsome brokerage to brokers so that they get attracted
towards distribution of the funds.
48
8. BIBLIOGRAPHY
Indian Financial System by M.Y.Khan.
The Meaningful interpretations of Financial Statements, By D.E Miller

Risk Management By Gustafson Hoyt
Asset-Liability management, Ravi Kumar, Vision books pvt ltd.
Accounting- text and cases, By Anthony.R.N., Hawkins.D.F. Merchant.K.A
www.investorsguide.com
www.moneycontrol.com
www.mutualfundsindia.com
www.SBImf.com
www.sebi.co.in
www.investopedia.com
49

Comparison of Mutual Funds With Ulips

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Comparison of Mutual Funds With Ulips

Transféré par

Droits d'auteur :

Formats disponibles

COMPARISON OF MUTUAL FUNDS WITH ULIPS

To study about the mutual funds industry.

To study the approach of investors towards mutual funds and ULIPS.

SCOPE OF THE STUDY:

People of age 20 to 60.

Area limited to Mumbai.

STEPS OF RESEARCH DESIGN:

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

Specify the scaling procedures: - Scaling involves creating a continuum on which

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

Sample Unit - Investors and non-investors

This study involves 50 respondents.

All about Mutual Funds

Stocks: Stocks represent shares of ownership in a public company. Examples of public

2.1 What Is Mutual Fund

Overview of existing schemes existed in mutual fund category.

2.2 Mutual Funds Industry in India

First Phase 1964-87

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

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

Fourth Phase since February 2003

The Indian MF industry has Rs 5.67 lakh crore of assets under

Recent trends in mutual fund industry

2.3 Type of Mutual Fund Schemes

The different types of Mutual Funds are as follows -

Equity Funds / Growth Funds:

Tax Saving Funds:

Debt Fund / Fixed Income Funds:

Liquid Funds / Money Market Funds:

Exchange Traded Funds (ETFs):

2.4 Advantages of Investing In Mutual Funds

2.5 Disadvantages of Investing In Mutual Funds

2.6 Major Players of Mutual Funds In India

(As on: Quarter ended JUNE 2016)

Large Cap Crisil NAV 1 yr

Kotak Select Focus Fund - Rank 1

Small & Mid Cap Crisil NAV 1 yr

Mirae Emerging Bluechip Fund Rank 1

Diversified Equity Crisil Rank NAV 1 yr Return

Thematic - Infrastructure Crisil Rank NAV 1 yr Return

Kotak Infras. & Eco Reform Rank 1 17.72 14.4

ELSS Crisil NAV 1 yr

Index Crisil NAV 1 yr

Debt Long Term Crisil NAV 1 yr

Debt Short Term Crisil NAV 1 yr

ICICI Pru Banking & PSU Debt Rank 1

Credit Opportunities Funds Crisil NAV 1 yr

Ultra Short Term Debt Crisil NAV 1 yr

Gilt Long Term Crisil NAV 1 yr

L&T Gilt Fund (G) Rank 1 41.01 12.5

Balanced Crisil NAV 1 yr

Rank (Rs./Unit Return

NAV = Total value of the fund.

A team of professional fund managers manages them with in-depth research

2.7 STRUCTURE OF MUTUAL FUND

Structure of Mutual Funds

Asset Management Company

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.

The Transfer Agents

2.8 REGISTRATION OF MUTUAL FUND

1. Application for registration:

2. Application fee to accompany the application: