Sanghvi Institute of Management and Science
Sanghvi Institute of Management and Science
Sanghvi Institute of Management and Science
A Research Project Report On Mutual funds Versus Unit Linked Insurance Plans
CERTIFICATE
This is to certify that the work entitled Mutual funds Versus Unit Linked Insurance Plans is a piece of research work done by Mr. Ankit Kharnal & Mr. Rahul Cornelius under my guidance and supervision The candidate has put in an attendance of more than 45 days with me.
To the best of my knowledge and belief, the Project Work: (i) (ii) (iii) Embodies the work of the candidates them self; Has duly been completed; Is up to the standard both in respect of content and language for being referred to the examiner.
ACKNOWLEDGEMENT
Giving thanks seems to be the most pleasant of all things but is none the different when one actually tries to put it in to words. We find ourselves at loss to express my feelings. We undersigned, Rahul Cornelius & Ankit Kharnal convey our sincere thanks to MR. JAYESH KOTHARI (Territory Manager SBI LIFE INSURANCE COMPANY LTD.), for their interest, acute suggestions, masterly guidance, helping, coordinating in carrying this project work, and also for their guidance that helped us in accomplishment of making this project useful. Secondly we would like to express our sincere thanks to the faculty members Mrs. SWARNJEET ARORA & Ms. EKTA BAJAJ, for their interest, acute suggestions masterly guidance, helping, coordinating in carrying this project work, and also for their guidance that helped us in making this project useful. Last but not the least, we would like to thank all the respondents without those our project would not have reached at this level, who directly or indirectly helped us in the endeavor, and all our friends who had supported us directly or indirectly while making this project report.
INDEX
S.no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Topics Introduction Objective of the Study Research Methodology Mutual Fund an Overview Types Of Mutual Fund Different Plans In Mutual Fund Expenses ans TERS Types Of Risk Benefits of Mutual Fund Disadvantages of Mutual Fund Frequently Used Terms Unit Linked Insurance Plans Key Features Of ULIP Are ULIPs Similar To Mutual funds? Comparison Unit Linked Or WITH PROFITS Five Steps Of Selecting the Right ULIP ULIP Versus Mutual funds Data Collection Hypothesis for Z-test Results and Interpretation Factors of investors of Mutual Fund And ULIP Conclusion References Annexure
INTRODUCTION Starting out as an industry with a single player, the UTI, in 1963, the mutual fund
industry in India has come a long way since then. Today, close to 30 players, offering over 460 schemes, dot the industry landscape. A mutual fund is vehicle pool money from investors, with a promise that professional managers who are expected to honour the promise would invest the money in a particular manner. In four decades of its existence in India, the mutual fund industry has gone through several structural changes. From the days of UTIs monopoly to 1987, when the industry was opened first to other public sector enterprises, and then to private sector players in 1993, It has come a long way. The entry of private player has galvanized the sector as on product innovation, market penetration, identifying new channels of distribution, and last but not the least, improving investor service. Further, the emergence of India as a major investment destination has done a world of good to the mutual fund industry in the country as it is witnessing entry of many big names in the global players like Morgan Stanley, Principal, Sun life, and Fidelity, while Vanguard is mulling over its India debut, augurs well for the industry as not only these global investment management firms bring with them the expertise gained internationally but also bring the best international practices in terms of performances and investor services which will benefit the industry and will go a long way in helping it catch up with its counter parts in developed markets like US and the UK.
Research Methodology:
1) A questionnaire has been prepared which consist of 14 questions and it has been administered on the investors of Indore. 35-35 respondents have been chosen from Mutual Funds and ULIP holders. 2) Sampling Technique: - Simple Random Sampling. 3) Sampling Unit: - Respondents are from Indore (M.P.). 4) Tools for Analysis: - Z-test, Factor Analysis. 5) Hypothesis for Z-test: H0 =There is no significant difference in perception of customer for products offered by Mutual Funds companies and ULIP companies H1 = There is a significant difference in perception of customer for products offered by Mutual Funds companies and ULIP companies .
CONCEPT
A Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. It is essentially a diversified portfolio of financial instruments - these could be equities, debentures / bonds or money market instruments. The corpus of the fund is then deployed in investment alternatives that help to meet predefined investment objectives. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual fund is a 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.
You could make money from a Mutual fund in three ways: 1) Income is earned from dividends declared by Mutual fund schemes from time to time. 2) If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your Mutual fund units for a profit. This is tantamount to a valuation gain.
Mutual fund schemes may be classified on the basis of their structure and their investment objective:
By Structure
By Investment Objective
Growth Funds
Income Funds
Balanced Funds
Index Schemes
Sectoral Schemes
By Structure
Open-ended Funds
An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Funds
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
By Investment Objective
Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.
Balanced Funds
The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as are the case with income or debt oriented schemes.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.
Sectoral Schemes
Sectoral Funds are those, which invest, exclusively in specified sector(s) such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to specific sector(s) / industry (ies).
To cater to different investment needs, Mutual Funds offer various investment options. Some of the important investment options include:
Growth Option
Dividend is not paid-out under a Growth Option and the investor realizes only the capital appreciation on the investment (by an increase in NAV).
Insurance Option
Certain Mutual Funds offer schemes that provide insurance cover to investors as an added benefit.
Mutual funds bear expenses similar to other companies. The fee structure of a Mutual fund can be divided into two or three main components: management fee, non-management expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a percentage of the average daily net assets of the fund.
Management Fees
The management fee for the fund is usually synonymous with the contractual investment advisory fee charged for the management of a fund's investments. However, as many fund companies include administrative fees in the advisory fee component, when attempting to compare the total management expenses of different funds, it is helpful to define management fee as equal to the contractual advisory fee + the contractual administrator fee. This "levels the playing field" when comparing management fee components across multiple funds. Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged to the fund, regardless of the asset size of the fund. However, many funds have contractual fees, which include breakpoints, so that as the value of a fund's assets increases, the advisory fee paid decreases. Another way in which the advisory fees remain competitive is by structuring the fee so that it is based on the value of all of the assets of a group or a complex of funds rather than those of a single fund.
Non-management Expenses
Apart from the management fee, there are certain non-management expenses, which most funds must pay. Some of the more significant (in terms of amount) non-management expenses are: transfer agent expenses (this is usually the person you get on the other end of the phone line when you want to purchase/sell shares of a fund), custodian expense (the fund's assets are kept in custody by a bank which charges a custody fee), legal/audit expense, fund accounting expense, registration expense (the SEC charges a registration fee when funds file registration statements with it), board of directors/trustees expense (the disinterested members of the board who oversee the fund are usually paid a fee for their time spent at board meetings), and printing and postage expense (incurred when printing and delivering shareholder reports).
Brokerage Commissions
An additional expense, which does not pass through the statement of operations and cannot be controlled by the investor, is brokerage commissions. Brokerage commissions are incorporated into the price of the fund and are reported usually 3 months after the fund's annual report in the statement of additional information. Brokerage commissions are directly related to portfolio turnover (portfolio turnover refers to the number of times the fund's assets are bought and sold over the course of a year). Usually the higher the rate of the portfolio turnover, the higher the brokerage commissions. The advisors of Mutual fund companies are required to achieve "best execution" through brokerage arrangements so that the commissions charged to the fund will not be excessive.
TYPES OF RISK
Risk is an inherent aspect of every form of investment. For Mutual fund investments, risks would include variability, or period-by-period fluctuations in total return. The value of the scheme's investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.
Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk".
Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more.
Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
Investment Risks
In the sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.
Liquidity Risk
Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the Indian fixed income market.
2. Diversification
Mutual funds aim to reduce the volatility of returns through diversification by investing in a number of companies across a broad section of industries and sectors. It prevents an investor from putting "all eggs in one basket". This inherently minimizes risk. Thus with a small investible surplus an investor can achieve diversification which would have otherwise not been possible.
3. Liquidity
Open-ended mutual funds are priced daily and are always willing to buy back units from investors. This mean that investors can sell their holdings in Mutual fund investments anytime without worrying about finding a buyer at the right price. In the case of other investment avenues such as stocks and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of mutual funds.
4.Tax Efficiency
(i) Equity Funds
Currently, dividends are tax-free in the hands of the investor. There is no distribution tax payable by the Mutual fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long-term capital gains. Moreover for resident investors there is no TDS on redemption of the units. The recently introduced Securities Transaction Tax is applicable to equity fund investments.
(ii) Debt Funds Currently, dividends are tax-free in the hands of the investor. However, there is distribution tax together with surcharge and education cess, as may be applicable, payable by the Mutual fund on dividends distributed. There is no tax deduction at source on dividends as well. Investments for over 12 months qualify for long-term capital gains. For resident investors there is no TDS on redemption of the units. Low transaction costs - Since mutual funds are a pool of money of many investors, the amount of investment made in securities is large. This therefore results in paying lower brokerage due to economies of scale. Transparency - Prices of open-ended mutual funds are declared daily. Regular updates on the value of your investment are available. The portfolio is also disclosed regularly with the fund manager's investment strategy and outlook. Well-regulated industry - All the mutual funds are registered with SEBI and they function under strict regulations designed to protect the interests of investors. Convenience of small investments - Under normal circumstances, an individual investor would not be able to diversify his investments (and thus minimize risk) across a wide array of securities due to the small size of his investments and inherently higher transaction costs. A Mutual fund on the other hand allows even individual investors to hold a diversified array of securities due to the fact that it invests in a portfolio of stocks. A Mutual fund therefore permits risk diversification without an investor having to invest large amounts of money.
Professional Management
Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.
Costs
Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.
Dilution
It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). Because funds have small holdings in so many 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.
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.
Sale 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 closeended 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.
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 wit mutual funds, the insurance company allots units investors in ULIPs and a net asset value (NAV) is declared for the same on a daily basis. Similarly ULIP 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. Unit-linked insurance plans, ULIPs, are distinct from the more familiar with profits policies sold for decades by the Life Insurance Corporation. With profits policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. ULIPs also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently. In with profits policies, the insurance company credits the premium to a common pool called the life fund, after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders accounts in the form of a bonus. In a ULIP too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges. The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The number of units represents the policyholders share in the fund. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices an equity (growth) fund, balanced fund and a fund, which invests in bonds. In both with profits policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents commissions.
Insurers love ULIPs for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies. In traditional with profits policies, the insurance company bears the investment risk to the extent of the assured amount. In ULIPs, the policyholder bears most of the investment risk. Since ULIPs are devised to mobilise savings, they give insurance companies an opportunity to get a large chunk of the asset management business, which has been traditionally dominated by mutual funds.
1. 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.
2. 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.
3. 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.
4. Surrender value
The surrender value would be payable only after completion of 3 policy years.
5. Top-ups
Insurance companies can accept top-ups only if the client has paid regular premiums till date. If the top-up amount exceeds 25% of total basic regular premiums paid till date, then the client has to be given a certain percentage of sum assured on the excess amount. Top-ups have a lock-in of 3 years (unless the top-up is made in the last 3 years of the policy).
6. Partial withdrawals
The client can make partial withdrawals only after 3 policy years.
7. 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.
8. Loans
No loans will be granted under the new ULIP.
9. Charges
The insurance company must state the ULIP charges explicitly. They must also give the method of deduction of charges.
On the same lines, other data points like portfolio turnover ratios need to be mentioned clearly so clients have an idea on whether the fund manager is investing or punting. ULIPs (especially the aggressive options) need to mention their investment mandate, is it going to aim for aggressive capital appreciation or steady growth. In other words will it be managed aggressively or conservatively? Will it invest in large caps, mid caps or across both segments? Will it be managed with the growth style or the value style? Exposure to a stock/sector in a ULIP portfolio must be defined. Diversified equity funds have a limit to how much they can invest in a stock/sector. Investment guidelines for ULIPs must also be crystallised. Our interaction with insurance companies indicates that there is little clarity on this front; we believe that since ULIPs invest so heavily in stock markets they must have very clear-cut investment guidelines.
In structure, yes; in objective, no. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over Mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.
choose the assets into which he wants his funds invested. A traditional with profits, on the other hand, is a black box and a policyholder has little knowledge of what is happening. An investor in a ULIP knows how much he is paying towards mortality, management and administration charges. He also knows where the insurance company has invested the money. The investor gets exactly the same returns that the fund earns, but he also bears the investment risk. The transparency makes the product more competitive. So if you are willing to bear the investment risks in order to generate a higher return on your retirement funds, ULIPs are for you. Traditional with profits policies too invest in the market and generate the same returns prevailing in the market. But here the insurance company evens out returns to ensure that policyholders do not lose money in a bad year. In that sense they are safer. ULIPs also offer flexibility. For instance, a policyholder can ask the insurance company to liquidate units in his account to meet the mortality charges if he is unable to pay any premium installment. This eats into his savings, but ensures that the policy will continue to cover his life.
Do as much homework as possible before investing in an ULIP. This way you will be fully aware of what you are getting into and make an informed decision. More importantly, it will ensure that you are not faced with any unpleasant surprises at a later stage. Our experience suggests that investors on most occasions fail to realize what they are getting into and unscrupulous agents should get a lot of 'credit' for the same. Gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on financial Web sites, newspapers and sales literature circulated by insurance companies.
Some insurance companies offer multiple free switches every year while others do so only after the completion of a stipulated period.
Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route, which entails commitments over longer time horizons. The fund house lays out the minimum investment amounts. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity. This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their Mutual fund counterparts.
2. Expenses
In Mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors. Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our interactions with leading insurers we came across divergent views on this issue. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio disclosures on the other hand can enable investors to make timely investment decisions.
* There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that there is no legal obligation to do so.
5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds well, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor's marginal tax rate. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in both offerings and make informed decisions
Ho.: There is no significant difference in perception of customer for products offered by Mutual Funds companies and ULIP companies. H1: There is significanct difference in perception of customer for products offered by Mutual Funds companies and ULIP companies.
The Z test was applied to test the significance at 5% level of significance.
Factors
Mutual Fund
Factor of investors preference for mutual fund F2 F3 F4 F5 CORE PRODU CT RISK INVESTMENT FACTO RETURN FLEXIBILITY R FACTOR TAX FREE TRANSPARENCY INCOME F1
Lock In Period Death Benefit Less Safe Less benefit Term Insurance More Risky Short Term Market Risk Fewer Returns Less Assured Returns Information Charges Tax rebates Less Flexible
INVESTMENT FLEXIBILITY
Investment flexibility gives options to choose from various plans available, and gives investor facility to switch between the plans even after investing, this makes it easy for the investor to switch between the plans in the term as which plan providing high returns and NAV. Death benefit in case of ULIP makes investors money more secure. It is measured by item 11,14,9 and these variables are Lock In Period, Death Benefit and Less Safe Variable 11 is the strongest and explains 17.5289 per cent variance and has a total factor load of 2.851039.
benefit to the investor as he gets the returns and growth of both i.e. the investment and the insurance cover at the time of maturity. It is measured by item 10, 12, 1, 5 and these variables are Less benefit, Term Insurance, More Risky and Short Term Variable 10 is the strongest and explains 14.2961 per cent variance and has a total factor load of 2.236417783.
TRANSPARENCY
The investors are provided with all the details of the plans available, making them easy to choose accordingly, i.e. which plan is providing high rates of returns, which plan is having the high NAV in the market, that can be decided by the investors before investing their hard earned money, it is measured by item 2,3 and these variables are Information and Charges Variable 02 is the strongest and explains 12.42219 per cent variance and has a total factor load of 0.126049.
INVESTORS PROTECTION
Tax saving option as all the returns are tax free, insurance cover also goes side by side thus covering the risk involved, this insures that the returns provided by the plan can be used by the way investor likes, and at the time of maturity the returns thus provided are of both, the fund invested and the insurance benefit. It is measured by item 4, 12 and these variables are Tax Rebates and Term Insurance Variable 04 is the strongest and explains 12.48766 per cent variance and has a total factor load of 1.643967.
SECURITY OPTIONS
Various security and flexibility options insures proper and safe management of funds, the funds so invested goes to the invested market according to the portfolio designed, this insures safe and sound growth of funds as they are invested in various area and not in the same place. It is measured by item 9,7 and these variables are Less Safe and Flexible Variable 09 is the strongest and explains 12.18735 per cent variance and has a total factor load of -0.27762.
RISK MANAGEMENT
Investment in the said plans provides the facility of switching and insurance i.e. the money so invested never goes out in the same place, minimizing the risk of getting less returns, investments in the places according to the portfolio designed helps to compensate the losses, if arise from the other place from where the investor is getting higher returns thus minimizing the risks in every possible way. It is measured by item 10, 1 and these variables are Less benefit and More
Risky Variable 10 is the strongest and explains 11.87087 per cent variance and has a total factor load of 1.522173.
INFORMATION FLOW
All the needed information is given resulting proper fund management and investment, the factors and the details are clearly mentioned thus making it easy for the investor to invest accordingly to the right plan of his choice. It is measured by item 14,2 and these variables are Death Benefit and Information Variable 14 is the strongest and explains 11.82194 per cent variance and has a total factor load of 1.432328.
TERM ANALYSIS
Short term results in high returns in less period of time, while giving out all the benefits of a long termed plan. This results in the growth in short span giving the investor the choice of reinvesting the growth in another plan after the maturity in short period of time, It is measured by item 5 and the variable is Short Term Variable 5 is the strongest and explains 9.314896 per cent variance and has a total factor load of 0.897818.
Conclusion
1. The study shows that information of both the investment options is easily available. 2. The investment done by investors is according to their needs i.e. the term of the plan, returns, tax rebates, flexibility and risk. 3. From the study done we can easily draw an inference that the number of Mutual Fund investor and ULIP investors are equal. 4. Both investments have provided assured returns to investors.
REFERENCE
1) Sisodiya, A. (2006). Mutual Fund Industry in India: An Introduction. The ICFAI Material. 2) Pandian, Punithavathy (2007). Security Analysis and Portfolio Management. Vikas Publishing House PVT LTD. 3) Hugonnier; Julien; kaniel and Ron (June 27, 2007). Mutual Fund Portfolio Choice in the Presence of Dynamic Flows. 4) Sethu; Baid and Rachana. Trends and Structure of the Indian Mutual Fund Industry. 5) Sisodiya, Singh; Reddy; Santhosh; Zaheer and Feroz. On a Growth Trail. 6) Kurien and A P. Investor Education AMFI, Playing An Important Role. 7) Singh and Kumar. Mutual Fund Regulations: The Journey So Far. 8) www.amfiindia.com 9) www.moneycontrol.com 10) www.google.com 11) www.icicidirect.com 12) www.bseindia.com
13) www.nseindia.com
1 2 3
Do you agree that investing in Mutual fund is more risky as compare to in ULIP? Do you think that information about Mutual Fund is more available as compare to ULIP? Do you agree that Charges in Mutual fund are more than ULIP?
4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4
Do you think that Tax rebates in Mutual Funds are less 1 2 3 4 5 as Compared to ULIP? Do you think investment done in Mutual Funds is for 1 2 3 4 5 short term as compared to ULIP? Do your agree that market risk is more in mutual fund 1 2 3 4 5 investments as compared to ULIP? Do you agree that Mutual fund is less flexible as 1 2 3 4 5 compared to ULIP? Do you think that Mutual funds provide fewer returns 1 2 3 4 5 than ULIP? Do you think that money invested is less safe in 1 2 3 4 5 Mutual Funds as compared to ULIP? Do you agree that Mutual Funds provide less benefit 1 2 3 4 5 than ULIP? Do you think Lock in period in Mutual Fund is more 1 2 3 4 5 than ULIP? Do you agree that Mutual Funds do not provide term 1 2 3 4 5 insurance while ULIP has an option of Insurance? Do you think that Mutual Funds provide less assured 1 2 3 4 5 returns as compared to ULIP? Do you agree that Mutual Funds do not provide death 1 2 3 4 5 benefit while ULIP provides?
2 0.061762158 0.053396277 0.180014642 0.056182872 0.889173151 0.838429981 0.508814651 0.31023718 0.090156464 0.094764851 0.26311268 0.007958321
3 -0.09852 0.07631 0.115342 -0.11745 -0.12318 -0.12715 0.261514 -0.78053 0.688626 0.611228 0.126122 0.264203
4 -0.11198 0.100269 0.012069 0.435937 -0.03678 0.235603 0.294849 -0.26673 -0.22197 -0.30392 0.814979 -0.68893
5 -0.18491 -0.16152 0.177988 0.358592 -0.04454 0.012284 -0.28225 0.089473 0.18061 0.135473 -0.02165 -0.09974
VAR00003
0.03913529 -0.06089 0.153201 VAR00006 0.122753 0.150204229 0.312775 -0.08638 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 8 a iterations.
-0.16528
0.785489 0.724983
3 -0.08805 0.268689 0.382334 0.194855 0.130201 -0.85182 0.574205 0.078685 0.180996 0.163543 -0.27592 -0.10552
4 0.047957 -0.13853 -0.16684 -0.2896 -0.09055 -0.25454 -0.5122 0.780922 0.74125 -0.02769 0.017052 -0.01892
5 0.231824 -0.31455 -0.14094 -0.08905 -0.09037 -0.12629 -0.02244 -0.29818 0.351345 0.900006 0.532323 -0.00375
6 0.026924 -0.09194 0.172691 0.00979 -0.16464 0.064676 -0.42901 -0.0073 -0.04628 0.008252 -0.47309 0.897818
7 0.101267 -0.05429 -0.12166 -0.13402 0.009195 -0.07555 0.216749 0.172358 -0.05175 0.070015 -0.08752 0.072544
VAR00013 0.121578 0.000537 0.154082 0.107208 VAR00008 0.306468 -0.14343 0.439508 0.145568 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 10 iterations.
0.103371 0.365433
0.100277 0.086273
0.896955 -0.5238