CHAPTER 1 - RESEARCH METHODOLOGY

-: RESEARCH METHODOLOGY :-

TITLE: - Comparative study on Unit Linked Insurance Policy Vs Mutual fund.

OBJECTIVES OF THE PROJECT 1. To understand the concept and structure of unit linked insurance policy. 2. To compare the Unit Linked Insurance Plans (ULIPs) of some selected Companies and mutual fund. 3. To identify the Advantage & disadvantage on which focus more and Improve upon.

LITERATURE REVIEW Majority of information on such topic obtained from different bank web site in which they provided different kind of different insurance product in detail. And I also collected data from different project which have been done by summer trainee. Mejor data collected from http://www.iciciprulife.com/public/Retirement-Plans/Unit-LinkedInsurance-Plans/ulip-charges.htm. i.e. from icici bank website. And also from report by Mitesh v. rajput & Nadeem khan f. pathan of INDU MANAGEMENT INSTITUTE.

BACKGROUND ULIPs came into play in 1960s and became very popular in Western Europe and America. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers to the clients. 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.

SCOPE OF THE STUDY

In the data collection method, we have collected both primary and secondary data to meet our objectives. This study aims to make a comparative study of the Unit Linked Insurance Plans (ULIPs) of Life Insurance Company with that of some major selected players in the Indian insurance market and study the consumer perception towards various insurance products. The comparative analysis is based on secondary data.

METHOD OF STUDY The study has used existing literature and relevant available information for analyzing the various issues related to insurance. The secondary data was collected directly from the different companys websites and secondary data available in different business standard news. Research papers published in various journals, books, reports, and surveys have been extensively referred for the purpose of study. Personal discussions with the experts from academia and industry have immensely contributed towards making worthwhile conclusions.

TIME FRAME We have completed project within 45 days (6 week) at Arihant capital markets ltd from 1-062011 to 15-07-2011.

LIMITATION y The time span under which the project will be conducted can be regarded as the constraint.
y

The scope of the project is limited to secondary data and not on primary.

RESEARCH DESIGN y y The project on study of Ulip vs. Mutual Fund is fully based on descriptive data. Whole data, information and statistics have been gathered from secondary data.

CHAPTER 2 COMPANY PROFILE

COMPANY PROFILE

Our company
Arihant Capital Markets Limited, an ISO 9001:2008 Certified Company, is one of the leading financial services companies in India. We provide a gamut of products and services including securities and commodities broking, investment planning, financial planning, wealth management and merchant banking to a substantial and diversified clientele that includes individuals, corporations and financial institutions. We are committed to giving our customers the best services and holding to our core values which always place our client's interests first. These values are reflected in our Business Principles, which emphasize integrity, commitment to excellence, innovation and teamwork. We have presence in 110 cities with over 620 offices across the nation. Clients turn to Arihant for its complete platform of financial services combined with excellent execution. We have a dedicated institutional team, which caters to mutual fund houses, insurance companies and almost all the banks active in the capital market segment. Our goal is to create wealth for our retail and corporate customers through sound financial advice and appropriate investment strategies.

What we aspire
To be the pre-eminent and most trusted provider of financial services. The values to which we aspire can be summarized in 5 principles: 1. Integrity 2. Client commitment 3. Strive for profitability 4. Excellence 5. Innovation

Overview
Our success is defined by the success of our clients Arihant has developed a diverse and robust portfolio of financial services to help our customers manage their money in the way that benefits them most.

With more than 500 professionals and staff working in 90 plus cities, Arihant has the resources and nationwide reach to ensure the highest level of personalized service. Our fundamental mission is to provide our clients everything they need to do better as realizing their strategic visions is our shared objective. Our service achieves these goals by putting clients at the center of everything we do. Our client-centric approach, ethical and transparent business practices, research-based advice, implementation of cutting-edge technology

and keeping up-to-date to the ever changing world of finance has helped our clients grow with the surging Indian economy over the years.

Quality Policy
Arihants Quality Policy Statement
ISO 9001:2008

At Arihant Capital Markets Ltd. our aim is to continue to achieve high levels of satisfaction for our clients and help them achieve their financial goals through right investment advice and excellent service. We aim to make financial products easily accessible and understandable to all. We are committed to delivering the highest quality solutions to meet our clients investment needs. To realize this, it is the policy of the Company to continually review and update our processes, improve the competence of human resources and effectiveness of quality management systems, ensure compliance with all regulatory requirements, optimize technology and infrastructure, thereby enhancing customer satisfaction. The Quality Policy has full support of the Senior Management, and as such it is their responsibility to maintain and implement our Quality Policy and ensure that the staff adheres to the procedures.

Why choose Arihant

Personal Relationship

At Arihant we believe that it is not just the product or service that we are offering, it is a relationship we are building with our clients. Being a client you deserve a personal relationship

based on trust, reliability, understanding and respect. This relationship is the underpinning from which we will support you in meeting your financial objective. Your growth is our objective

We are genuinely interested in your growth. When you work with us, we make sure we give you the right guidance and advice you deserve. From time to time, we offer you advice on how you can get the maximum from your investments. Sometimes our advice or view is contrarian to the markets, but that is what makes us different, because we dont work on herd mentality. Our clients value us because of our different approach and the right advice they get from us. We work as a family - an Arihant client is a client for the lifetime.

Unbiased and comprehensive Research

We can help you make more informed decisions through our in-depth, unbiased research. Whether you want help managing your own portfolio or want us to manage it for you, youll get investment guidance and portfolio planning thats right for you. Our research team will offer excellent investment opportunities, will help you identify significant market trends, and will make sure that the information reaches you at the earliest. We provide an integrated approach of fundamental and technical research. Short-term, long-term or intraday trading, whatever your investment objective, we will meet your needs. Our solitary objective is to help you achieve your goals.

Nationwide branch/franchisee network

Our offices are scattered all over the country. Get individualized assistance and personal guidance by visiting one of our nationwide branches or franchisee near you. Our executive will guide you about all the products and services we offer to help you meet your investment needs. Whatever you require, well cater to your needs.

Array of Products and services

We offer wide range of investment products and services to make saving and investing easier for you. Equities, Derivatives, Commodities, Depository, IPOs,

Mutual fund, PMS, Merchant banking, Internet trading - no matter what investment-related service/product you need, you can get it at Arihant.

Sophisticated tools for smarter trades and ease in investing

We have made trading and investing easy and convenient for you. You can seize potential market opportunities with our online trading tools. Whether you are at office, at home, on a holiday or on the move, with our online services you can

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Trade view your trade orders and bill summary, subscribe for IPO online with ease view your DP holdings from wherever you want.

Anytime, Anywhere. Our internet trading portal gives you continuous flow of market information and investment opportunities. We have sophisticated, state-of-the-art order routing technology which allows speedy and accurate execution of your orders. We offer full Backoffice support through internet. All this is for you to make informed decisions on time and with convenience. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, and maintenance or for other reasons.

Excellent service and complete support

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Were here for you. On the phone, through email, or one-on-one through personal service. No matter what level of support you need, our executives are always ready to assist you. We have always been known to provide quality and genuine information. Our friendly and helpful team of customer service executive makes sure that they provide you excellent service and meet all your needs. To make our dealings convenient for you, we offer doorstep service to our valued clients whether it is regarding collection of payments, delivery of securities and statements, or advice on investment. Were always happy to help you to meet your needs. This service is available to clients with a particular turnover and HNI clients

Chairman's note
From day one, Ive made a commitment to keep the needs of investor as our top most priority. And since then we have never compromised on what is best for you. At Arihant, our goal is simple: We want to help you grow and meet your financial goals. That means we ensure that your money works hard for you. As I look into the future, I am excited about the tremendous opportunities that our booming economy is offering to us. Going forward, our efforts would be to help you tap these opportunities and meet your financial goals. We would compete on the basis of research-driven and quality service to our clients and develop strong long-term relationships based on earned trust, credibility and confidence. We want to provide our investors a platform to make informed decisions based on comprehensive research rather than mere tips. By putting clients at the heart of everything we do, we aim to be consistently recognized as one of the leading financial solution providers. What we really aspire for is to make financial services available, affordable and understandable to all kinds of investors, thus, putting them on the road to financial bliss. I genuinely look forward to the opportunity to serve you better. - Ashok K Jain Founder and Chairman

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Arihant s produts and services

Products

Equities and Derivatives

Get excellent research tools, investment advice, fast trading and excellent execution services.

Mutual Funds

Give your portfolio an instant shot of diversification. Access hundreds of mutual funds at Arihant.

Commodities

Get the right advice and a service that will empower your trades. Arihant commodities diversity with simplicity.

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IPO

Invest in the primary market to maximize your returns with an easy and quick service.

Services

Online Trading

Experience the convenience of online trading with i-Trade, Arihant's powerful online trading platform

Depository

Hold shares electronically with Arihant. A quick, convenient and efficient service.

Portfolio Management Services

Your own share portfolio, professionally managed by a team of experts.

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Advisory Services

Have your portfolio managed on your own terms. Get the investment advice tailored to your needs.

Online services

Key Features , Arihant's online equity trading solution provides you all the tools you need to execute stock market trades in an instant. You get:

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The option to trade in a broad range of products - equities, derivatives, IPOs Instant credit and money transfer Access to research and advice when you need it A dedicated service team to make investing easier and comfortable

Trade with the best Is an easy-to-use yet sophisticated online equity trading portal that is fully integrated and equips you with a wide array of analytic, research and order management tools you can access anytime, anywhere.

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With

you will have access to a powerful, cutting-edge trading system that is also

refreshingly intuitive, easy to navigate, and user-friendly. Plus, you get complete support from our dedicated online trading team to make trading easier and an enriching experience for you.

Equities

Invest independently We have made trading in equity easier for you. Whether you are an experienced investor, a seasoned investor or just a beginner, you can invest independently and build your portfolio with our robust tools and resources. Our comprehensive research and tools will help you select investments, evaluate opportunities and develop investment strategies. You can make well-informed investment decisions and manage your account with the maximum convenience and help from our unbiased and comprehensive research, sophisticated online tools, the latest market news and analysis and more.

We provide you multitude channels to trade in equities

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Top

Features and benefits

When you open a trading account with Arihant, you can be sure of getting the best. We ensure ease and convenience from opening of the account, to accessing research to execution and settlement of your trades. Our trading accounts are designed to meet the individual needs of investors and to provide you an edge in the markets.
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Multiple exchanges: Access to NSE and BSE shares and derivative trading Excellent research support: Benefit from comprehensive actionable research to help you make smart investment decisions

Information on fingertips: Get daily market news, perspectives and analysis, latest market happenings and their impact and live market commentary

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Advice: Get investment advice based on a whole range of investment options Efficient execution and settlement: Online, on the phone or in person no matter how you choose to trade with Arihant, we ensure speedy execution and timely settlement of trades

Balance and positions: Get easy access to all your accounts. Get a combined view of your trading account and balances, track your portfolio and all your capital gains and losses throughout the year online 24/7

Cash management: At Arihant making deposits, withdrawals and cheque writing is simple, fast and efficient. Get convenience of depositing funds the way you prefer electronically, by cheque or by wire.

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Derivatives

Overview of derivatives For the mature investor, who is aware of risks in the market, derivatives can be an important tool, even for the most conservative investor*. Derivatives trading solutions, including options and futures, offer the potential to profit from your view of future price fluctuations (both rises and falls) without holding actual shares or assets. Derivatives lets you trade in a large number of stocks and Indices for a small margin. They are often used by investors as a risk management tool to protect the value of their portfolio from adverse market movements. Arihant - your best option for derivatives trading We at Arihant have made trading in derivatives easier for you. We offer trading in all equity derivatives instruments with complete advice and support. Whether you want to generate income, reduce risk, or speculate on the market, we give you:
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Fast, flexible order entry Powerful order routing through our online platform Daily trading strategies to yield good returns Competitive brokerage Hedging advice for your portfolio We deliver all that you need to spot potential opportunities and act on them fast.

Features and Benefits Derivatives, if used correctly, are great instruments for making profits, hedging and leveraging your portfolio. When you trade with Arihant, you get support from derivatives experts who can provide your solutions tailored to your needs

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to maximize your gains. Access to sophisticated trading tools, daily derivative strategies, market commentary and market outlook to help you make smart investment decisions.

Complete support and smart advice from our research team through regular research reports, SMS alerts, technical analysis, real-time charts and news to help you evaluate opportunities and develop investment strategies.

Access to sophisticated trading tools, daily derivative strategies, market commentary and market outlook to help you make smart investment decisions But that's not all. It is our constant Endeavour to understand your needs and make every effort to fulfill them. Your growth is our objective. Product Description Trade stock and index futures on NSE Key Features Going "short" is as easy as going "long" Futures Generate income with low margins requirements and high leverage Access to excellent market research, execution and clearing facilities

Increase your exposure with options traded on the NSE Key Features Options Profit from your view about the future direction of a stock or index, even without holding the underlying stocks Insure against a fall in price of a particular stock Generate income by selling or writing options against your

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existing holding of stocks

Portfolio Management Services

In

brief:

Arihants Portfolio Management Service (PMS) allows you to access a professionally managed portfolio of investments. Key features include:
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Professional, discretionary active investment management Comprehensive administration and reporting on your portfolio

Priority Client Group

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Priority Client Group | How it works

In-brief: Have your portfolio managed on your own terms. Our advisers offer a tailored advice on when, where and how to invest, and provide you with a host of investment products and solutions focused on achieving your financial goals. So whether you are looking for long-term investment support or want active trading strategies to cash in on daily market movements, our advisory services will cater to your needs. Arihant Advisory Services is the best solution for you.

Overview Assisted Investing I want someone to help me choose from the host of financial products, who can help me manage my investments/portfolio and keep me informed so that I can make the right decisions. I want complete service ranging from advice on when, where and how to invest, to the execution of those investment decisions and finally advice on when to exit. Arihant Advisory Services is the best solution for you. Investment Advisory Services:
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Asset Allocation Portfolio Monitoring Portfolio Restructuring

Features and benefits

With careful financial planning and sound advice, we provide you with wealth management planning and investment services to help you reach your financial goals.

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Key Features and Benefits:

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Unique opportunity for you to actively participate in equities with professional advice and service that is completely customized to meet your financial needs.

Your portfolio manager will advise you on investments that best suit your profile, but allows you to take the final decision.

Dedicated relationship managers advise you on your portfolio and keep a close watch on the performance of each stock and other investments in your portfolio. They suggest changes, as and when required, to maximize on your portfolios wealth.

Our service has a sound research orientation. Investment decisions are based on careful analysis of market conditions, market trends, and industry and company fundamentals. We take a holistic approach, blending fundamental and technical analysis.

You get positional calls, investment recommendations, BTST (buy today sell tomorrow) ideas, derivative strategies and IPO and mutual fund investment recommendations based on in-depth analysis and research.

You get our research reports on a regular basis for a detailed understanding of investment recommendations.

We strictly abide by our investment philosophy of capital preservation, our primary goal, and a well thought out strategy.

You will have access to Arihant's online trading services and premium research. Working hand in hand with a dedicated stockbroker, who knows the market, can add considerable value.

Mutual Fund

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Overview Of Mutual Fund

Mutual Funds are an excellent way to diversify your investment portfolio with the help of market experts. Welcome to Arihant Mutual Fund Center, a place where you can meet all your mutual fund investment needs. Key Features:
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Assistance at every step of the investment process. Unbiased investment recommendations backed by in-depth research. Portfolio designing tailored to your need and continuous portfolio monitoring. Arihant mutual fund services Right-advice-with-array-of-choices Arihant offers personalized mutual fund investment advice tailored to your investment needs through a disciplined investment process. We offer you an array of mutual fund choices and investment recommendations based on indepth research to help you meet your financial goals. We take care of the most important task of selecting the best options out of whole bunch of mutual fund schemes for the safety and growth of your hard earned money. Get-the-maximum When you invest through us, you not only get unbiased investment advice, we also make sure that you receive your dividends and account statements on time, give an update on your portfolio and advise you if your portfolio needs reshuffling. We also provide you a monthly newsletter on mutual funds called Industry Update Mutual Funds. You can invest through any of our 300 investment centers across India. With Arihant you get the right advice, a variety of choice and an excellent service. We have made investing in mutual funds much easier.

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Features and benefits

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We identify the best-performing mutual funds and create a personalized diversified portfolio based on your profile.

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We closely monitor your portfolio and comprehensively report its performance. We periodically reshuffle your portfolio to ensure that your mutual fund investments are in sync with your investment objectives. We advice on exit and entry strategies so that you can make the most of changing market conditions - like selling in a rising market and buying in a falling market.

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CHAPTER 3 - UNIT LINKED INSURANCE POLICY

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LINKED LIFE INSURANCE PRODUCTS (UNIT LINKED INSURANCE POLICY)

History of Insurance
Historians believe that insurance first developed in Sumer & Babylonia. The merchants & traders of these societies transferred & pooled their money to protect themselves from pirates. In the 18th century BC, Babylonian king, Hammurabi developed a code of law known as the code of specific rules governing the practices of early risk-sharing activities. Insurance developed during the 1700s in the North American colonies. In 1730, Benjamin Frank contributed for the Insurance of Houses from Loss by Fire. The company collected contributions & this money went into an investment fund. Interest on this fund went towards paying claims dividends to those who contributed money. The Industrial Revolution in the US, in the early & mid 1800s prompted dramatic group. During this time, many companies were establishes to sell life insurance policies & annuities. Several shared profits among policy holders, also developed. In addition, some life insurance companies charged premiums according to age of people & health. Life insurance, in its present form, came to India from the United Kingdom with the establishment of a British firm, Oriental Life Insurance Company in Calcutta in 1818, followed by Bombay Life Insurance Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829, & the Oriental Government Security Life Assurance Company in 1874. Prior to 1871, Indian lives were treated as sub-standard & charged extra premium of 15% to 20%. Bombay Mutual Life Assurance Society, an Indian insurer which came into existence in 1871, was the first to cover Indian lives at normal rates. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life insurance business. Later in 1928, the Indian Insurance Companies Act was enacted, to enable the govt. to collect statistical information about both life & non-life insurance business transacted in India by Indian & foreign insurers, including the provident insurance society. Comprehensive arrangements were, however, brought into effect with the enactment of the Insurance Act, 1938. Efforts in this direction continued progressively & the Act was amended in1950, making far reaching changes, such as requirement of equity capital for companies carrying on life insurance

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business, stricter controls on investment of life insurance companies, ceiling on the expenses of management & agency commission etc. By 1956, 154 insurers, 16 non-Indian insurers & 75 provident societies were carrying on life insurance business in India. On 19th January 1956, the management of the entire life insurance business of 229 Indian insurers & provident insurance societies & the Indian life insurance business of 16 non-Indian life insurance companies then operating in India, was taken over by the central govt. & then nationalized on 1st September 1956 when Life Insurance Corporation came into existence. An ordinance was passed in 1968 to amend the Insurance Act to regulate/control non-life insurance resulting in set up of GIC in 1973. Malhotra committee submitted its report in 1994 & recommended means to reintroduce an element of competition by withdrawing the exclusivity of LIC & GIC. In 1997, Insurance Regulatory Authority (IRA) was established which was later restyled as IRDA in 1999.

Liberalization of the Insurance Sector

Liberalization commitments of the country to help in disciplining future economic policies will include the insurance reforms. When the world over, insurance, markets have been opened up, India cannot remain in isolation. Globalization is the new economic reality, which is here to stay, heralding a new era of insurance in India. With the opening of the insurance industry, India stands to gain the following major advantages:

1. Globalization will provide improved opportunities to the customers for better products, with more reasonable & affordable pricing. 2. The customer will get quicker servicing. 3. It will enhance the savings rate. 4. Long term funds for infrastructure development will be available to the country. 5. It will secure for India larger inflows of foreign capital needed to sustain our GDP growth.

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Types Of Insurance
Insurance Are Of Various TypesSome of Them Are 123456789Business Insurance Dental Insurance Deposit Insurance Earthquake Insurance Flood Insurance General Insurance Group Insurance Health Insurance Home Insurance

10- Key man Insurance 11-Life Insurance 12-Loan Protection Insurance 13-Marine Insurance 14-Parametric Insurance 15-Perpetual Insurance 16-Pension Term Assurance 17-Pet Insurance 18-Protection and Indemnity Insurance 19-Return of Premium Life Insurance 20- Reinsurance 21-Safe Funded Health Care 22-Term Life Insurance 23-Terrorism Insurance 24-Title Insurance 25-Trade Credit Insurance 26-Travel Insurance 27-Universal Life Insurance 28-Vehicle Insurance

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29- Vision Insurance 30-Wage Insurance 31-Whole Life Insurance 32-Workers Compensation Insurance

What is Insurance?
Insurance is a legal contract that protects people from the financial costs those results from loss of life, loss of health, lawsuits, or property damage. Insurance provides a means for individuals & society to cope up with some of the risks faced in every day life by every body. People purchase contracts of insurance, called a Policy, from various insurance companies. Almost every person existing in this world is associated with insurance, directly or indirectly. Directly, in the sense that he/she has insured his/her life by some kind of insurance policy from any company. Indirectly, in the sense they must have insured the assets of their own for example their house, car, or any thing else. Insurance can be divided into three categories. 1. Life Insurance 2. General Insurance 3. Health Insurance. Life insurance is a contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) on the happening of the event insured against. Usually the contract provides for the payment of an amount on the date of maturity or at specified intervals or at unfortunate death. The contract also provides for payment of premium periodically to the corporation by the assured. General insurance includes many areas of insurance like marine, motor, engineering, health, fire, etc. The contract provides for the payment of an amount on the happening of some contingency. These types of contracts are annual in nature.

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Reason for insurance

In life, losses are sometimes unavoidable. People may fall seriously sick or lose income or savings to pay off medical bills. Individuals or their relatives may come across untimely death, whatsoever the reason may be. The assets of people may get damaged due to some heavenly act or by some nuisance creator. No one knows in advance when a loss will occur or how serious that loss will be. The uncertainty surrounding potential losses is known as Risk. Insurance offers a way for people to replace risk with known costs- the costs of buying & maintaining insurance policies. Insurance pools risks shared by many people, thereby, reducing the risks faced by a group. People pay to buy insurance coverage (protection from risk). In exchange, all policy holders (people who own insurance policies) receive a promise that the group of policy holders as represented by the insurance organization will pay when any policy holder experience any kind of loss.

Importance of Insurance
Insurance benefits society by allowing individuals to share the risks faced by many people. But it also serves many other important economic & societal functions. Insurance provides the capital that communities need to quickly rebuild & recover economically from natural disasters. Insurance itself has become a significant economic force in most of the industrialized countries. Businessmen buy insurance to cover their employees against work related injuries & health problems. They also insure their assets against any kind of wear n tear by natural forces & forcibly. Insurance companies perform a type of monetary redistribution- they collect premiums & eventually redistribute that money as payments. Depending on the type of insurance, redistribution can take place anywhere from a month to many decades. Because of this delay between collecting & paying out funds, insurance companies invest their funds to bring extra revenue. Such investments help business & government finance their operations, & few profits

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from these investments support the operations of insurance companies. With these investment earnings, insurance companies can keep rates much lower than would otherwise be possible.

WHY DO PEOPLE INVEST??

People invest in life insurance owing to a few key reasons, mainly Insurance creates financial provisions for the deceased's dependants. Insurance provides for interest the policyholder's old age after his earning power

diminishes. After all,

rates may fall and invested holdings may lose value and stop

gaining dividends, but the value of an insurance policy once set, never reduces. Insurance also provide a legally authorized way to reduce the incidence of Income Tax. With a view to promote savings and increase awareness regarding insurance, the government

has provided certain benefits through the Income Tax Act for taxpayers if they choose to opt for life insurance policies. If you plan for your future in a prudent manner, you can maximize the returns on your insurance portfolio. Under Section 10(l0A) (iii) of the Income Tax Act, any payment received by way of commutations of pension out of the Jeevan Suraksha annuity plans is exempt from tax Under Section 10(10D), any sum received under a Life Insurance policy (not being a

Key Man policy) is also exempt from taxation. But it is wise to remember that Pensions received from Annuity plans are not exempted from Income Tax. Section 80 CCC provides a deduction of up to Rs.10,000/- to an individual assessee for any amount paid or deposited to effect or keeping in force any annuity plan of LIC for receiving pension from the fund referred in sections 10 (23AAB). Presently LIC's Jeevan Suraksha plan is one such plan using such benefit.

FUNCTIONS OF INSURANCE
The functions of Insurance can be bifurcated into two parts: 1. Primary Functions 2. Secondary Functions The primary functions of insurance include the following:

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Provide Protection - The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for the losses of risk. Insurance is actually protection against economic loss, by sharing the risk with others.

Collective bearing of risk - Insurance is a device to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people.

Assessment of risk - Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also.

Provide Certainty - Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.

The secondary functions of insurance include the following:

Prevention of Losses - Insurance cautions individuals and businessmen to adopt suitable device to prevent unfortunate consequences of risk by observing safety instructions; installation of automatic sparkler or alarm systems, etc. Prevention of losses causes lesser payment to the assured by the insurer and this will encourage for more savings by way of premium. Reduced rate of premiums stimulate for more business and better protection to the insured.

Small capital to cover larger risks - Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty.

Contributes towards the development of larger industries - Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.

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INTRODUCTION OF UNIT LINKED PLANS

INSURANCE

Unit linked insurance plan (ULIP) is a life insurance solution that provides the client with the benefits of protection and flexibility in investment. It is a solution which provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. The investment is denoted as unit and is represented by the value that it has attained called as Net Asset Value (NAV). ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards providing a life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by the customer. Simply put, ULIPs are structured in such that the protection element and the savings element are distinguishable, and hence managed according to your specific needs. In this way, the ULIP plan offers unprecedented flexibility and transparency. ULIPs came

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into play in 1960s and became very popular in Western Europe and America. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers to the clients. As time progressed the plans were also successfully mapped along with life insurance needs to retirement planning .In todays times ULIP provides solution for all the needs of a client like insurance planning, financial needs, financial planning for childrens future and retirement planning. 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 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. A ULIP, as the name suggests, is a market-linked insurance plan. The main difference between a ULIP and other insurance plans is the way in which the premium money is invested. Premium from, say, an endowment plan, is invested primarily in risk-free instruments like government securities and AAA rated corporate paper, while ULIP premiums can be invested in stock markets in addition to corporate bonds and government securities. ULIPs offer a variety of options to the individual depending on his risk profile. For instance, an individual with an above-average risk appetite can choose a ULIP option that invests up to 60% of premium in equities. Likewise, an individual with a lower risk appetite can select a ULIP that invests up to 20% of premium in equities.

WHAT IS AN ULIP (Unit Linked Insurance Plan)?

ULIP came into play in the 1960s and is popular in many countries in the world. In India investments in ULIP are covered under Section 80C of IT Act. However, the concept of having an investment and insurance by the same instrument was challenged by the market

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regulator SEBI which took up the matter to the Supreme Court of India .The Indian government brought down curtains on the two-month long tussle between the regulators by ruling that Unitlinked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority.

Unit linked insurance plan (ULIP) is a life insurance solution that provides the client with the benefits of protection and flexibility in investment. It is a solution which provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time.

A policy, which provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of 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). A unit-linked insurance plan provides both insurance and investment benefit. In unit-linked plans, the premiums paid are invested in funds offered by the company; the policyholder

determines the appropriate ratio of investments into these funds. The funds are generally invested in equities, debt instruments, money market instruments, and government securities.

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The value of the policy is determined on any day by multiplying the number of units issued by the value of units on that day. The value of these units is called the Net Asset Value (NAV) and is normally published in newspapers on a daily basis. Unit-linked insurance products are risky because the premium money invested is subject to market risk. The funds do not offer a guaranteed or assured return. Insurance companies will only show you a projected return, which may or may not be achieved during the term of the policy.

Simple Explanation Of ULIPs

Suppose that you buy a ULIP when you are 30 years old. The sum assured is Rs 5 lakh and the term is 20 years. The premium that you will pay over a period of 20 years will work out to around Rs 25,000 to Rs 30,000 depending on the company you choose.

In a term policy, your premium will remain fixed throughout the term of the policy. So that means, if you opt to invest in a mutual fund and buy a term policy, the amount of investment and cost of insurance will not change over a period of time. For a similar example as above, if the 30 year old were to take a term insurance policy for Rs 5 lakh, he would end up paying anywhere between Rs 40,000 to Rs 50,000 as insurance premium.

This vast difference in cost of insurance is mainly because of cost of distribution and administration as also the margins of the insurer. In a ULIP, costs and margins are recovered commonly between the investment portion and the insurance portion. However, if you were to buy a term policy and a mutual fund, the insurance company will recover its costs of distribution

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and administration as well as margins. The mutual fund would again recover the same costs from your investment portion.

Who can invest in ULIPs?

It is open to any resident of India who is above 18 years of age. Individuals less than 55 years and 6 months of age can join the plan for 10 years and those less than 50 years and 6 months for 15 years contributing 1/10th and 1/15th of the target amount every year, respectively.

Are Ulips Similar To Mutual Funds?

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 long term investment horizon, 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. Even as ULIPs are selling like hot cakes, one common doubt in most peoples mind is why they cannot buy a mutual fund and top it up with a term insurance policy instead of buying a ULIP? There are a number of matters to consider here the cost of life insurance, the reason for investment, the investment horizon and so on. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs.

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But still here are some basic differences

* 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.

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How ULIPs can make you rich!(systematic planning of ULIPs)- by Personal finance.
Ever since unit-linked insurance plans (ULIPs) made their debut, they have become a subject of much discussion and debate. On the one hand, they were a trifle too complicated for individuals not yet exposed to the stock markets; on the other hand, they were much-maligned because of the 'unusually high' costs. As ULIPs made their presence felt, insurers were more open to discussing the costs and how they evened out over the long term. This and the flexibility that ULIPs offer became important points that made individuals consider adding them to their portfolios. Today, more individuals are open to using the ULIP-way to create wealth over the long term. Here we outline exactly how ULIPs can help you fulfill that responsibility.

If you are between 25 and 35 years of age

You are young, probably married and even have kids. If you are the sole breadwinner in the family, then you have quite a few responsibilities to fulfill right from planning for your child's education/marriage to planning for your own retirement to providing for the family in your absence. The last responsibility is the most critical and ironically it is the easiest and cheapest one of the lot to fulfill. At Personal fn, we have always been votaries of term insurance -- the cheapest way to get a life cover for you. Term insurance is also insurance in its 'purest' form, in other words there is no savings element in it, which ensures your premiums are very low. There is no better product to provide for your family in case of an eventuality and all individuals must consider taking a term plan. Term insurance of course takes a huge burden off your chest as also your wallet. But it still leaves you with a problem. If term insurance is only going to take care of the 'risk' element, who is going to take care of the 'savings' part. This is where ULIPs come in. Of course, that is not to say that ULIPs do not have an insurance element, they do, but it is limited largely to the earlier years and after a point they don the mantle of an investment product. So how can ULIPs help you save for child's education/marriage, planning for retirement and other investment-related objectives? ULIPs can do all this and more because they come with a lot of variety. Consider this; except for term insurance (because it does not make sense), just

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about every life insurance product has a ULIP option. So you have endowment ULIP, child plan ULIPs and pension ULIPs. As a matter of fact, there are some life insurance companies that only have ULIP products; they don't have traditional endowment, pension and child plans at all. What that tells you is that if you are willing to take on some risk, a ULIP can help you meet a lot of your financial objectives. If you are looking to set aside some money for your child's education, the 5%-6% return on an endowment plan may not even take care of inflation, let alone provide for a medical or MBA degree. The return you earn on a child plan should not just counter inflation, it should be enough to cover the cost of education. And the way cost of education is spiraling, your insurance plan must work very hard. Given their equity component, ULIPs are ideally placed to fulfill this role. As we mentioned before, ULIPs are flexible; there are various options within a ULIP with the equity component varying right from 0% to 100%. This ensures that you are able to select an option that best suits your risk profile. Let us understand how ULIPs can be tailor-made to serve your financial planning needs. You are in the 25-35 years age bracket. Your most pressing financial objectives are providing for your child's future and your own retirement. ULIPs can help you achieve both. Although you can take a single endowment ULIP to achieve both objectives, we think it is more prudent to make a demarcation between the needs and take separate ULIPs dedicated to each objective. Opt for a ULIP child plan to provide for your child's higher education, marriage and seed capital for business to name a few needs. One way to handle this multi-faceted objective is to take a ULIP money-back plan. This way you get monies at regular intervals to address multiple needs. The other important plan that individuals must consider taking earlier on their lives is a pension plan. Building a corpus to face the rigours of retirement should be given the priority it deserves. Again, a long-term investment objective like retirement planning could do with an equity 'push'. Here is where a ULIP pension plan can add value to your retirement portfolio. Likewise a ULIP endowment plan can help you meet investment objectives like buying property or setting up a business for instance.

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If you are between 35 and 45 years of age

By the time you reach the 35-45 age brackets, some of your existing ULIPs are probably nearing maturity. For instance, if you had taken a ULIP child plan earlier on, it is likely to mature in this age bracket to coincide with the need (higher education/marriage) you had in mind at the time of taking the ULIP. However, if you married late or did not begin planning your finances at an early stage in your life, now is the time? If you haven't insured yourself as yet, go for a term insurance plan. The advantage of taking a term plan at a slightly advanced age is that you have a better idea of how your lifestyle is likely to pan out going forward. In terms of costs, term plans remain your cheapest option no matter when you take one. You can opt for some of the ULIPs we mentioned for individuals in the 25-35 years age bracket depending on your needs. Remember, unlike endowment, which gets really expensive at an advanced age, ULIPs because of the way they are structured, do not turn out that expensive.

If you are over 45 years of age

In this age bracket, it is likely that you are insured. However, you still need to review your insurance cover taking into consideration the changes in your lifestyle, income, needs and financial commitments. Beef up your insurance cover through a term plan. By this time, your ULIP pension plan will have matured. You can then opt for an annuity, immediate or deferred, depending on your requirements.

BENIFITS OF UNIT-LINKED POLICIES:

A combination of protection and tax advantage, unit-linked policies dominate a huge chunk of the portfolio of the private insurers. The annual premium contributes over 70% to the premium income.

In the event of death during the life of the policy, the sum assured or value of the policy fund whichever is higher is paid to the nominees.

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There is a lot of flexibility in these plans with falling interest rates. So an investor can adjust his risk profile according to his choice. The risk element is transferred to the investor and the insurance company enjoys the capital and solvency.

The

client

is

aware of

the

"no guarantee"

era and

he

plans

his

investment

judiciously.

The

client

enjoys

transparency,

by

way

of

returns

on

the

equity markets

simultaneously enjoying the benefits of life cover.

It's tax-free, unlike a mutual fund or any other investment, where the gains are taxed.

The client also has an option of restructuring his investment pattern which is a value addition to the original policy (i.e. top-ups) Contrary to the traditional policies, the unit linked policies are more transparent, flexible and easy to understand. The customer has open options for investment 8and he is consciously aware of the ratio of his premium towards investment and life cover.

Structure of ULIPS
ULIPs offered by different insurers have varying charge structures. Broadly the different types of fees and charges are given below. However the insurers have the right to revise or cancel the fees and charges over a period of time.

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Fig: Premium Break-up under ULIPs

Premium Allocation charges :- This is a percentage of the premium appropriated towards

charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.

Mortality Charges :- These are charges to provide for the cost of insurance coverage under
the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc.

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Fund Management Charges: - These are fees levied for management of the fund(s) and
are deducted before arriving at the Net Asset Value (NAV).

Policy/ Administration Charges :- These are the fees for administration of the plan and
levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate .

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

Fund Switching Charge: - Generally a limited number of fund switches may be allowed
each year without charge, with subsequent switches, subject to a charge. But now a days many insurers offer fund switching free of cost.

Service Tax Deductions: - Before allotment of the units the applicable service tax is
deducted from the risk portion of the premium.

Investment Option for Your Money

Maximiser: If high growth is your priority, this is the plan for you. You can enjoy long-term capital appreciation from a portfolio that is invested primarily in equity and equity-related securities

Protector : If on the other hand, your priority is steady returns, you can opt for the protector Plan. Plan, you can accumulate a steady income at a low risk across a medium to long-term period from a portfolio, which is primarily invested in fixed income securities.

Balancer: If you prefer a balance of growth and steady returns, choose our balancer plan. This would ensure that your portfolio is invested in equity-linked securities, as well as in fixed income securities.

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Preserver: The objective of this plan is not ensuring capital protection by investing in very low risk investments like the cash and call money markets. However, the returns generated may also be on the lower side due to the investment pattern. At inception, investments up to 20% can be allocated to this fund.

TYPES OF FUNDS UNDER ULIPs

Most insurers offer a wide range of funds to suit ones investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund. The following are some of the common types of funds available along with an indication of their risk characteristics.

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45

ULIP has at least 4 funds to choose from. The most common fund options are - Equity/ Growth, Balanced, Debt and Secure/ Liquid Fund. The objective of each fund would differ and you as a customer would get to choose from one or more funds. The equity fund would have about 60 to 100% exposure in equity depending on the speculation of the fund managers about the markets. The debt fund invests primarily in government bonds, securities and fixed deposits, and other fixed interest securities. The balanced fund is a combination of equity and debt instruments. Finally, the liquid or secure fund invests in the money market. It invests in instruments like commercial papers, treasury bills etc.

Another Classification of ULIPS can also be done as:

Single Premium ULIP: As name Suggests, you will need to pay premium only once. They have minimal Amount of Charges, fees & Deductions. Insurance Cover offered is very small. Single Premium ULIP generally starts with 30,000-40000 Rs, Range. Cheapest Available is Future Genralli Plan for 18,000 Rs.

Regular Premium ULIP: This is the Regular Plans where there will be Deductions specially in the First Three Years & You will have to wait for You ULIP to break even with your Investment Amount. Insurance Cover provided is high as Compared to Single Premium ULIPs. Regular Premium Plan gives you a much broader range of Premium Plan to pick up. Depending on your specific life-stage and the corresponding goal, there is a ULIP which can help you plan for it. ULIPs for retirement planning ULIPs for long term wealth creation ULIPs for child education ULIPs for health solutions

ULIPs for retirement planning

Retirement is the end of active employment and brings with it the cessation of regular income. Today an increasing number of people have stated planning for their retirement for below mentioned reasons.

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Almost 96% of the working population has no formal provisions for retirement With the growing nuclearisation of family structure, traditional support system of the younger earning members is no longer available. Developments in the healthcare space has lead to an increase in life expectancy Cost of living is increasing at an alarming rate. Pension plans from insurance companies ensure that regular, disciplined savings in such plans can accumulate over a period of time to provide a steady income postretirement. Usually all retirement plans have two distinctive phases. The accumulation phase when you are saving and investing during your earning years to build up a retirement corpus and The withdrawal phase when you actually reap the benefits of your investment as your annuity payouts begin. In a typical pension plan you have the flexibility to make a lump sum payment or a regular contribution every year during your earning years. Your money is then invested in funds of your choice. You can opt to receive the annuity at any time after vesting age (age at which you become eligible for pension chosen by you at the-inception-of-the-plan). Most of the Unit linked pension plans also come with a wide range of annuity options which gives you choice in structuring the post-retirement benefit pay-outs. Also at the time of vesting you can make a lump sum tax-exempted withdrawal of up-to-33-percent-of-the-accumulated-corpus. In a Retirement plan, the earlier you begin the greater you gain post retirement due to-the-power-of-compounding.

Let us take an example of Gaurav & Hari. Both of them want to retire at the age of 60. Gaurav starts investing Rs. 10,000 every year from the age of 25 till the time that he retires. In all, he would have invested Rs. 350,000. If his investments were to earn 7% return every year, at the time of his retirement, Gaurav will have a retirement-corpus-of-Rs.13,82,368. Now, Hari starts investing 10 years later (i.e. at the age of 35) and in order to make up for the lost time, invests Rs.15, 000 every year (which is 50% more than Gauravs annual investment). So, by the time of his retirement, he would have

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invested Rs. 3, 75,000. And assuming the same annual return of 7%, he will end up with a retirement corpus of Rs 9, 48,735.

So, you see how despite setting aside more than 50% of Gauravs annual contribution, Hari ends up with a retirement corpus which is almost a third lesser than Gauravs. That is the power of compounding. Which is why, it is never too early to invest in a ULIP for retirement planning.

ULIPs for long term wealth creation

ULIPs are the right insurance solutions for you if you are looking for a strong wealth creation proposition allied to a core insurance benefit. Such plans are ideal for people who are in their late 20s and early 30s and by investing in such a plan get the flexibility of using it to fund any of their long-term financial goals such as purchase of a house or funding their childrens education. The added element of life cover serves to make these plans a wholesome financial investment option. Wealth Creation ULIPs can be primarily classified as Single-premium-&-Regular-premium-plan: Depending upon you needs & premium paying capacity you can either opt for a single premium plan where you need to pay premium only once during the term of entire policy or regular premium plans where you can premium at a frequency chosen by you depending upon your convenience Guarantee-plans-&-Non-guarantee-plans: Today there are wealth creation ULIPS which also offer guaranteed benefit. These plans are ideal insurance-cum-investment option for customers who want to enjoy

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the potentially higher returns (over the long term) of a market linked instrument, but without taking any market risk. On the other hand non guarantee plans comes with an in - built range of fund options to choose from ranging from aggressive funds (Primarily invested in equities with the general aim of capital appreciation) to conservative funds (invested in cash, bank deposits and money market instruments with aim of capital preservation) so that you can decide to invest your money in line with your market outlook, time horizon and your investment preferences and needs. Life-Stage-based-&-Non-life-Stage-based: Life Stage based ULIPs factor in the fact that your priorities differ at different life stages & hence distribute your money across equity & debt. Here the initial allocation is decided as per your age since age is a significant indicator of risk appetite. Such a strategy ensures that the asset allocation at all times is in sync with your age and changing financial needs.

ULIPs for child education

One of the most important responsibilities you have as a parent is to ensure that your child gets the best possible education that can be provided. Apart from conventional schooling, it becomes important to expose your child to different activities such as dance, painting and sports training for holistic development. As a parent, you want to ensure that their development is not hampered either due to rising costs or unforeseen circumstances. Today there are ULIPs that offer money at key milestones of your child's education thus ensuring that your childs education continues unhampered even if something unfortunate happens to you. While, the death of a parent is an irreparable emotional loss, child education plans safeguard the child against the financial ramifications of the death of a parent. Apart from above mentioned benefit, child plans also offers below mentioned features. Flexibility of adding on various riders like Income benefit rider, disability rider etc

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to get additional benefits .For e.g. In case of income benefit rider, In the event of the death of the parent, the child will receive a regular pre-determined amount every year to meet the educational expenses. In case of unfortunate incidence of the death of a parent, not only will the child receive the sum assured immediately but will also continue to receive money at the key educational milestones.

ULIPs for health solutions

When you are young and working you save for various goals like marriage, education, retirement etc. but saving for health care is never considered or left for later. During these years we have various sources of income or savings on which we can rely for health emergencies. But with increasing cost of healthcare, proportion of this spend is increasing at an alarming pace. This is forcing families to borrow or sell assets to meet expenses during medical emergencies. And during old age health care expenses increase due to health deterioration because of age and higher incidence of chronic illness. Thus it is important for you to invest in health insurance today so that tomorrow you are fully prepared to meet rising healthcare expenses, which would be incurred during old age, with the right health insurance plan. Health ULIP is a recent innovation from the health insurance industry. In a health ULIP part of your premiums are allocated for investment designed specifically to build a health fund to meet future health related expenses. It aims to create a health savings kitty by investing in a long term flexible savings plan with multiple fund options. The health fund thus created allows you to claim for health related expenses of any kind and also fund your future health insurance charges. You can also avail of tax benefit on premium paid u/s 80D.

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ADVANTAGES OF ULIPS
ULIP distinguishes itself through the multiple benefits that it provides to the consumer. The plan is a one stop solution for everything the customers want. Unit Linked Insurance Plans (ULIPs) are different from traditional plans purely because, they are much more transparent, various charges are shared with the customer before the sale of the product, so as to enable the customer to make an informed decision. Customers have the flexibility to choose their life cover. Also the customers have the choice of multiple fund options based on their risk appetite, thereby enabling an investor to make the desired returns from the investment. The following are some of the advantages of Unit linked plans: (a). Life protection (b). Investment and Savings Market linked fund based on risk profile Switch option Premium redirection Automatic Transfer Plan (ATP) (c). Tax Planning (d). Flexibility of cover continuance (e). Transparency (f). Extra protection with riders Death due to accident Disability Critical illness (g). Liquidity Partial withdrawals during the term At maturity (h). Variable investment options (i). Premium holiday (j). Allow Top-up The ULIP edge

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ULIPs are dynamic plans and are flexible by nature and hence allow for changes and high degree of customization in the plan as opposed to most of the financial plans which once purchased cannot be modified. It is because of embedded characteristics of transparency, flexibility, liquidity & goal based savings that ULIPs have emerged as preferred investment option today. The following subsections will not only help you to understand various attributes of ULIPs but also guide you to use these features to manage your policy.

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Flexibility
Flexibility to change your life cover: ULIPs give you the flexibility to choose your sum assured (insurance cover) at the time of policy inception. Moreover, some ULIPs allow you to increase your sum assured over the term of the plan. This is crucial as your protection needs keep on changing with time .Typically, greater the financial liabilities you have such as repayment of a home loan, greater will be your need for protection.

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Flexibility to change premium amount: With ULIPs you can easily change premium amount as most ULIPs provide you the option to increase or reduce premiums after a certain period of time to match your premium paying capability. Another distinguishing feature of ULIP is Top up which is an additional contribution over & above regular premium so that if you receive extra money today you can invest the amount in your policy & maximize your investment gains.

Flexibility to opt for a rider: ULIPs also enable you to customize the policy with optional riders to enjoy additional protection. Riders are additional or supplementary benefits that are bought along with the main insurance policy. Some of the commonly offered riders by most insurance companies are critical illness benefit rider, accident & disability benefit rider, waiver of premium rider etc. For ex. a critical illness rider cover major critical illnesses like heart attack etc. In case of contracting any of the above illness, the insurance company pays the insured amount.

Flexibility to choose your fund option : Most of the ULIPs come with an in - built range of fund options to choose from ranging from aggressive funds to conservative funds so that you can decide to invest your money in line with your investment preferences and needs. Whats more, ULIPs even come with the option of switching between different fund options so that you are able to reap maximum benefits from your investments.

Transparency
One of the key advantages that ULIPs offer is complete transparency which makes the working of a ULIP abundantly clear to the investor. Thus, you are empowered to make informed decisions on how to best use your ULIP. Benefit-Illustration As a customer it is your right to ask for a sales benefit illustration. Sales benefit illustration will help you understand how premium paid by you is utilized & what are the charges deducted year by year, by the insurance company for the term of the plan . It will also illustrate how your policy will grow in accordance with the chosen sum assured & premium. In fact IRDA has mandated that all insurance companies use two scenarios with 6 % & 10 % return rate to depict future returns.

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Brochures and key feature documents

While benefit Illustrations play a significant role in explaining the quantitative aspects of ULIPs, it is also important for you to know the other features and benefits which the ULIP offers. All insurance companies come out with brochures for prospective customers to go through & understand the plan thoroughly. You should ask your insurance advisor to provide brochure of the ULIP you intend to purchase.

Once a policy gets issued, your insurer will send you a key feature document capturing all the essential features of the plan. This is to ensure complete comprehension of the plan purchased.

Free-look period

ULIPs also offer you a distinct feature that no other financial product offers as of now. It is called Free-look period which is a 15 day window during which you can close the policy & get paid back the entire premium less charge borne by company in issuing the policy in case you are unhappy with the product.

Net Asset Value

It is critical that you monitor the performance of your policy on a regular basis. This will help you ascertain whether you are on right financial track or not. To help you do so all life insurance companies publish the NAV of different fund options on their website on a daily basis so that you can track the performance of your policy on a regular basis. This will also help you make informed decisions when it comes to comparing fund performances.

Goal Based Savings Everyone needs to save for their important life goals. One of the prudent ways to do so is by investing in ULIPs which are long-term systematic investment options designed to address key financial goals. ULIPs help you cultivate a disciplined savings pattern which ensures that the money being set aside will go towards the fulfillment of the specific

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objective. In the absence of such a focused approach, there is a high possibility of savings towards one objective getting utilized for an immediate short-term requirement, thus jeopardizing the long-term goal. ULIPs are a potent safeguard against such a tendency.

Tax Benefits
ULIPs are an efficient tax saving instrument too .The tax benefits that you can avail in case you invest in ULIPs are described below: Life insurance plans are eligible for deduction under Sec. 80C Pension plans are eligible for a deduction under Sec. 80CCC Health insurance plans and critical illness riders are eligible for deduction under Sec. 80D The maturity proceeds or withdrawals of life insurance policies are exempt under Sec 10(10D),subject to norms prescribed in that section

How to Choose ULIP?

How to choose a ULIP that works best for you.

The wide range of ULIPs available in the market might make it difficult for a consumer to choose the correct ULIP. However if you were to follow a few simple steps choosing the right ULIP can be a smooth process. Understand the concept of ULIPs thoroughly

Do your homework well and read as much as you can about ULIPs as you can before investing. Read the literature available on ULIPs on the web sites and brochures circulated by insurance companies. This will help you know the benefits and structure of the ULIP. Focus on your requirements and risk profile Identify a plan that is best suited for you keeping in mind your risk appetite. In case you have a high-risk appetite, opt for a more aggressive fund option (an option that invests higher percentage in equities) and vice versa.

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Understand the peculiarities of the plan Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, fund management charges and mortality charges. Examine the performance of the plan Compare the performance of the plan with benchmark indices like BSE Sensex or Nifty in the past two or three years to get a better idea about the performance. Ensure that you can easily get information about your NAV when you need it. Thoroughly understand the flexibility and redemption conditions of an ULIP. Understand the charges levied on the product Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, the fund management charges and mortality charges. You not only need to understand the charges in the first year but also through the term of the policy. Compare ULIP products of different insurance companies Compare products of different insurance companies in terms of premium payments, cost structure, performance of the scheme (equity as well as debt schemes), additional facilities such as top-up premium and free switch between different fund options, flexibility in terms of increasing or decreasing protection, reporting structure and flexibility in redemption. Know about the Company Last but not least, insure with a brand you can trust to honor its commitment and service in accordance to your requirements.

What should one verify before signing the proposal?

y y The approved sales brochure should be verified for the following All the charges deductible under the policy

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y y y y y y

Payment on premature surrender . Features and benefits. Limitations and exclusions. Lapsation and its consequences. Other disclosures. Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

FACTORS INFLUENCING THE BUYING OF UNIT LINKED INSURANCE PLAN (ULIPs)

The degree of buying of ULIPs insurance varies from person to person. It depends upon many factors. The factors can be classified into personal, social, economic, psychological and company related variables. Age and experience of policyholder are personal factors, while the coeducation is a social factor. Economic factors include occupation, income and wealth, and the psychological factors consist of perception, satisfaction about the services rendered by insurance companies, the impact of advertisement and personal selling made by insurance companies on policyholders. The company related variables are the promotional efforts to sell the policies to prospective buyers. These include advertisement and personal selling too.

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ULIP VS TRADITIONAL INSURANCE PLAN

It wasn't too long back, when the good old endowment plan was the preferred way to insure oneself against an eventuality and to set aside some savings to meet one's financial objectives. Then insurance was thrown open to the private sector. The result was the launch of a wide variety of insurance plans, including the ULIPs. Two factors were responsible for the advent of ULIPs on the domestic insurance horizon. First was the arrival of private insurance companies on the domestic scene. ULIPs were one of the most significant innovations introduced by private insurers. The other factor that saw investors take to ULIPs was the decline of assured return endowment plans. Of course, the regulator -- IRDA (Insurance and Regulatory Development Authority) was instrumental in signaling the end of assured return plans. Today, there is just one insurance plan from LIC (Life Insurance Corporation) Komal Jeevan -that assures return to the policyholder. These were the two factors most instrumental in marking the arrival of ULIPs, but another factor that has helped their cause is a booming stock market. While this now appears as one of the primary reasons for their popularity, we believe ULIPs have some fundamental positives like enhanced flexibility and merging of investment and insurance in a single entity that have really endeared them to individuals.

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SUM ASSURED
Perhaps the most fundamental difference between ULIPs and traditional endowment plans is in the concept of premium and sum assured. When you want to take a traditional endowment plan, the question your agent will ask you are -- how much insurance cover do you need? Or in other words, what is the sum assured you are looking for? The premium is calculated based on the number you give your agent. With a ULIP it works in reverse. When you opt for a ULIP, you will have to answer the question -- how much premium can you pay? Depending on the premium amount you state, you are offered a sum assured as a multiple of the premium. For instance, if you are comfortable paying Rs 10,000 annual premium on your ULIP, the insurance company will offer you a sum assured of say 5 to 20 times the premium amount. For example: In the case of LIC's ULIP, the sum assured--premium relationship works the traditional way. So you need to state how much sum assured you are looking for and your premium is calculated as 1/10th the sum assured. If you have opted for a sum assured of Rs100, 000 your annual premium will be Rs 10,000.

INVESTMENTS
Traditionally, endowment plans have invested in government securities, corporate bonds and the money market. They have shirked from investing in the stock markets, although there is a provision for the same. However, for some time now, endowment plans have discarded their traditional outlook on investing and allocate about 10%-15% of monies to stocks. This percentage varies across life insurance companies. ULIPs have no such constraints on their choice of investments. They invest across the board in stocks, government securities, corporate bonds and money market instruments. Of course, within a ULIP there are options wherein equity investments are capped.

EXPENSES
ULIPs are considered to be very expensive when compared to traditional endowment plans. This notion is rooted more in perception than reality.

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Sale of a traditional endowment plan fetches a commission of about 30% (of premium) in the first year and 60% (of premium) over the first five years. Then there is ongoing commission in the region of 5%. Sale of a ULIP fetches a relatively lower commission ranging from as low as 5% to 30% of premium (depending on the insurance company) in the first 1-3 years. After the initial years, it stabilizes at 1-3%. Unlike endowment plans, there are no IRDA regulations on ULIP commissions. Mortality expenses for ULIPs and traditional endowment plans remain the same as also the administration charges. One area where ULIPs prove to be more expensive than traditional endowment is in fund management. Since ULIPs have an equity component that needs to be managed actively, they incur fund management charges. These charges fluctuate in the 0.80%-1.50% (of premium) range.

FLEXIBILITY
As we mentioned, one aspect that gives ULIPs an edge over traditional endowment is flexibility. ULIPs offer a host of options to the individual based on his risk profile. There are insurance companies that offer as many as five options within a ULIP with the equity component varying from zero to a maximum of 100%. You can select an option that best fits your objectives and risk-taking capacity. Having selected an option, you still have the flexibility to switch to another option. Most insurance companies allow a number of free 'switches' in a year. Another innovative feature with ULIPs is the 'top-up' facility. A top-up is a one-time additional investment in the ULIP over and above the annual premium. This feature works well when you have a surplus that you are looking to invest in a market-linked avenue, rather than stash away in a savings account or a fixed deposit. ULIPs also have a facility that allows you to skip premiums after regular payment in the initial years. For instance, if you have paid your premiums religiously over the first three years, you can skip the fourth year's premium. The insurance company will make the necessary adjustments from your investment surplus to ensure the policy does not lapse.

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With traditional endowment, there are no investment options. You select the only option you have and must remain with it till maturity. There is also no concept of a top-up facility.

TRANSPARENCY
ULIPs are also more transparent than traditional endowment plans. Since they are market-linked, there is a price per unit. This is the net asset value (NAV) that is declared on a daily basis. A simple calculation can tell you the value of your ULIP investments. Over time you know exactly how your ULIP has performed. ULIPs also disclose their portfolios regularly. This gives you an idea of how your money is being managed. It also tells you whether or not your mutual fund and/or stock investments coincide with your ULIP investments. If they are, then you have the opportunity to do a rethink on your investment strategy across the board so as to ensure you are well diversified across investment avenues at all times. With traditional endowment, there is no concept of a NAV. However, insurers do send you an annual statement of bonus declared during the year, which gives you an idea of how your insurance plan is performing. Traditional endowment also does not have the practice of disclosing portfolios. But given that there are provisions that ensure a large chunk of the endowment portfolio is in high quality (AAA/sovereign rating) debt paper, disclosure of portfolios is likely to evoke little investor interest.

LIQUIDITY
Another flexibility that ULIPs offer the individual is liquidity. Since ULIP investments are NAV-based it is possible to withdraw a portion of your investments before maturity. Of course, there is an initial lock-in period (3 years) after which the withdrawal is possible. Traditional endowment has no provision for pre-mature withdrawal. You can surrender your policy, but you won't get everything you have earned on your policy in terms of premiums paid and bonuses earned. If you are clear that you will need money at regular intervals then it is recommended that you opt for money-back endowment.

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TAX BENEFITS
Taxation is one area where there is common ground between ULIPs and traditional endowment. Premiums in ULIPs as well as traditional endowment plans are eligible for tax benefits under Section 80C subject to a maximum limit of Rs 100,000. On the same lines, monies received on maturity on ULIPs and traditional endowment is tax-free under Section 10.

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Comparison of ULIP with other Investment Modules

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ULIP - KEY FEATURES (IN GENERAL):

1. 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. 2. As in all insurance policies, the risk charge (mortality rate) varies with age. 3. The maturity benefit is not typically a fixed amount and the maturity period can be advanced or extended. 4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds or bonds. 5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity, etc. 6. The maturity benefit is the net asset value of the units. 7. The costs in ULIP are higher because there is a life insurance component in it as well, in addition to the investment component. 8. Insurance companies have the discretion to decide on their investment portfolios. 9. They are simple, clear, and easy to understand. 10. Being transparent the policyholder gets the entire episode on the performance of his fund. 11. Lead to an efficient utilization of capital. 12. ULIP products are exempted from tax and they provide life insurance. 13. Provides capital appreciation. 14. Investor gets an option to choose among debt, balanced and equity funds.

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5 steps to selecting the right ULIP

ere's a 5-step investment strategy that will guide investors in the selection process and

enable them to choose the right unit-linked insurance plans (ULIPs). 1. Understand the concept of ULIPs 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.

2. Focus on your need and risk profile Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). Your risk appetite should be the deciding criterion in choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is likely to be more suited. Similarly your existing investment portfolio and the equity-debt allocation therein also need to be given due importance before selecting a plan. Opting for a plan that is lop-sided in favor of equities, only with the objective of clocking attractive returns can and does spell disaster in most cases.

3. Compare ULIP products from various insurance companies Compare products offered by various insurance companies on parameters like expenses, premium payments and performance among others. For example, information on premium payments will help you get a better picture of the minimum outlay since ULIPs work on premium payments as opposed to sum assured in the case of conventional insurance products.

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Compare the ULIPs' performance i.e. find out how the debt, equity and balanced schemes are performing; also study the portfolios of various plans. Expenses are a significant factor in ULIPs; hence an assessment on this parameter is warranted as well. Enquire about the top-up facility offered by ULIPs i.e. additional lump sum investments which can be made to enhance the policy's savings portion. This option enables policyholders to increase the premium amounts, thereby providing presenting an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches (i.e. change the asset allocation of your ULIP account) from one investment plan to another. Some insurance companies offer multiple free switches every year while others do so only after the completion of a stipulated period.

4. Go for an experienced insurance advisor Select an advisor who is not only conversant with the functioning of debt and equity markets, but also independent and unbiased. Ask for references of clients he has serviced earlier and crosscheck his service standards. When your agent recommends a ULIP from a given company, put forth some product-related questions to test him and also ask him why the products from other insurers should not be considered. Insurance advice at all times must be unbiased and independent; also your agent must be willing to inform you about the pros and cons of buying a particular plan. His job should not be restricted to doing paper work like filling forms and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis.

5. Does your ULIP offer a minimum guarantee? In a market-linked product, protecting the investment's downside can be a huge advantage. Find out if the ULIP you are considering offers a minimum guarantee and what costs have to be borne for the same.

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CHAPTER 5 GUIDELINES ON ULIP BY IRDA

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GUIDANCE NOTES ON RECENT REGULATORY CHANGES RELATED TO UNIT LINKED INSURANCE PRODUCTS (ULIPs)

Guidelines on Unit Linked Insurance Products

-: Important news in print media regarding ULIPs :1. IRDA Keen to Ensure ULIPs Transparency. In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. The ULIP guidelines issued over the last two years are the steps initiated by the

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Authority towards achieving this. As a continuation of the process, we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. Further they have been approved by the IRDA. Companies having actuarial funded products have been asked to withdraw them over a period of time. They can continue to sell the products till then and customers, both existing and new, can continue to enjoy the benefits of these products and have no reason to feel concerned. To reiterate, our objective is to remove complexity in all unit linked products and ensure comparison across ULIPs of all companies. The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority.

2. Six Points to Note, After Selecting To Investing In A ULIPSince ULIPs offer a lot of flexibility, you need to keep some points in mind to optimize the benefits associated with them. Notice we have recommended ULIP child plans/pension plans and even term insurance for most individuals. When you opt for these plans it is important you do this after taking your insurance consultant into confidence. He is the one who is going to help you with the numbers, so you need to tell him exactly what you are looking for in an insurance plan.

Remember there is an insurance cover associated with ULIPs.Since it is also likely that you have other insurance plans like term and/or endowment, it is important you have a clear idea of exactly how much your insurance cover is worth after considering all your insurance plans. This number will prove helpful when you review your insurance cover at regular intervals. Likewise, ULIPs also have an investment element. You are likely to have investments in mutual funds, stocks, bonds and fixed deposits as well. You need to add up the market value of all these investments while calculating your investment worth. This number will prove useful when you wish to beef up your investments in a particular asset. ULIPs derive their 'power to perform' from equities. When you have a lot of aggressive ULIPs in your portfolio it means that you are overweight on equities. Add to this your investments in

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stocks and equity funds, and your exposure to equities increases even further. To temper your equity exposure, it is generally advisable to opt for conservative/balanced ULIPs (maximum 50% equity exposure). Even if you are a high-risk investor, you must gradually shift your assets to a conservative ULIP option as your age advances. Financial prudence dictates that risk reduces as age increases; this needs to reflect in all your investments including ULIPs. Like with all investments, it is prudent to diversify your ULIP investments. This is necessary due to several reasons with financial prudence being the most important reason. Varying flexibility levels in ULIPs across insurance companies is another factor that should make you opt for a ULIP from more than one insurance company. Varying level of expenses in ULIPs is another reason to opt for ULIPs across insurance companies to keep expenses on the lower side.

3. IRDA keen to ensure ULIPs transparency.

In the last two/three years the unit linked products have become very popular among customers and the share of this product in the total portfolio of the life insurance companies has increased significantly. The IRDA is keen to ensure that all unit linked products are transparent and that customers from every walk of life can compare features and charges across products and across companies. The ULIP guidelines issued over the last two years are the steps initiated by the Authority towards achieving this. As a continuation of the process, we have decided that actuarial funded products be phased out so that products across companies could be compared and understood easily by the customers. Technically there is nothing wrong with the actuarial funded products and they are not detrimental to the interests of the policyholders. Further they have been approved by the IRDA. Companies having actuarial funded products have been asked to withdraw them over a period of time. They can continue to sell the products till then and customers, both existing and new, can continue to enjoy the benefits of these products and have no reason to feel concerned.

To reiterate, our objective is to remove complexity in all unit linked products and ensure comparison across ULIPs of all companies. The existing/new customers who have purchased these products need not worry under any circumstances as policyholder interests will be protected by the insurers and the Authority.

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CHAPTER - 4 - INTRODUCTION OF MUTUAL FUNDS

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INTRODUCTION OF MUTUAL FUNDS

Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. 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 appreciations realized are shared by its unit holders in proportion 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. A Mutual Fund is an investment tool that allows small investors access to a well diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. 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. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.

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Any change in the value of the investments made into capital market instruments (such as share, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.

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HISTORY OF MUTUAL FUNDS

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

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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, 700crores 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 Canara bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug89), 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.47,004crores.

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.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.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and

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acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.1, 21,805 crores. The Unit Trust of India with Rs.44, 541 cores of assets under management was way ahead of other mutual funds. 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 cores 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.

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund to the small investors are as under:

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Professional Management - The investor avails of the services of experienced and skilled
professionals who are backed by a dedicated investment research team, which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification - Mutual Funds invest in a number of companies across a broad cross-section

of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration - Investing in a Mutual Fund reduces paperwork and helps

you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential Over a medium to long-term - Mutual Funds have the potential to
provide a higher return as they invest in a diversified basket of selected securities.

Low Costs - Mutual Funds are a relatively less expensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity - In open-ended schemes, you can get your money back promptly at net asset value
related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.

Transparency - You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility - Through features such as regular investment plans, regular withdrawalplans and
dividend reinvestment plans, you can systematically invest or withdraw fundsaccording to your needs and convenience.

Choice of Schemes - Mutual Funds offers a family of schemes to suit your varyingneeds over
a lifetime.

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Well Regulated - All Mutual Funds are registered with SEBI and they function withinthe
provisions of strict regulations designed to protect the interests of investors. Theoperations of Mutual Funds are regularly monitored by SEBI. Other Special Features of Mutual Funds in terms of Portfolio Functions These are special safeguards for the investor prescribed by SEBI. Portfolio Investment operations are entrusted to a professional company, i.e. TheAsset Management Company. (AMC). Thus while MFs offer PMS functions onbehalf of its unit holders, the actual PMS services are rendered by the AMCs. Physical custody of the securities is not with the AMC but with a custodian, an independent organization, appointed for the purpose. For instance, the Stock Holding Corporation of India Ltd. (SCHIL) is the custodian for most fund houses in the country.

DISADVANTAGE OF MUTUAL FUNDS

1. Professional Management- Some funds dont 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 - 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.

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Categories of Mutual Fund

Mutual funds can be classified as follow:

Based on their structure:
Open-ended funds: Investors can buy and sell the units from the fund, at any point of time. An open-end fund is one that is available for subscription all through the year. These do not have a

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fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity. A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. 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 they 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.

Based on their investment objective:

Equity funds : These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as:

(i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weightages. Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with

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the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

(ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks.

(iii) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields.

(iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme .e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

(v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest in banking stocks.

(vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity oriented scheme.

Balanced fund : Their investment portfolio includes both debt and equity. As a result,
on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share

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prices in the stock markets. However, NAVs of Such funds are likely to be less volatile compared to pure equity funds. Following are balanced funds classes: (i) Growth / Equity Oriented Scheme: 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 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. In Debt oriented funds, investment is below 65% in equities.

(ii) Income / Debt Oriented Scheme: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. In Equity-oriented funds, Invest is at least 65% in equities, remaining in debt.

Debt fund:

They invest only in debt instruments, and are a good option for investors

averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixedincome instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.

(i) Liquid funds/ Money MarketThese funds invest 100% in money market instruments, a large portion being invested in call money market. These funds are also income funds and their aim is to provide easy liquidity,

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Preservation of capital and moderate income. These schemes invest exclusively in safer shortterm instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

(ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills. 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 is the case with income or debt oriented schemes.

(iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate.

(iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.

(v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

(vi) FMPs (Fixed Maturity Plans): These are close-ended income schemes with a fixed maturity date. The period could range from fifteen days to as long as two years or more. When the period comes to an end, the scheme matures and money is paid back. Like an income scheme, FMPs invest in fixed income instruments i.e. bonds, government securities, money market instruments etc. The tenure of these instruments depends on the tenure of the scheme. FMPs effectively eliminate interest rate risk. This is done by employing a specific investment strategy. FMPs invest in instruments that mature at the same time their schemes come to an end. So a 90-day FMP will invest in instruments that mature within 90 days. For all practical purposes, an FMP is an income scheme of a mutual fund. Hence, the tax incidence would be similar to that on traditional income schemes. The dividend from an FMP

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will be tax free in the hands of an individual investor. However, it would be subject to the dividend distribution tax. Redemptions from investments held for less than a year will be short-term gains and added to the investor's income to be taxed at slab rates applicable. If such an investment were held for more than a year, the long-term gains would get taxed at 20 per cent with indexation or at 10 per cent without. These rates are subject to the surcharge and education cess as normally applicable. One can avail the benefit of double indexation and save tax on FMPs held for more than one year.

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.

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RISK V/S. RETURN

RISK FACTOR
All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when he was your age). The discussion on investment objectives would not be complete without a discussion on the risks that investing in a mutual fund entails.

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At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that the value of all financial investments will fluctuate. Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down.

Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and Systematic Investing Plan (SIP) are two key techniques you can use to reduce your investment risk considerably and reach your long-term financial goals.

Diversification
When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You can also diversify over several different kinds of securities by investing in different mutual funds, further reducing your potential risk. Diversification is a basic risk management tool that you will want to use throughout your lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to maintain a mix of equity shares, bonds and money market securities, have a greater chance of earning significantly higher returns over time than those who invest in only the most conservative investments. Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential return.

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Types of risks:
Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences 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, it also referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.

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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?

Interest Rate Risk Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes. Effect of loss of key professionals and inability to adapt business to the rapid technological change An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which the fund invests.

Exchange Risks A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.

Investment Risks 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. Changes in the Government Policy Changes in Government policy especially in regard to the tax

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benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

Risk Return Trade Off In selecting asset classes for portfolio allocation, investors need to consider both the return potential and the riskiness of the asset class. It is clear from empirical estimates that there is a high correlation between risk and return measured over longer periods of time. Furthermore capital market theory, posits that there should be a systematic relationship between risk and return. This theory indicates that securities are priced in the market so that high risk can be rewarded with high return, and conversely, low risk should be accompanied by correspondingly lower return.

Future of ULIP
The future of ULIP is pretty bright as we can see the companies in the ULIP and mainly insurance sector is increasing day by day. I have some information to add to this.

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When I had attended a seminar on Accounting standards at IMC,(Indian merchants chamber) there the speaker , Mr. S. Clement had told us that according to the data collected by the CMIE ( Centre for Monitoring Indian Economy), the Insurance sector is the most capital generating sector in the recent years, in the services sector even ahead of banking. As per the data published in the economic times January 3, 2008 issue by the Invest India Incomes and Savings Survey 2007, the demand forecasts for life insurance products is given. In that, the distribution of people who are planning to buy products of life insurance is given. There the state of Bihar tops the list, where around 16, 00,000 buyers are expected to buy life insurance products. This is followed by Andhra Pradesh, Maharashtra, and Gujarat. It is also to be noticed here that IRDA has planned to enhance the penetration of insurance in rural areas. In this endeavor it has planned to allow grocery shops to sell the insurance products in their shops like they sell recharge coupons for mobiles So hereby, we can say that life insurance is developing so fast that it is now reaching rural India where 90% of population has no insurance protection against losses.

FINDING
y There is a great future of the life insurance sector in India as majority of the Indian population is still without life cover and people are just now coming in response to the awareness campaigns being carried out by almost all the insurance companies. y Age plays a major role in deciding the investment patterns of people as generally the younger class of people tend to take more risk and invest in various instruments.

UNIT LINK INSURANCE POLICY V/S MUTUAL FUND

ULIP and MF may sound similar in structure, but there are various other things which separate these two investment tools. Below is a brief comparison of ULIP and MF specific to the Indian market.

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Primary Objective
MFs: Investments

ULIPs: Protection + Investments

Investment Duration
MFs: Works out for Medium term, Long Term Investors. It is risky for Short Term Investors.

ULIPs: Works out for Long Term Investors only.

Flexibility
MFs: Very flexible. Plenty of scope to rectify your investment mistakes if one made any wrong investment decisions. One can easily shuffle your portfolio in MFs. 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.

ULIPs: Flexibility is limited to moving across the different funds offered with your policy. Correcting mistakes can turn out to be expensive. Moving funds from one ULIP to another ULIP of a different fund house can be expensive. Insurance companies permit their ULIP investors 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 or a cost has to be borne for additional switches.

Liquidity
MFs: Very liquid. You can sell your MF units any time. Some MF's like those from Reliance has introduced redemptions at ATMs.

ULIPs: Limited liquidity. Need to stay invested for the minimum number of years specified before you can redeem.

Investment Objective

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MFs: MF's can be used as vehicle for investments to achieve different objectives.(Example: Buying a car three years from now, Down payment for a home five years from now, Childrens education 10 years from now, Childrens marriage 15 years from now. Retirement planning 25 years from now, Medical expenses after retirement 25 years from now)

ULIPs: ULIPs can be used for achieving only long term objectives (Example: Childrens education, Childrens marriage, Retirement planning)

Tax Implications
MFs: All investments in MF's don't qualify for section 80C.

ULIPs: Provide Tax Benefits under section 80C, but Tax liabilities when moving across from debt to equity funds. (Returns from debt MF's are taxed.) ULIPs: Very flexible in moving between equity and debt funds (not tax implications until maturity of the policy).

Strings Attached
MFs: None so ever. At most you pay a small exit load if any.

ULIPs: Some strings attached for your policy to be in effect. Minimum number of premiums needs to be paid. Minimum fund balance needs to be always maintained.

Mode of investment/Investment amount

MFs: 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.

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ULIPs: ULIP investors also have the choice of investing in a lump sum (single premium) or single 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. The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

Expenses
MFs: In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to predetermined upper limits as prescribed by the Securities and Exchange Board of India. Entry/exit loads have to be borne by the investor.

ULIP: 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.

Portfolio disclosure
MFs: 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.

ULIP: There is no legal obligation for 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.

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Types of Charges
MFs: 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)

ULIP: 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

Cost of life insurance

MFs: In a term policy, your premium will remain fixed throughout the term of the policy. So that means, if you opt to invest in a mutual fund and buy a term policy, the amount of investment and cost of insurance will not change over a period of time. For example as above, if the 30 year old were to take a term insurance policy for Rs 5 lakh, he would end up paying anywhere between Rs 40,000 to Rs 50,000 as insurance premium. This vast difference in cost of insurance is mainly because of cost of distribution and administration as also the margins of the insurer. In a ULIP, costs and margins are recovered commonly between the investment portion and the insurance portion. However, if you were to buy a term policy and a mutual fund, the insurance company will recover its costs of distribution and administration as well as margins. The mutual fund would again recover the same costs from your investment portion.

ULIP: In a ULIP, your premium is divided into your risk cover and your investment. That means, out of the total premium that you pay, a certain percentage will be deducted as risk cover to provide for your insurance and the balance will be invested in a fund. Your risk cover charge will increase every year with your age. As a result the investment allocation will reduce. Suppose that you buy a ULIP when you are 30 years old. The sum assured is Rs5 lakh and the term is 20 years. The premium that you will pay over a period of 20 years will work out to around Rs 25,000 to Rs 30,000 depending on the company you choose.

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Things to know more about ULIPs

Q1. What is a Unit Linked Fund?

Unit Linked Fund is a pool of the premiums paid by the policyholders which is invested in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund depends on how the investments in the fund would perform. The fund is managed by the insurance companies.

Q2. What does a Unit stand for?

A Unit stands for a portion or a part of the underlying segregated unit linked Fund.

Q3. What is Net Asset Value?

Net Asset Value (NAV) is the value per unit calculated in rupees.

Q4. What is a Fund Value and how is it calculated?

Fund Value is the product of the total number of units under the policy and the NAV. The fund value for the purpose of claims, surrenders or any other clause stated shall be calculated on the basis of NAV.

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Q5. What do I get at the end of my policy term?

The benefit received at the end of policy term is termed as maturity benefit. The policyholder is entitled to receive fund value as maturity benefit.

Q6. What should I verify before signing the proposal?

You should verify: All the charges deductible under the policy Features and benefits Limitations and exclusions Lapsation and its consequences Other disclosures Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.

Q7. What will my family receive if something happens to me?

Investment returns from ULIP may not be guaranteed. In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

Q9. Can I change / switch my asset allocation?

Yes, you can change the investment pattern by moving from one fund to other fund (s) amongst the funds offered under a particular product. Such a change between funds is termed as a Switch. There will be a flat charge levied for any switch over and above the free

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switches.

Q10. What is Premium Re Direction?

Premium Re-Direction is the facility that allows a policyholder to modify the allocation of amount of renewal premium into a different investment pattern from the option (investment pattern) exercised at the inception of the policy.

Q11. Can I partially withdraw from my policy?

Yes, you can encash / withdraw a part of the fund anytime after completion of three years, subject to surrender charges as applicable to each individual plan.

Q12. Can I foreclose my policy? Are there any charges applicable?

Yes, you can foreclose your policy by Surrendering the policy. Surrender means terminating the contract once and for all. On surrender, the surrender value is payable to you which is Fund Value less the surrender charge. Surrender Charge means a charge levied on the fund value at the time of surrender of the policy.

Q13. What does redemption mean?

Redemption means encashing the units at the prevailing NAV offered by the company. This is applicable in case of exercising partial withdrawal, switch, maturity, surrender, settlement option or in the case of payment of death benefit.

Q14. What is the Settlement Option?

Settlement Option also known as periodical payment, means an option available to the policyholder to receive the maturity benefit as a structured payout over a period of up to 5 years after maturity.

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Q15. What is the date of commencement?

Date of Commencement of Policy as shown in the policy certificate is the date on which the age of the life assured and the term of the policy are calculated and the same are shown on the policy certificate.

Q16. What is a Regular Premium Contract?

Regular premium contract means a ULIP where the premium payment is in level and paid in regular intervals like yearly, half-yearly or monthly.

Q17. What is my monthly due date?

Monthly due date means the date in any subsequent calendar month corresponding numerically with the date of the commencement of the policy. In the event that there is no date in any subsequent calendar month corresponding numerically with the commencement date, then the due date shall be the last date in that subsequent calendar month. Q18. What does Cover Cessation Date mean? Cover Cessation Date (Date of Maturity) as shown in the policy certificate is the date on which the policy contract comes to an end and is the date on which the maturity benefit becomes payable.

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CHAPTER6 ANNEXTURE

SUGGESTION

CONCLUSION

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SUGGESTIONS:
The following suggestions will help the companies to increase the growth of the ULIP policies rather in the current scenario. 1. The IRDA must carefully study the performance of each ULIP policy of the life insurance companies in order to provide fair justice to the policyholders. 2. The companies must provide guaranteed benefit through ULIP to increase its present sales. 3. The companies while allocating the fund in the market must carefully study the fluctuations and projections before investing the amount. Such practices will benefit the ultimate receivers. 4. The performance of ULIP policies from the period 2005-08 is good. Due to the recession, the present growths of ULIP policies were decreased. Hence, the companies must re assess the performance of ULIP policies and must introduce the ULIP policies that are to be tailor made to the needs of the customers. 5. Integration of ULIP and Traditional plan is a latest strategy adopted by the present life insurance companies. But, the companies must assure that actual performance should not be deviated with expectations. The companies must also monitor the performance of policies and must ensure its marketers are making fair justice to the policy holders. Because, any mismatch of expectation or forceful selling of ULIP policy or traditional policy will lead to lapsation, which harms the company, marketers and ultimately policyholders also.

CONCLUSIONS:
The following conclusions are made from the research study. 1. The introduction of Unit Linked Insurance Plan (ULIP) is a historic achievement in the life insurance services. 2. The ULIP policy right from its introduction in the market achieved staggering growth in a limited period of time. 3. Many life insurance companies especially private life insurance companies are showing huge growth in the ULIP policies over traditional plans. 4. From the period 2007 to 2009 clearly showed all the companies including LIC achieved maximum growth in the ULIP policies over traditional policies.

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5. ULIP policies are different to traditional policies as the investment of policyholders fund is not done in the traditional policies where as in ULIPs the investments are done by allocating a certain limit of percentage of policyholders fund in the market. 6. Comparing to traditional policies, the ULIP policies have risk factors. The policyholders can expect good returns from the ULIP over traditional policies but the market performance is highly influencing the ULIP performance. 7. Policyholders prefer ULIP policy for long term returns.

Annexure-I: Terminology
1 Approved Terminology:

1. Sum Assured: Sum assured is the guaranteed amount, net of permissible partial withdrawals (as per Para 1.3.1 & 8.2), of the benefit that is payable on death of the life assured.

2. Guaranteed Surrender Value: As defined in the provisions of Section 113 of Insurance Act, 1938.

3. Top-up premium: A top up premium is an amount (s) paid at irregular intervals during the period of contract. This is an additional amount of premium over and above the contractual basic premiums charged at the commencement of the contract.

4. Fund value: Fund value at any point of time represents the value of units at that point of time i.e. number of units multiplied by the price of the units.

5. Partial Withdrawals: Any part of fund that is encashed/withdrawn by the policyholder during the period of contract is referred to as partial withdrawal.

6. Switches: This is the facility allowing the policyholder to change the investment pattern by moving from one fund to other fund(s) amongst the funds offered under the underlying product of the insurer.

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7. Premium re-direction: This is the facility allowing the policyholder to modify the allocation of amount of renewal premium into a different investment pattern from the option (investment pattern) exercised at the inception of the contract.

8. Surrender: Surrender means terminating the contract once for all. On surrender a surrender value is payable which is usually expressed as fund value less the surrender charge (the surrender charge could be zero at the later part of the contract).

9. Regular Premium Contracts: ULIPs where the premium payment is level and paid in regular intervals like yearly, half-yearly etc.

10.

Single premium contracts: ULIPs where the premium payment is made by a single

contribution (a one time payment) at the inception.

11.

Limited premium payment contracts: ULIPs where the premium payment period is

limited compared to the policy term. The premium is payable at regular intervals like yearly, half-yearly etc. premium contracts.

12. Whole Life Contracts: ULIPs which do not have a definite policy term and the contract terminates on death of the life assured. This can be issued with item 9 or 10 or 11 stated above.

13. Sales illustrations: This is a document furnished in accordance with life insurance council circular number LC/SP/Ver. 1.0 dated 3rd February, 2004, conceals the effect of charges on the value of benefits at various stages of a unit linked contract. The illustrations furnished for these contracts shall inter alia furnish the yield, net of charges, corresponding to both the higher and lower interest rate scenario.

14. Death benefit: The amount of benefit which is payable on death as specified in the policy document. This is stated at the inception of the contract.

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15. Maturity benefit: The amount of benefit which is payable on maturity i.e. at the end of the term, as specified in the policy document. This is stated at the inception of the contract.

16. Survival benefit: The amount of benefit which is payable at specific intervals, on survival to that period during the period of contract as specified in the policy document. This is stated at the inception of the contract.

17. Units: This is a portion or a part of the underlying segregated unit linked fund. Re. 1/-. This is stated in the unit linked policy documents.

18. Rider benefits: The amount of benefit payable on a specified event (for instance, accident), and is allowed as add on to main benefit.

19. Settlement options: A facility made available to the policyholder to receive the maturity proceeds in a defined manner (the terms and conditions are specified in advance at the inception of the contract).

20. Unit Linked Fund: Unit-linked fund pools together the premiums paid by policyholders and invest in a portfolio of assets to achieve the fund(s) objective. The price of each unit in a fund depends on how the investments in that fund perform. The fund will be managed by the insurer.

21. Fund Value: This is the product of the total number of units under a policy and the NAV (Net Asset Value per unit).

22. Valuation of funds: The determination of the value of the underlying assets of the unit fund.

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23. Redemption: Encashing the units at the prevailing unit price offered by the life insurer where the process involves cancellation of units. This is applicable in case of exercising partial withdrawal, switch, maturity, surrender etc.

24. Allocation: creating the units at the prevailing unit price offered by the life insurer. This is applicable in case of premium payments and switches.

Annexure-II: Charges
1. Premium Allocation Charge:

1.1 This is a percentage of the premium appropriated towards charges from the premium received. The balance known as allocation rate constitutes that part of premium which is utilized to purchase (investment) units for the policy. The percentage shall be explicitly stated and could vary interalia by the policy year in which the premium is paid, the premium size, premium payment frequency and the premium type (regular, single or top-up premium).

1.2 This is a charge levied at the time of receipt of premium.

1.3 If Actuarial Funding is adopted, this charge may also include an initial management charge, which is levied on the units created from the first years premium, for a specified period.

1.4 Example: If premium = Rs.1000 & Premium Allocation Charge: 10% of the premium; then the charge is: Rs.100 and Balance amount of premium is Rs.900 and is utilized to purchase units.

2. Fund Management Charge (FMC):

2.1 This is a charge levied as a percentage of the value of assets and shall be appropriated by adjusting the Net Asset Value as prescribed in Para 10.5 of PART-I.

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2.2 This is a charge levied at the time of computation of NAV, which is usually done on daily basis.

2.3 Example: If Fund Management charge (FMC) is 1% p.a. payable annually; Fund as at 31.3.2004 before FMC is Rs.100/- and Fund after this charge is Rs.99/-.

3. Policy Administration Charge:

3.1 This charge shall represent the expenses other than those covered by premium allocation charges and the fund management expenses. This is a charge which may be expressed as a fixed amount or a percentage of the premium or a percentage of sum assured. This is a charge levied at the beginning of each policy month from the policy fund by canceling units for equivalent amount.

3.2 This charge could be flat throughout the policy term or vary at a pre-determined rate. The pre-determined rate shall preferably be say an x% per annum, where x shall not exceed 5.

3.3 Example: Rs.40/- per month increased by 2%p.a. on every policy anniversary.

4 Surrender Charge:
4.1 This is a charge levied on the unit fund at the time of surrender of the contract.

4.2 This charge is usually expressed either as a percentage of the fund or as a percentage of the annualized premiums (for regular premium contracts).

5. Switching Charge:
5.1 This a charge levied on switching of monies from one fund to another available within the product. The charge will be levied at the time of effecting switch and is usually a flat amount per each switch.

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5.2 Example: Rs.100 per switch.

6. Mortality charge:
6.1 This is the cost of life insurance cover. It is exclusive of any expense loadings levied either by cancellation of units or by debiting the premium but not both. This charge may be levied at the beginning of each policy month from the fund.

6.2 The method of computation shall be explicitly specified in the policy document. The mortality charge table shall invariably form part of the policy document.

6.3 Mortality rates are guaranteed during the contract period, which are filed with the Authority.

7. Rider premium charge:

7.1 Rider cover cost: This is the premium exclusive of expense loadings levied separately to cover the cost of rider cover levied either by cancellation of units or by debiting the premium but not both. This charge is levied at the beginning of each policy month from the fund.

8. Partial withdrawal charge:

8.1 This is a charge levied on the unit fund at the time of part withdrawal of the fund during the contract period.

9. Miscellaneous charge:
9.1 This is a charge levied for any alterations within the contract, such as, increase in sum assured, premium redirection, change in policy term etc. The charge is expressed as a flat amount levied by cancellation of units.

9.2 This charge is levied only at the time of alteration.

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9.3 Example: Rs.100/- for any alteration such as increase in sum assured, change in premium mode etc.

10 Notes:
10.1 All the charges other than premium allocation charge and cost of life insurance/mortality cost shall have an upper limit. 10.2 All the charges stated above, where relevant, may be modified with supporting data within the upper limits with prior clearance from the Authority.

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-:Bibliography :Online document:

1.) ICICI (1994), unit linked insurance policy from

http://www.iciciprulife.com/public/Retirement-Plans/Unit-Linked-Insurance-Plans/ulipcharges.htm 2.) Arihant capital markets ltd (1994), Our Company by http://www.arihantcapital.com/aboutus/overview.aspx 3.) By Mitesh v. Rajput & Nadeem khan f. Pathan of INDU MANAGEMENT INSTITUTE from scibd.com BOOK:1.) S.Balachandran. (2007). IC-33 LIFE INSURANC BY IRDA, India.

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