INTRODUCTION

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DEFINITION:

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

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

small investors, it reduces risks, improves liquidity and results in stable returns and better capital

appreciation in the long run.

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

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

as shares, debentures and other securities. The income earned through these investments and

the capital appreciation realized are shared by its unit holders in proportion to the number of

units owned by them. Thus a Mutual Fund is the most suitable investment for the common

man as it offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.

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

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

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

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

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

of time.

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UNIT LINKED INSURANCE PLANS

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

ensuring you the value of your investments, or your nominee sum assured, which is the life

cover of your policy. To make sure that your ULIP is truly working to assure your goal, you

should choose a life cover that provides your family with adequate finances and hence

security even in your absence, so that important life goals of your family are always secured.

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

sum assured of Rs 5 lakh. As the children grow and thereby the financial liabilities increase,

he might want to increase the level of protection, which can be done by increasing his sum

assured.

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

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

is known as the Premium Allocation charge, and varies from product to product. The rest of

the premium is invested in the fund or mixture of funds chosen by you. Mortality charges

and ULIP administration charges are thereafter deducted on a periodic (mostly monthly)

basis by cancellation of units, whereas the ULIP fund management charges are adjusted from

NAV on a daily basis.

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INTRODUCTION OF MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the

capital appreciation realized is shared by its unit holders in proportion to the number of units

owned by them. Thus a Mutual Fund is the most suitable investment for the common man as

it offers an opportunity to invest in a diversified, professionally managed basket of securities

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

Figure 1.1

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

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

the same direction in the same proportion at the same time. Mutual fund issues units to the

investors in accordance with quantum of money invested by them. Investors of mutual funds

are known as unit holders.

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

normally come out with a number of schemes with different investment objectives that are

launched from time to time. A mutual fund is required to be registered with Securities and

Exchange Board of India (SEBI), which regulates securities markets before it can collect funds

from the public.

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

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

The investors should compare the risks and expected yields after adjustment of tax on various

instruments while taking investment decisions.

History of the Indian Mutual Fund

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

corpus of Rs700bn collected from more than 20 million investors. The UTI has many

funds/schemes in all categories i.e. equity, balanced, income etc. with some being open-ended

and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which

is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. Most of its investors

believe that the UTI is government owned and controlled, which, while legally incorrect, is

true for all practical purposes.

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

bank Asset Management floated by Canara Bank and SBI Funds Management floated by the

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

Corporation and Jevon Bema Sabayon AMC floated by the LIC are some of the other

prominent ones. The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank. The history of

mutual funds in India can be broadly divided into four distinct phases: -

First Phase – 1964-87

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

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

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

Development Bank of India (IDBI) took over the regulatory and administrative control in place

of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had

Rs.6, 700 crore 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 Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian

Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).

LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December

1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,

004 cores.

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

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

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

in which the first Mutual Fund Regulations came into being, under which all mutual funds,

except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged

with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

Fourth Phase – since February 2003

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

into two separate entities. One is the Specified Undertaking of the Unit Trust of India with

assets under management of Rs.29, 835 crore as at the end of January 2003, representing

broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified

Undertaking of Unit Trust of India, functioning under an administrator and under the rules

framed by Government of India and does not come under the purview of the Mutual Fund

Regulations.

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

with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the

erstwhile UTI which had in March 2000 more than Rs.76, 000 crore of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual

Fund Regulations, and with recent mergers taking place among different private sector funds,

the mutual fund industry has entered its current phase of consolidation and growth. As at the

end of September, 2004, there were 29 funds, which manage assets of Rs.153108 Crores under

421 schemes.

STRUCTURE OF MUTUAL FUND

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

Figure 1.2

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

of the ―Securities and Exchange Board of India” (SEBI). Any person proposing to set up

a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to be

registered with the SEBI

Sponsor
The sponsor should contribute at least 40% to the net worth of the AMC. However, if

any person holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor

and will be required to fulfill the eligibility criteria in the Mutual Fund Regulations. The

sponsor or any of its directors or the principal officer employed by the mutual fund should not

be guilty of fraud or guilty of any economic offence.

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

trustees should be independent persons who are not associated with the sponsors in any

manner. An AMC or any of its officers or employees is not eligible to act as a trustee of any

mutual fund. The trustees are responsible for - inter alia – ensuring that the AMC has all its

systems in place, all key personnel, auditors, registrar etc. have been appointed prior to the

launch of any scheme.

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Asset Management Company
The sponsors or the trustees are required to appoint an AMC to manage the assets of the mutual

fund. Under the mutual fund regulations, the applicant must satisfy certain eligibility criteria

in order to qualify to register with SEBI as an AMC.

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

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

3. The AMC should have and must at all times maintain a minimum net worth of Cr. 100

million.

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

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

of or associated in any manner with the sponsor or any of its subsidiaries or the trustees.

The Transfer Agents

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

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

units. The role of a transfer agent is to collect data from distributors relating to daily purchases

and redemption of units.

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.

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 Some of the AMCs operating currently are:
Table 1.0

Name of the AMC Nature of ownership

Alliance Capital Asset Management (I) Private Limited Private foreign
Birla Sun Life Asset Management Company Limited Private Indian
Bank of Baroda Asset Management Company Limited Banks
Bank of India Asset Management Company Limited Banks
Can bank Investment Management Services Limited Banks
Cholamandalam Cazenove Asset Management Company Limited Private foreign
Dundee Asset Management Company Limited Private foreign
DSP Merrill Lynch Asset Management Company Limited Private foreign
Escorts Asset Management Limited Private Indian
First India Asset Management Limited Private Indian
GIC Asset Management Company Limited Institutions
IDBI Investment Management Company Limited Institutions
Indfund Management Limited Banks
ING Investment Asset Management Company Private Limited Private foreign
J M Capital Management Limited Private Indian
Jardine Fleming (I) Asset Management Limited Private foreign
Kotak Mahindra Asset Management Company Limited Private Indian
Kothari Pioneer Asset Management Company Limited Private Indian
Jeevan Bima Sahayog Asset Management Company Limited Institutions
Morgan Stanley Asset Management Company Private Limited Private foreign
Punjab National Bank Asset Management Company Limited Banks
Reliance Capital Asset Management Company Limited Private Indian
State Bank of India Funds Management Limited Banks
Shriram Asset Management Company Limited Private Indian
Sun F and C Asset Management (I) Private Limited Private foreign
Sundaram Newton Asset Management Company Limited Private foreign

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Tata Asset Management Company Limited Private Indian
Credit Capital Asset Management Company Limited Private Indian
Templeton Asset Management (India) Private Limited Private foreign
Unit Trust of India Institutions
Zurich Asset Management Company (I) Limited Private foreign

TYPES OF MUTUAL FUND SCHEMES

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

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

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

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

into the existing types of schemes in the Industry.

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Figure 1.3
Equity Funds
Equity funds are considered to be the more risky funds as compared to other fund types, but they
also provide higher returns than other funds. It is advisable that an investor looking to invest in an
equity fund should invest for long term i.e. for 3 years or more. There are different types of equity
funds each falling into different risk bracket. In the order of decreasing risk level, there are
following types of equity funds:

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Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for

maximum capital appreciation and invest in less researched shares of speculative nature.

Because of these speculative investments Aggressive Growth Funds become more volatile and

thus, are prone to higher risk than other equity funds.

Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to

5 years) but they are different from Aggressive Growth Funds in the sense that they invest in

companies that are expected to outperform the market in the future. Without entirely adopting

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

average earnings in the future.

Specialty Funds - Specialty Funds have stated criteria for investments and their portfolio

comprises of only those companies that meet their criteria. Criteria for some specialty funds

could be to invest/not to invest in particular regions/companies. Specialty funds are

concentrated and thus, are comparatively riskier than diversified funds.. There are following

types of specialty funds:

Sector Funds: Equity funds that invest in a particular sector/industry of the market are known

as Sector Funds. The exposure of these funds is limited to a particular sector (say Information

Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why

they are more risky than equity funds that invest in multiple sectors.

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Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one

or more foreign companies. Foreign securities funds achieve international diversification and

hence they are less risky than sector funds. However, foreign securities funds are exposed to

foreign exchange rate risk and country risk.

Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market

capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds.

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

than Rs. 2500crores but more than Rs.500 crores) and Small-Cap companies have market

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

by multiplying the market price of the company's share by the total number of its outstanding

shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of

Large-Cap Companies which gives rise to volatility in share prices of these companies and

consequently, investment gets risky.

Option Income Funds*: While not yet available in India, Option Income Funds write options

on a large fraction of their portfolio. Proper use of options can help to reduce volatility, which

is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding

companies, and then sell options against their stock positions, which generate stable income

for investors.

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D.)Diversified Equity Funds - Except for a small portion of investment in liquid money

market, diversified equity funds invest mainly in equities without any concentration on a

particular sector(s). These funds are well diversified and reduce sector-specific or company-

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

market risk. One prominent type of diversified equity fund in India is Equity Linked Savings

Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be

in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up

to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and

in case of any redemption by the investor before the expiry of the lock-in period makes him

liable to pay income tax on such income(s) for which he may have received any tax

exemption(s) in the past.

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

a specific stock market index. The portfolio of these funds comprises of the same companies

that form the index and is constituted in the same proportion as the index. Equity index funds

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

that follow narrow sectored indices (like BSE BANKEX or CNX Bank Index etc). Narrow

indices are less diversified and therefore, are more risky.

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Value Funds - Value Funds invest in those companies that have sound fundamentals and

whose share prices are currently under-valued. The portfolio of these funds comprises of shares

that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share)

and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select

companies from diversified sectors and are exposed to lower risk level as compared to growth

funds or specialty funds. Value stocks are generally from cyclical industries (such as cement,

steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest

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

reduced.

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

Equity Funds is to generate high recurring income and steady capital appreciation for investors

by investing in those companies which issue high dividends (such as Power or Utility

companies whose share prices fluctuate comparatively lesser than other companies' share

prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest

risk level as compared to other equity funds.

Debt / Income Funds

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

banks, financial institutions, governments and other entities belonging to various sectors (like

infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk

profile funds that seek to

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 INTRODUCTION OF ULIPS
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy

which provides a combination of risk cover and investment. The dynamics of the capital market

have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT

LINKED POLICY; THE INVESTMENT RISK IS GENERALLY BORNE BY THE

INVESTOR.

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

risk protection and flexibility in investment. The investment is denoted as units and is

represented by the value that it has attained called as Net Asset Value (NAV). The policy value

at any time varies according to the value of the underlying assets at the time.

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

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

are pooled together to form a Unit fund. A Unit is the component of the Fund in a Unit

Linked Insurance Policy.

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

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

balanced funds, debt funds etc. It is important to remember that in a ULIP, the investment risk

is generally borne by the investor.

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

premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have

the flexibility to alter the premium amounts during the policy's tenure. For example, if an

individual has surplus funds, he can enhance the contribution in ULIP. Conversely an

individual faced with a liquidity crunch has the option of paying a lower amount (the
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difference being adjusted in the accumulated value of his ULIP). ULIP investors can shift

their investments across various plans/asset classes (diversified equity funds, balanced funds,

debt funds) either at a nominal or no cost.

Ulips vs. Traditional life insurance plans

Unit-linked insurance plans, popularly known as Ulips are life insurance policies which offer

a mix of investment and insurance similar to traditional life insurance policies such as

endowment, money-back and whole-life, but with one major difference. Unlike traditional

policies, in Ulips investment risk lies with the insured (i.e., policy holder) and not with the

insurance company. Put another way, in case of adverse market conditions, you can even lose

your capital invested.

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

least 85% in debt instruments which results in low returns. On the other hand, Ulips invest

in market linked instruments with varying debt and equity proportions and if you wish you

can even choose 100% equity option.

Greater transparency: Unlike Ulips, in a traditional life insurance policy you‘re not aware of
how your money is invested, where it is invested and what is the value of you investment.

Flexibility in investment: The top most advantage which Ulips offer over traditional plans

is the flexibility offered to you to customize the product according to your needs:

Flexibility to invest the money the way you want: Unlike traditional plans, Ulips allow

you full discretion to choose the fund option most appropriate to your risk appetite.

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

fund allocation at a later stage through fund switching facility.

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Flexibility to invest more via top-Ups: Unlike traditional plans where you‘ve to invest

FIXED ‘premium every year, Ulips allow you flexibility to invest more than the regular

premium via top-ups which are additional investments over and above the regular premium.

To understand the significance and mystery of top ups, For the purpose of tax deduction under

section 80C, there‘s no difference between regular premium and top-ups. In other words, top-

ups are also allowed deduction under section 80C.

Flexibility to skip premium: In case of traditional plans, you‘ve to pay premium for the entire

duration of the plan. And if by chance you skip even a single premium, your policy lapses.

Whereas Ulips allow you the flexibility to stop paying premium usually after three policy

years. Your life cover continues by deducting the mortality charges from the existing

investment corpus.

Flexibility in insurance coverage:

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

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

which you can decide about the insurance coverage. Put simply, on the basis of premium,

Ulips allow you to opt for any amount of sum assured within the specified range of minimum

and maximum life coverage.

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

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

insurance cover anytime.

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TYPES OF ULIPS
One of the big advantages that a ULIP offers is that whatever be your specific financial

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

a general guide to the different goals that people have at various age-groups and thus, various

life-stages. Depending on your specific life-stage and the corresponding goal, there is a ULIP

which can help you plan for it

Type I and Type II Ulips

Ulips are life insurance policies where the insurance cover is bundled with investment. Unlike

traditional insurance-cum-investment policies such as endowment and money-back policies

which offer very low returns, Ulips offer market-linked returns. There are 2 types of ULIP

plans. Type 1 is a ULIP where Sum Assured or Fund Value whichever is higher is paid. In case

of Type 2 of a ULIP, both Sum Assured and Fund Value are paid. However, to derive the full

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

benefits. Below is a brief comparison for the same.

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COMPARISON BETWEEN ULIPS AND
MUTUAL FUNDS:

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds

in terms of their structure and functioning. As is the cases with mutual funds, investors in

ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for

the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to the

ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt

funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with

an insurance component.

However it should not be construed that barring the insurance element there is nothing

differentiating mutual funds from ULIPs.

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.

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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.

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.

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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.

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Some insurance companies do declare their portfolios on a monthly/quarterly basis. However

the lack of transparency in ULIP investments could be a cause for concern considering that the

amount invested in insurance policies is essentially meant to provide for contingencies and for

long-term needs like retirement; regular portfolio disclosures on the other hand can enable

investors to make timely investment decisions.

ULIPs vs. Mutual Funds

Table 1.3

ULIPs Mutual Funds

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

Portfolio Quarterly disclosures

disclosure Not mandatory* are mandatory
Modifying asset Generally permitted for free or at a nominal Entry/exit loads have to
allocation Cost be borne by the investor

Section 80C benefits are

available only on
Section 80C benefits are available on all ULIP investments in tax-
Tax benefits Investments saving funds

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4. Flexibility in altering the asset allocation
As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are

largely comparable. For example plans that invest their entire corpus in equities (diversified

equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those

investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from

the same fund house, he could have to bear an exit load and/or entry load. On the other hand

most insurance companies permit their ULIP inventors to shift investments across various

plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free

of charge every year and a cost has to be borne for additional switches).

Effectively the ULIP investor is given the option to invest across asset classes as per his

convenience in a cost-effective manner. This can prove to be very useful for investors, for

example in a bull market when the ULIP investor‘s equity component has appreciated, he can

book profits by simply transferring the requisite amount to a debt-oriented plan.

5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds

well, irrespective of the nature of the plan chosen by the investor. On the other hand in the

mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked

savings schemes) are eligible for Section 80C benefits.

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Growth of Ulips and Mutual Funds

27
COMPANY PROFILE

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The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited.
This company was promoted by Uday Kotak, A.A.Sidney , Pinto and Kotak
& Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in
1986, and that's when the company changed its name to Kotak Mahindra Finance
Limited.
The Kotak Mahindra Group Kotak Mahindra is one of India's leading financial conglomerates,
offering complete financial solutions that encompass every sphere of life. From commercial
banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group
caters to the financial needs of individuals and corporates.
The group has a net worth of over Rs. 6,799 crore and has a distribution network of
branches, franchisees, representative offices and satellite offices across cities and
towns in India and offices in New York, London, San Francisco, Dubai, Mauritius
and Singapore. The Group services around 6.4 million customer accounts.
Kotak Group Products & Services:
Bank
Life Insurance
Mutual Funds
Car Finance

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Securities
Institutional Equities
Investment Banking
Kotak Mahindra International
Kotak Private Equity
Kotak Realty Fund
Group Management:
Mr. Gaurang Shah - Director
Mr.G Muralidhar – Managing Director
Mr. Andrew Cartwright - Appointed Actuary
Mr. Sudhakar Shanbag - Chief Investment Officer
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Mr. Sugata Dutta - Head Human Resources
Mr. Suresh Agarwal - Head of Alternate channel
Ms. Kirti Patil – Sr. Vice-President & Head Information Technology
Mr. Anand Dewan - Head Business Impact Group (BIG)
Mr. Cedric Fernandas – Sr. Vice President & Chief Financial Officer
Ms. Elizabeth Venkataraman - Senior Vice President Marketing
Mr. Hitesh Veera – Sr. Vice President & Head Operations, CustomerService,
Underwriting , Claims
Mr. Sandip Shrikhande - Head of Group Business
Mr. Subhasish Ghosh - Sr. VP, Financial Institutions Group

13
Our Corporate Identity
Kotak Mahindra Bank: The Kotak Mahindra Group's flagship company, Kotak
Mahindra Finance Ltd which was established in 1985, was converted into a bank-
Kotak Mahindra Bank Ltd in March 2003 becoming the first Indian company to
convert into a Bank. Its banking operations offer a central platform for customer
relationships across the group's various businesses. The bank has presence in
Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and Housing
Finance.
Kotak Mahindra Capital Company: Kotak Mahindra Capital Company Limited
(KMCC) is India's premier Investment Bank. KMCC's core business areas include
Equity Issuances, Mergers & Acquisitions, Structured Finance and Advisory
Services.

14
Kotak Securities: Kotak Securities Ltd. is one of India's largest brokerage and
securities distribution houses. Over the years, Kotak Securities has been one of the

30
leading investment broking houses catering to the needs of both institutional and non-
institutional investor categories with presence all over the country through franchisees
and coordinators. Kotak Securities Ltd. offers online
(throughwww.kotaksecurities.com) and offline services based on well-researched
expertise and financial products to non-institutional investors.
Kotak Mahindra Prime: Kotak Mahindra Prime Limited (KMP) (formerly known as
Kotak Mahindra Primus Limited) has been formed with the objective of financing the
retail and wholesale trade of passenger and multi utility vehicles in India. KMP offers
customers retail finance for both new as well as used cars and wholesale finance to
dealers in the automobile trade. KMP continues to be among the leading car finance
companies in India.
Kotak Mahindra Asset Management Company: Kotak Mahindra Asset
Management Company Kotak Mahindra Asset Management Company (KMAMC), a
subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra Mutual
Fund (KMMF). KMMF manages funds in excess of Rs 30,000 crore and offers
schemes catering to investors with varying risk-return profiles. It was the first fund
house in the country to launch a dedicated gilt scheme investing only in government
securities.

31
32
 RESEARCH
METHODOLOGY

33
 DATA AND
INTERPRETATION

34
 1. GROWTH SCHEME:

3 month 6month 1st year 3th year 5th year Total

return
MF -5 2.2 11.7 12.4 21.2 34.3
ULIP -4.48 5 18.84 8.47 15.39 18.46

35
 Chart Title
40
35 34.3
30
25
20 21.2
18.84 18.46
15 15.39
11.7 12.4
10
8.47
5 5
2.2
0 0
3 month 6month 1st year 3th year 5th year Total return
-5 -4.48
-5
Column1 Column2 Column3 Column4 Column5 Column6 Column7
-10

Series1 Series2 Series3

INTERPRETATION
The above chart shows that the returns of three month of mutual fund is -5 and the ulip returns is
-4.48. In the 1st year returns of mutual fund is 11.7% and ulip is 18.84%. The performance of these
funds in five years is 21.2% and 15.39%. The NAV of mutual fund is 31.817 and ulip 19.37.

2. OPPORTUNITY FUND:

3 month 6month 1st year 3rd year 5th year Total

return
MF -6.6 1.7 10.4 11.2 19.3 34.9
ULIP -2.10 6.37 20.48 15.39 21.69 14.19

36
 Chart Title
40
35
30
25
20
15
10
5
0
3 month 6month 1st year 3rd year 5th year Total return
-5
Column1 Column2 Column3 Column4 Column5 Column6 Column7
-10

Series1 Series2 Series3 Series4

INTERPRETATION

The above chart shows that the returns of three month of mutual fund is -6.6% and the ulip returns
is -2.10. In the 1st year returns of mutual fund is 10.4% and ulip is 20.48%. The performance of
these funds in five years is 19.3% and 21.69%. The NAV of mutual fund is 33.32 and ulip 29.998.

3. EMERGING EQUITY SCHEME

3 month 6month 1ST year 3rd year 5th year Total

return
MF -6.6 6.2 13.1 15.7 26.6 43
ULIP -4.4 5.23 18.22 8.88 15.65 34

37
 Chart Title
50

40

30

20

10

0
3 month 6month 1ST year 3rd year 5th year Total return

-10 Column1 Column2 Column3 Column4 Column5 Column6 Column7

Series1 Series2 Series3

4. HYBRID FUND: MONTHLY INCOME PLAN

3 month 6month 1ST year 3rd year 5th year Total

return
MF -0.538 1.5 6.3 8.5 10.2 10.2
ULIP -1.07 1.83 3.03 6.14 7.43 7.92

38
 Chart Title
12

10

0
3 month 6month 1ST year 3rd year 5th year Total return
-2 Column1 Column2 Column3 Column4 Column5 Column6 Column7

Series1 Series2 Series3

INTERPRETATION

The above chart shows that the returns of three month of mutual fund is –6.6 and the ulip returns
is -4.14. In the 1st year returns of mutual fund is 13.1% and ulip is 18.22%. The performance of
these funds in five years is 26.6% and 15.65%. The NAV of mutual fund is 38.992 and ulip 21.36.

5. BALANCE FUND:

3 month 6month 1ST year 3rd year 5th year Total

return
MF -4.4 4 7.3 8.9 8.9 23.2
ULIP -2.80 1.74 10.85 7.22 11.76 18.82

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 Chart Title
25
23.2
20
18.82

15
11.76
10 10.85
8.9 8.9
7.3 7.22
5
4
1.74
0 0
3 month
-2.8 6month 1ST year 3rd year 5th year Total return
-5 -4.4
Column1 Column2 Column3 Column4 Column5 Column6 Column7

-10

Series1 Series2 Series3

INTERPRETATION

The above chart shows that the returns of three month of mutual fund is -4.4 and the ulip returns
is -2.80. In the 1st year returns of mutual fund is 7.3% and ulip is 10.85%. The performance of
these funds in five years is 8.9% and 11.76%. The NAV of mutual fund is 29.6265 and ulip 18.61.

6. LIQUIDITY FUND:

3 month 6month 1ST year 3rd year 5th year Total

return
MF 1.7 3.4 6.8 7.4 8.4 6.7
ULIP 0.35 2.29 4.75 5.95 6.72 7.47

40
 Chart Title
9
8
7
6
5
4
3
2
1
0
3 month 6month 1ST year 3rd year 5th year Total return
Column1 Column2 Column3 Column4 Column5 Column6 Column7

Series1 Series2 Series3

INTERPRETATION

The above chart shows that the returns of three month of mutual fund is –1.7 and the ulip returns
is -0.35. In the 1st year returns of mutual fund is 6.8% and ulip is 4.75%. The performance of these
funds in five years is 8.4% and 6.72%.

7. TAX SAVER SCHEME

3 month 6month 1ST year 3rd year 5th year Total

return
MF -1.4 1.3 7.5 8.9 16.9 33.8
ULIP -1.17 0.87 5.90 6.63 7.44 17.66

41
 TAX SAVER SCHEME
40

35

30

25

20

15

10

0
3 month 6month 1ST year 3rd year 5th year Total return
-5
Column1 Column2 Column3 Column4 Column5 Column6 Column7

Series1 Series2 Series3

INTERPRETATION

The above chart shows that the returns of three month of mutual fund is –7.4 and the ulip returns
is -1.17. In the 1st year returns of mutual fund is 7.5% and ulip is 5.90%. The performance of these
funds in five years is 16.9% and 7.44%. The NAV of mutual fund is 39.826 and ulip 16.86.

42
 FINDING,
SUGGESTION AND
CONCLUSION

FINDING:

 The total return of mutual fund and Ulip growth scheme is 34.3%and 18.46%.
 The total return of mutual fund and Ulip opportunity scheme is 34.9% and 14.19%.
 The total return of mutual fund and Ulip emerging scheme is 43% and 18.46%.
 The total return of mutual fund and Ulip monthly income plan is 10.2%and 7.92%.
 The total return of mutual fund and Ulip balance fund scheme is 23.2%and 8.82%

43
  The total return of mutual fund and Ulip liquid fund is 6.7%and 6.72%
 The total return of mutual fund and Ulip tax saver scheme is 33.8%and 17.66 %
 The returns of three months is negative because of short time period.

CONCLUSION:
The decision to choose a financial product for investment depends upon a lot of
factors. Firstly, take into consideration what is about purpose of investment. Whether
is wealth creation or you want a life cover along with it? A lot depends upon risk
appetite of the investors also. Mutual funds carry a higher risk factor in comparison
to ULIPs. Time horizon is also play in important role in deciding the investment. If
you are a short term investor of say 3-5 years, then mutual fund is a good option.
The commission are really high in initial years of ULIPs. Existing from ULIP after
initial years may badly hamper your returns as a large chunk of investments would
be gone in meeting these expenses. If you wish to have an insurance cover along
with wealth creation, you can opt for a term plan. Term plans offer a higher sum
assured at much lower costs. Beyond term plan, you can invest your money in mutual
funds.
If you are low risk appetite investor and do not want to take high risk by
investing in stock market or mutual fund, low cost ULIPs could be an alternative
investment option.

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BIBLIOGRAPHY

45