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A LIVE PROJECT ON COMPARATIVE STUDY ON ULIPS IN THE COMPARATIVE INDIAN INSURANCE MARKET

bySubmitted byChandni Saha Enroll NoEnrollment No-11ATPA047 ProgramSem-1 Program MBA, 1st Year, Sem st

A Report Submitted in Partial Fulfillment of the Requirement of the MBA Program (The Class of 2011)

ICFAI UNIVERSITY TRIPURA

ICFAI UNIVERSITY
Kamalghat, Tripura

A LIVE PROJECT ON COMPARATIVE STUDY ON ULIPS IN THE INDIAN COMPARATIVE ULIPS INSURANCE MARKET

Submitted by: Chandni Saha

TABLE OF CONTENTS

S. No. 1 2

Contents Introduction Objectives List Of Insurance Company and its ULIP products

Page No 1 2

3 4

Body of the Report Difference between ULIPS & Mutual Funds Comparative Study of ULIPS Data analysis and Conclusion Reference

3-7 8

5 6 7

9-14 15 16

INTRODUCTION: A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets. It allows protection and flexibility in investment, which are not present in other types of life insurance such as whole life policies. The premium paid is used to purchase units in investment assets chosen by the policyholder. In other words a type of insurance vehicle in which the policyholder purchases units at their net asset values and also makes contributions toward another investment vehicle. Unit linked insurance plans allow for the coverage of an insurance policy, and provide the option to invest in any number of qualified investments, such as stock, bonds or mutual funds. ULIP came into play in the 1960s and became very popular in Western Europe and Americas. The reason that is assigned to the widespread popularity of ULIP is because of the transparency and the flexibility which it offers. Unit linked life insurance plan (ULIP) offers you the opportunity to earn market related returns while enjoying the priceless benefits of life insurance. A ULIP investment is not an ideal investment for the short term investor, because it takes longer to break even due to higher initial expense. You must know that the ULIPS are not designed for short term time horizon and not at all a short term game.

Features of Unit Linked Insurance Plan: Potential for Superior returns by switching between Equity & Debt Anytime Liquidity No Long Term Commitments Flexible Insurance Cover 100% Tax Free Returns on Withdrawals & Maturity ULIP is Like a Endowment Plan by not withdrawing for many years and create tax-free wealth till you retire Money-Back Plan by withdrawing as and when you require funds Childrens Plan by withdrawing funds for higher studies, marriage expenses Whole-Life Plan by not withdrawing at all till 70 or 80 years of age Pension Plan by withdrawing every month after you retire

OBJECTIVE: To study the effectiveness of UILPS. Comparative study of ULIPS schemes (on basis of some criteria) offered by 4 different companies.

List Of Insurance Company and its ULIP products ICICI Prudential Life Insurance SmartKid New Unit-linked-Regular Premium LifeTime Super LifeLink Super PremierLife Gold LifeTime Plus InvestShield Life New InvestShield CashBak TATA AIG LIFE Invest Assure II Invest Assure Gold Invest Assure Plus SP ING Vysya Life Insurance New Future Perfect ING Life Plus Reliance Life Insurance Market Return Plan Golden Years Plan Plus Kotak Life Insurance Kotak Retirement Income Plans Kotak Flexi Plan Kotak Capital Multiplier Plan Kotak Headstart Child Plans

BODY OF THE REPORT: A unit linked insurance policy 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 (insurance cover) or the value of the units (investments). However, there are some schemes in which the policyholder receives the sum assured plus the value of the investments. Every insurance company has four to five ULIPs with varying investment options, charges and conditions for withdrawals and surrender. Moreover, schemes have been tailored to suit different customer profiles and, in that sense, offer a great deal of choice.. Charges, Fees and Deduction in a ULIP: ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time. 1. Premium Allocation Charge: This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses. 2. 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. 3. Fund Management Fees: These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV) . 4. 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. 5. Surrender Charges: A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. 6. Fund Switching Charge: Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge. 7. Service Tax Deductions: Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

Types of Funds do ULIP Offer: 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. General Description Equity Funds Nature of Investments Risk categories

Primarily invested in company Medium to High stocks with the general aim of capital appreciation. Invested in corporate bonds, Medium Income, fixed interest and government securities and bond funds other fixed income instruments. Sometimes known as Money Low Cash funds Market funds-invested in cash. Bank deposits and money market instruments. Combining equity investment Medium Balanced funds with fixed interest instruments. Steps to select right ULIP: For a product capable of adding significant value to investors' portfolios, ULIPs have far too many critics. We are interacted with a number of investors who were very disillusioned with their ULIPs investments; often the disappointment stemmed from poor and inappropriate selection. We present a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right ULIP. 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. 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 cross-check 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.

Benefits of ULIP: Unit Linked Plans offer unique opportunity to combine protection with investments. Some special features of Unit Linked Life Insurance Policies (ULIPs) are: Flexibility: ULIPs offer a complete selection of high, medium and low risk investment options under the same policy. You can choose an appropriate policy according to your risk taking appetite, coupled with the opportunity to switch between fund options without any additional expense for specified number of switches. ULIPs provide the flexibility to choose the sum assured and investment ratio in the annual targeted premium. It also offers the flexibility of one time increase in investment portfolio, through top-ups to avail investment opportunity offered by external environment or own income flows. Transparency: The charge structure, value of investment and expected IRR based on 6% and 10% rate of returns, for the complete tenure of the policy are shared with you before you buy a product. Similarly, the annual account statement, quarterly investment portfolio and daily NAV reporting, ensures that you are aware of the status of your investment portfolio at all times. Most companies publish latest NAVs on their respective websites on a daily basis. Liquidity: To cope with unforeseen circumstances, ULIPs offer the benefit of partial withdrawal; wherein after 5 years you can withdraw funds from our Unit Linked account, retaining only the stipulated minimum amount. Discipline and regular savings: ULIPs help you inculcate a regular saving habit. Also, the average unit costs tend to be lower than one time investment. Multiple benefits bundled in one product: ULIP is an outstanding solution for risk cover, long term investments with the benefit of various investment opportunities, coupled with tax benefits. Spread of Risk: ULIPS are ideal for those investors who wish to avail the benefit of market linked growth without actually participating in the stock market, with the added benefit of risk cover.

HOW ULIPS MANAGE MONEY: ULIPs are different from traditional plans. They invest their monies in Shares, bonds, money market instruments in varied proportions. Insurance companies usually maintain 4 types of funds. 1. Growth Fund: 2. Balanced Fund: 3. Debt Fund: 4. Money Market Fund: 100% equity 60% equity & 40% debt 100% debt 100% MM instrument for a period of 1year

Equity

Balance

Debt

RISK

Money Market

RETURN In case of equity, the risk and return is the highest, and vice verse for Money market instruments. It is a principle of financial management, the higher the risks you take, the higher the return you get.

DIFFERENCE BETWEEN ULIPS & MUTUAL FUNDS:Points of Difference 1.Meaning:ULIPS(Unit Linked Insurance Plans) These are the Insurance policies which are linked to units of Mutual Fund. MFs(Mutual Funds) It is an investment organization with a main objective of collecting funds from various segments of people and investing the same in a variety of securities. Its objective is only investments. It works out to medium term, long term, & short term. Risky for short term investors. Very flexible. Plenty of scope to correct mistakes if any wrong investment decisions are made. Very liquid. MF units can be sold any time (except ELSS).

2. Primary Objective :3. Investment Duration:-

Its main objective is investment & protection. It works out for long term investment only. Flexibility is limited to moving across different funds offered with policy. Correcting mistakes can turn out to be expensive. Limited liquidity .It need to stay invested for minimum years before redeeming. ULIPs currently are with a minimum lock-in of three years.

4. Flexibility :-

5. Liquidity :-

6. Minimum Lock- in Period :-

7. Investment Objective:-

8. Investment styles and Portfolio Disclosures :-

MF schemes (except ELSS which has a lock-in of three years) do not have any such lock in. ULIPs can be used for achieving MFs can be used as vehicle for only long term objectives investments to achieve different (Children education, marriage, objectives. (E.g.: Buying a car 3 Retirement planning). years from now. Down payment for a home 5 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). Insurance companies declare Most MFs usually declare their their portfolios once in a quarter portfolios on monthly basis and and their investment style are less MFs are generally known to be aggressive and they resort to less more active in fund churning. management.

COMPARATIVE ANALYSIS OF ULIPS: Initially ULIPs were started by a few private players way back in 2001-02. But now almost every Insurance company has got ULIPS suiting the varied requirements of the customers. If one has to choose among the ULIP schemes provided by the insurance, it is necessary to do a comparison to choose the right one. ULIPs of 4 top performing insurance are taken for comparison. 1) ICICI PRUDENTIAL--------- Life Time Premier 2) TATA-AIG--------------------- Invest Assure II 3) LIC--------------------------------Market Plus 4) HDFC LIFE----------------------HDFC SL ProGrowth Flexi ICICI PRUDENTIAL (Life Time Premier) 1.Policy Objectives: It is a comprehensive savings plan that offers a choice of portfolio strategies for savings and at the same time secures him/her against uncertainties of life. TATA-AIG (Invest Assure II) LIC (Market Plus) HDFC LIFE (HDFC SLProGrowth Flexi ) It is a smart Unit Linked Insurance Plan that offers several flexibilities to customers that can be chosen based on their needs and appetite. Also offers financial protection of family and good return on investment

It is a unique, flexible insurance plan which combines security of life with the opportunity to exploit upside of the market returns by investing in different kinds of securities through multiple fund options.

The unique plan promises a safe and a tension free life along with a good amount of wealth creation.

2. Eligibility Criteria (Minimum, Maximum age at entry):Min age: 7years Max age: 65years

Min age: 30 days Max age:45,55,65 years

Min age: 18 years Max age: 70 years

Min age: 14 years Max age: 65 years

3. Policy term :Limited pay: 10years 15, 20, 30 years Regular pay: 10,15,20, 25,30 years 4.Premium(Minimum):Limited pay: 50,000/- pa 12000/- pa Regular pay: 18,000/- pa

5 to 30 years

10 to 15+ years

5000/- pa

24,000/- pa

5.Mode of Premium Payment:Only yearly

Annually, half yearly, quarterly, monthly Minimum top up amount is Rs 10,000

Annually, half yearly, Annually, half yearly, quarterly, monthly monthly

6. Top up Premium:Amount not mentioned. Minimum top up amount is Rs 1000. Amount not mentioned.

7. CHARGES:Most of the life insurance companies incur certain charges which are as follows: a) MORTALITY CHARGES b) FUND MANAGEMENT CHARGES c) SWITCH OVER CHARGES d) POLICY ADMINISTRATION CHARGES A GRAPHICAL REPRESENTATION WILL MAKE THE CHARGES UNDERSTANDABLE AND EASY TO COMPARE

a) MORTALITY CHARGES

AGE 20 years 30 years 40 years 50 years

Mortality Charges(Rs) ICICI PRUDENTIAL TATA AIG (Lifetime Premier) (Invest Assure II) 1.33 1.05 1.46 2.48 5.91 1.17 2.15 5.53

HDFC STANDARD (HDFC SL Progrowth Flexi) 1.53 1.77 2.33 4.63

Chart Title
ICICI PRUDENTIAL (Lifetime Premier) TATA AIG (Invest Assure II) HDFC STANDARD (HDFC SL Progrowth Flexi) 5.91 5.53 4.63 1.33 1.05 1.53 1.46 1.17 1.77 2.48 2.15 2.33

20 years

30 years

40 years

50 years

Interpretation: The mortality charges of are ICICI Prudential (Lifetime Premier) the highest whereas the charges t of TATA AIG are the least.

b) FUND MANAGEMENT CHARGES

FUND MANAGEMENT CHARGES 1. ICICI Prudential (Life time Premier) 2. TATA AIG ( Invest Assure II II) 3.LIC (Market Plus) 4.HDFC Standard (HDFC SL Progrowth flexi) 1.35% 1.75% 1.50% 1.35%

2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00%

1.75% 1.50% 1.35% 1.35%

1. ICICI Prudential 2. TATA AIG ( (Life time Invest Assure II) Premier) Series1

3.LIC (Market Plus)

4.HDFC Standard (HDFC SL Progrowth flexi)

Interpretation: TATA AIG has the highest FMC whereas Charges of LIC are comparatively higher than the other two. c) SWITCH OVER CHARGES ICICI Prudential (Life time premier) The first 4 switches per policy will be free. Tata AIG ( Invest Assure II) The first 4 switches per policy will be free. LIC (Market Plus) The first 4 switches per policy will be free.

Charges (Rs) ICICI Prudential (Life time premier) Tata AIG ( Invest Assure II) LIC (Market Plus) 100 250 100

300 250 200 150 100 50 0 ICICI Prudential (Life time premier) 100

250

100

Tata AIG ( Invest Assure II) Charges (Rs)

LIC (Market Plus)

Interpretation: In this case Tata AIG has got the highest switch over charge, whereas charges of ICICI and LIC have got comparatively less than Tata AIG. d) POLICY ADMINISTRATION CHARGES Charges(Rs/month) 60 38 20 500

ICICI Prudential (Life time premier) Tata AIG ( Invest Assure II) LIC (Market Plus) HDFC Standard (HDFC SL progrowth flexi)

600 500 400 300 200 100 0

500

60

38

20

ICICI Prudential Tata AIG ( Invest LIC (Market Plus) HDFC Standard (Life time Assure II) (HDFC SL premier) progrowth flexi) Charges(Rs/month)

Interpretation: In this case charges of HDFC are higher and the charges of LIC are lower than others.

DATA ANALYSIS & CONCLUSION:This analysis is done by giving ranks to all the 4 policies taking into consideration the following criteria: (1= excellent, 2=good, 3=fair, 4=average) In the end, whichever fund has the least score will be the best buy. CRITERIA Amount of Premium Mode of premium payment Amount of Top up premium Mortality charges FMC Switch over charges Policy Administration charges TOTAL ICICI PRUDENTIAL 3 4 Not given 3 1 1 3 15 TATA AIG 2 1 1 2 3 2 2 13 LIC 1 1 3 Not given 2 1 1 9 HDFC STANDARD 4 2 Not given 1 1 Not given 4 12

From the above table analyzing some criteria of 4 companies it can be said that, LIC have scored the least. Therefore a person can buy a ULIP from LIC. REFERENCE:

http://www.seminarprojects.com/Thread-a-study-on-market-preference-for-unit-linkinsurance-plan#ixzz1bTqXaj6z http://www.seminarprojects.com/Thread-a-study-on-market-preference-for-unit-linkinsurance-plan#ixzz1bTo5qHGF http://www.tata-aig.com http://www.iciciprulife.com http://www.policybazar.com

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