Life Insurance policy

CONTENTS

Chapter I
Introduction of the Study Purpose of the Study Scope of the study Research Methodology Limitations 3 4 5 6 7

Chapter II
Industry Profile "ompany Profile Product Profile ! 17 1# ! $4 $5 % $

Chapter III
"onceptual &rame'or( )or(ing Mechanism 3$ % 41 4$ % 4#

Chapter IV
*ata analysis and Interpretation ,LIPs -s. Mutual &unds ,LIPs -s. /raditional Policies Similarities 01' ,LIPs -s. M& 2 ,LIPs -s. /raditional Policies 5+ % 65 66 % 7$ 73 % 76 77

Chapter V
&indings from the study "onclusions 3i0liography 4ppendices 7 #+ #1 #$

CHAPTER - I

INTRODUCTION
Life Insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insureds death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals. Life Insurance is a contract for payment of money to the person assured (or to the person entitled to receive the same) on the occurrence of the event insured against.

Usually the contract provides for:

1. Payment of an amount on the date of maturity or at specified periodic intervals or at death if it occurs earlier. . Periodical payment of insurance premium by the assured, to the corporation who provides the insurance.

Who can take Life insurance policy?

1. !ny person above 1" years of age, who is eligible to enter into valid contract, . #ub$ect to certain conditions a policy can be ta%en on the life of a spouse or children. &ow life insurance policies are available in two types' 1. (raditional policies' . )nit lin%ed insurance plans()LIP*)'

No

ULI!s are food in "arket:

)LlP stands for )nit Lin%ed Insurance Plan. It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. )LIP is life insurance solution that provides for the benefits of protection and fle+ibility in investment. (he investment is d"noted as units and is represented by the value that it has attained called as &et !sset ,alue (&!,). )LIP came into play in the 1-./s and became very popular in 0estern 1urope and !mericas. (he reason that is attributed to the wide spread

popularity of )LIP is because of the transparency and the fle+ibility which it offers. !s times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In todays times, )LIP provides solutions for insurance planning, financial needs, financial planning for childrens future and retirement planning. (hese are provided by the insurance companies or even ban%s. (hese investments can also be used for ta+ benefit under section "/2.

!UR!O#$ O% #TUD&:

(o study the concept and wor%ing mechanism of )LIPs 3easons why )LIPs get thumps up 3easons for investing systematically (o study in detail about two )LIP product of 4a$a$ !llian5 Life Insurance 2o Ltd (o ma%e a comparison between 6utual 7unds 8 )LIPs (o study the comparison between (raditional Policies 8 )LIPs (o understand the relationship between 6utual 7unds 8 )LIPs and (raditional Policies 8 )LIPs (o have an awareness of I39! :uidelines with respect to )LIPs

#CO!$ O% #TUD&: (he pro$ect entitled ;)LIP as an Investment !venue< is a detailed study about the inception of the concept of )nit lin%ed insurance policies and its wor%ing mechanism. (he study is confined only to the analysis about the )LIP# and its effectiveness in comparison with the traditional policies and the 6utual funds. (he #cope is limited only to the detailed understanding of the two products of the 4a$a$ !llian5.

R$#$'RC( )$T(ODOLO*& #ources of data

9ata collection is of two types as follows'

Data Collection

!ri"ary Data !ri"ary data:

(he primary data and or this by insurance other for

#econdary Data

refers direct

to

the

data collected from =uestioning been by (he ith collected any data

which has not gathered earlier research study. study trainers was and interactin+

collected sales "ana+ers.

#econdary data:
(his type of data refers to the gathering of information from the sources that have ;readymade data< already in possession. (his data has already been

collected and complied. (his data has been collected from the e+isting surveys in the company. Information #ources, the has been gathered from the company brouchers, and finally periodicals, websites and other boo%s. !fter gathering the data from the data was analy5ed, tabulated, interpreted conclusions were made regarding the entire pro$ect.

LI)IT'TION# O% T($ #TUD&:

(he study is limited only to 4a$a$ !llian5. (he study does not include any comparison with product of other companies. 6ore focused on )LIPs only.

C('!T$R , II

INDU#TR& !RO%IL$

1+

Insurance Overvie
(his is the current scenario of the :lobal Insurance Industry and now let us loo%s at the basic function of insurance. 0hile conceding that insurance is a ris%>transfer tool, corporate should be made to understand that it does not suffice merely to transfer the ris% but they have to participate in the effort of loss prevention. &ew techni=ues and technology have to be adapted from them to time in order to improve performance and this has special significance to the order to improve performance and this has special significance to the Indian insurance Industry. (he Indian insurance industry has always suffered from drawbac%s li%e lac% of proper understanding of the purpose of insurance, lopsided growth etc., with the opening up of the industry, it is hoped that the row entrants with their better channels would spread to the real message of insurance, leading to a dynamic growth. 1mphasis should be on finding new technological avenues, although it has been observed world over that for selling insurance, an eye to eye contact is essential. Internet can be used for better servicing which would eventually, lead to business development. 0ith the entry of foreign companies into the insurance arena, a fresh life has been inducted and there is a great deal of

11

optimism in the air that the mar%et would automatically create a vibrant competition leading to the customer being the ultimate winner.

Insurance in India:
Insurance in India started without any regulation in the nineteenth century. It was a typical story of a colonial era' a few 4ritish Insurance companies dominating the mar%et sewing mostly large urban centers. !fter the independence, it too% a dramatic turn. Insurance was nationali5ed. 7irst, the life insurance companies were nationali5ed in 1-*., and then the general business was nationali5ed in 1-? . @nly in 1--- private insurance companies have been allowed bac% into the business of insurance with a ma+imum of .A of foreign holding. 0e describe how and why of regulation and deregulation. (he entry of the #tate 4an% of India with its proposal of ban% assurance brings a new dynamic in the game. 0e study the collective e+perience of other countries in !sia already deregulated their mar%et and have allowed foreign companies to participate. If the e+perience of other countries is any guide, the dominance of Life Insurance 2orporation is not going to disappear any time soon. (he Indian insurance mar%et, with a population of over one million, offers tremendous opportunities and can easily sustain 1// insurers. (his article analyses the development of the insurance sector, which will result in higher domestic savings and investments, significant e+pansion of flue capital mar%et, enhanced insurance infrastructure financing and increased foreign capital inflow and employment. (he opening up of the Indian insurance sector has been hailed tie a groundbrea%ing move towards further liberali5ation of the Indian economy. (he si5e of the e+isting insurance mar%et is growing at a rate of ten percent per year. (he estimated potential of the Indian insurance mar%et in terms of premium was around 3s. BCC/// crores ()#D.. billion) in 1---. (he Indian players have tapped only tent per cent of the mar%et share and the remaining -/ per cent of the mar%et remain untapped. (he Indian :overnment has recently enacted the insurance 3egulatory 9evelopment !uthority !ct 1---, which amends e+isting Insurance laws dating from 1-B.. (he act establishes an authority called the Insurance

1$

3egulatory 9evelopment !uthority, designed to regulate the Insurance sector. (his article e+amines the provisions of the new !ct from the point of view of a company with diverse business interests wishing to establish a $oint venture with an Indian company.

Insurance under the -ritish Ra.:

Life insurance in modern form was first set up in India through a 4ritish company called the @riental Life Insurance 2ompany in 1"1" followed by the 4ombay !ssurance 2ompany in 1. B and 6adras 1=uitable Life Insurance #ociety in 1" -. !ll of these companies operated in India but did not insure the lives of Indians. (hey were there insuring the lives of 1uropeans living in India. #ome of the companies that started later did provide insurance for Indians. 4ut they were treated as ;substandard and therefore had to pay an e+tra premium of /A or more. (he first company that had B policies that could be bought by Indians with Efair value was the 4ombay 6utual Life !ssurance #ociety starting in 1"?1. 4y 1-B", the insurance mar%et in India was bu55ing with 1?. companies (both life and non>life). Fowever, the industry was plagued by fraud. Fence a comprehensive set of regulations was put in place to stem this problem. 4y 1-*., there were 1*C Indian companies, 1. non>Indian insurance companies and ?* provident societies that were issuing life insurance policies. 6ost of these policies were entered in the cities (especially around big cities li%e 4ombay, 2alcutta, 9elhi and 6adras). In 1-*., the finance minister #ri # 9. 9eshmu%h announced nationali5ation of the life insurance business.

)ilestones of Insurance Re+ulations in the /0th Century

&ear
1-1 1- "

#i+nificant Re+ulatory $vent

(he Indian Life Insurance 2ompany !ct enacted. (he Indian Insurance 2ompanies !ct enhanced to enable the government to collect statistical information about both life and non>life insurance business.

13

1-B" 1-*.

(he Insurance !ct' 2omprehensive !ct to regulate insurance business in India (he Indian and foreign insurers and provident societies ta%en over by the 2entral government and nationali5ed. LI2 formed by an act of parliament. ,IG. LI2 !ct, 1-*., with a capital contribution of 3s.* crore from the government of India.

1-? 1--B 1--C 1--* 1--.

&ationali5ation of general insurance business in India. #etting up of 6alhotra 2ommittee. 3ecommendations of 6alhotra 2ommittee. #etting up of 6u%her$ee 2ommittee (he government gives greater autonomy to LI2, :I2 and its subsidiaries with regard to the restructuring of boards and fle+ibility in investment norms aimed at channeling funds to the infrastructure sector.

1--"

(he cabinet decides to allow C/A foreign e=uity in private insurance companres> .A to foreign companies and 1CA to &3Is and 7IIs.

1---

(he standing committee headed by 6urali 9eora decides that foreign e=uity in Private insurance should be limited to !uthority (I39!) 4ill. !lso, 2abinet clears I39! 4ill .A. (he I3! bill is renamed the Insurance 3egulatory and 9evelopment

///

President gives assent to the I39! 4ill.

Re+ulations:
In India insurance is a federal sub$ect. (he primary legislation that deals with insurance business in India is'

Insurance Re+ulatory 'uthority:

14

@n the recommendation of 6alhotra committee an Insurance 3egulatory 9evelopment !ct (I39!) passed by Indian Parliament in 1--B. Its main aim was to activate an insurance regulatory apparatus essential for proper monitoring and control of the insurance Industry. 9ue to this !ct #everal Indian private companies have entered into the insurance mar%et, and some companies have $oined with foreign partners. In economic reform process, the insurance 2ompanies have given boost to the socio > economic development process. (he huge amount of funds that are disposal of insurance are directed as desired avenues li%e housing safe drin%ing water, electricity primary education and infrastructure. !bove all the policyholders gets better pricing of products from competitive insurance companies.

Li1erali2ation:
(he opening up of insurance #ector was a part of the ongoing liberali5ation in the financial sector of India. (he domain of state>run insurance companies was thrown open to private enterprise on 9ecember ?, 1---, with the introduction of the Insurance 3egulatory !uthority (I39!) 4ill. (he opening up of the sector gave way to the world %nown names in the industry to enter the Indian mar%et through tie>ups with the eminent business houses. 0hat was once a =uiet business is becoming one of the hottest businesses todayH

!ost Li1erali2ation:
(he changing face of financial sector and the entry of several companies in the field of life insurance segment are one of the %ey results of these liberali5ation efforts. Insurance business by way of generating premium income adds significantly to the :9P. 1stimates show that a meager B*>C/ million, out of a population of -*/ million, have come so far under the Insurance industry. (he potential mar%et is so huge that it can grow by 1* to 1? per annum. 0ith the entry of private players the Indian insurance mar%et may finally be able to ma%e deeper penetration in to newer segments and e+pand the mar%et si5e manifold. (he =uality of service will also improve and there will be wide range of product catering to the needs of different customers. (he pace for claims settlements is also e+pected to improve due to increased competition. (he life insurance mar%et in India is li%ely to be ris%y in the initial stages, but this will improve in the ne+t three to five years.

15

(herefore it may be advantageous to be a second round entrant. In the life insurance mar%et the need to build trust over time becomes important because the ris% assessment systems and data that are a %ey to success in the insurance mar%et are significantly underdeveloped in India even today. Refor"s and I"plications: (he liberali5ation of the Indian insurance sector has been the sub$ect of much heated debate for some years. (he sector is finally set to open up to private competition. (he Insurance 3egulatory and 9evelopment !uthority bill cleared the way for private entry into insurance, as the government was %een to invite private sector participation into insurance. (o address those concerns, the bill re=uires direct insurers to have a minimum paid>up capital of 3s. 1 billionI to invest policy holders funds only in IndiaI and to restrict international companies to a minority e=uity holding of . percent in any new company. Indian promoters will also have to dilute their e=uity holding to percent over a 1/>year period. @ver the past three years, around B/ companies have e+pressed interest in entering the sector and many foreign and Indian companies have arranged alliances. 0hether the insurer is old or new, private or public, e+panding the mar%et will present challenges. ! number of foreign insurance companies have set up representative offices in India and have also tied up various asset management companies. (hey have either signed 6@)s with Indian companies or are trying to do the same. #ome have carried out e+tensive research on the Indian insurance sector. @thers have set up liaison offices. .

16

)a.or !layers In Indian Insurance

Life Insurance' !u1lic:

Life Insurance 2orporation of India

!rivate:

F972 #tandard Life Insurance 6a+ &ew Jor% Life Insurance I2I2I Prudential Life Insurance Kota% 6ahindra Life Insurance 4irla #un>Life Insurance (!(! !I: Life Insurance #4I Life Insurance I&: ,ysya Life Insurance 4a$a$ !llian5 Life Insurance 6etLife Insurance !6P #anmar Life insurance !viva Life Insurance #ahara India Life Insurance #hriram Life Insurance 4harathi!L! Life Insurance

*eneral Insurers !u1lic:

&ational Insurance &ew India !ssurance @riental Insurance )nited India Insurance

!rivate:

4a$a$ !llian5 :eneral Insurance I2I2I Lombard :eneral Insurance

17

I772@>(o%yo :eneral Insurance 3eliance :eneral Insurance 3oyal #undaram !lliance Insurance (!(! !I: :eneral Insurance 2holamandalam :eneral Insurance 1+port 2redit :uarantee 2orporation F972 2hubb :eneral Insurance

Re,insurer

:eneral Insurance 2orporation of India

1#

Types of Life Insurance !olicies

Jour family counts on you every day for financial support' food, shelter transportation, education, and much more. Insurance provides you with that uni=ue sense of security that no other form of investment provides. It gives you a sense of financial support especially during that time of crisis irrespective of the fluctuations in the stoc% mar%et. Insurance provides for your career goals right from your childhood years. Insurance is all about ma%ing sure your family has ade=uate financial to ma%e those plans and dreams come true. It provides financial protection to help your family or business to manage after your death.

%e

of the Life insurance policies are:

Life policies , 2over the insured for life. (he insured does not receive money while he is aliveI the nominee receives the sum assured plus bonus upon death of the insured. Endowment policies , 2over the insured for a specific period. (he insured receives money on survival of the term and is not covered thereafter. Money back policies , (he nominee receives money immediately on death of the insured. @n survival the insured receives money at regular intervals during the term. (hese policies cost more than endowment with profit policies. Annuities / Childrens policies , (he nominee receives a guaranteed amount of money at a pre>determined time and not immediately on death of the Insured. @n survival the insured receives money at the same pre> determined time. (hese policies are best suited for planning childrens future, education and marriage costs. Unit Linked Insurance Plan , )LIP provides for life insurance and at the same time provides suitable Investment avenues. (he policy value is the sum assured plus the appreciation of the underlying assetsI it is life insurance solution that provides for the benefits of protection and capital appreciation

at the same time. (he product is =uite similar to a mutual fund in the sense that the investment is denoted as units and is represented by the value that it has attained called as &et !sset ,alue (&!,), and apart from the insurance benefit the structure and functioning of )LIP is e+actly li%e a mutual fund.

CO)!'N& !RO%IL$

$+

-'3'3 'LLI'N4 LI%$ IN#UR'NC$ !rofiles

4a$a$ !llian5 Life Insurance 2o. Ltd. is a $oint venture between two leading companies> !llian5 !:, one of the worlds largest insurance companies, and 4a$a$ !uto, one of the biggest and B wheeler manufacturers in the world. 4a$a$ !llian5 Life Insurance is the fastest growing private life. Insurance 2ompany in India 2urrently has over CC/,/// satisfied customers. 0e have a presence in more than **/ locations with ./,/// Insurance 2onsultant providing the finest customer service. @ne of Indias leading private life insurance companies

Indian

perations!

:rowing at a brea%nec% pace with a strong pan Indian presence 4a$a$ !llian5 has emerged as a strong player in India. 4a$a$ !llian5 Life Insurance 2ompany Limited is a $oint venture between two leading conglomerates !llian5 !: and 4a$a$ !uto Limited. 2haracteri5ed by global presence with a local focus and driven by customer orientation to establish high earnings potential and financial strength, 4a$a$ !llian5 Life Insurance 2o. Ltd. was incorporated on 1 th 6arch //1. (he company received the Insurance 3egulatory and 9evelopment !uthority (I39!) certificate of 3egistrahon (3B) &o 11. on Brd !ugust //1 to conduct Life Insurance business in India.

"hared #ision!

$1

4a$a$ !uto Ltd. the 7lagship 2ompany of the 3s. "///crore 4a$a$ group is the largest manufacturer of two>wheelers and three> 0heelers in India and one of the largest in the world. ! household name in India, 4a$a$ !uto has a strong brand image 8 brand loyalty synonymous with =uality 8 customer focus. 0ith over 1 *./// employees, the company is a 3s. C/// crore>auto giant, is the largest MB> wheeler manufacturer in India and the Cth largest in the world. !!! rated by 23I#IL, 4a$a$ !uto has been in operation for over ** years. It has $oined hands with !llian5 to provide the Indian consumers with a distinct spoon in terms of life insurance products.

!s a promoter of 4a$a$ !llian5 Life Insurance 2o. Ltd. 4a$a$ !uto has the following to offer'

7inancial strength and stability to support the Insurance 4usiness. #trong brand>e=uity. Fas good mar%et reputation, as a world>class organi5ation. Fas an e+tensive distribution networ%. Fave ade=uate e+perience of running a large organi5ation. ! 1/ million strong base of retail customers using 4a$a$ products. 1+tensive use of advanced Information (echnology. 1+perience in the financial services industry through 4a$a$ !uto 7inance Ltd.

'llian2 *roup
!llian5 :roup is one of the worlds leading insurers and financial services providers. 7ounded in 1"-/ in 4erlin, !llian5 is now present in over ?/ countries with almost 1?C,/// employees. !t the top of the international group is the holding company, !llian5 !:, with its head office in 6unich. !llian5 :roup provides its more than ./ million customers worldwide with a comprehensive range of services in the areas of'

Property and 2asualty Insurance Life and Fealth Insurance !sset 6anagement and 4an%ing.

$$

'llian2 '*, ' *lo1al %inancial !o erhouse

0orldwide nd by :ross 0ritten Premiums > 3s.C, C..*C 2r. Brd largest !ssets under 6anagement (!)6) 8 largest amongst insurance>!)6 of 3s.*1, -.,-*-cr. 1
th

largest corporation in the world

C-." A of global business from Life Insurance 1stablished in 1"-/, 11/ yrs of insurance e+pertise ?/ countries, 1?B,?*/ employees worldwide

-a.a. 'uto:
4a$a$ !uto Ltd., the 7lagship 2ompany of the 3s. "/// crore 4a$a$ group is the largest manufacturer of two>wheelers and three>wheelers in India and one of the largest in the world. ! household name in India, 4a$a$ !uto has a strong brand image 8 brand loyalty synonymous with =uality 8 customer focus.

' stron+ Indian 1rand, (a"ara -a.a.:

@ne of the largest

8 B wheeler manufacturers in the world

1 millionN vehicles on the roads across the globe 6anaging funds of over 3s. C/// 2r. 4a$a$ !uto finance one of the largest auto finance cos. in India 3s. C,?CC 2r. (urnover 8 Profits of *B" 2r. in // >/B It has $oined hands with !llian5 to provide the Indian consumers with a distinct option in terms of life insurance products. !s a promoter of 4a$a$ !llian5 Life Insurance 2o. Ltd., 4a$a$ !uto has the following to offer >0orldwide financial strength and stability to support the insurance business.

! strong brand>e=uity. ! good mar%et reputation as a world class organi5ation. !n e+tensive distribution networ%.

$hy %a&a& Allian'(

It provides an impeccable trac% record across the globe in providing security and cover for you and your family. 0e, at 4a$a$ !llian5, reali5e that you see% an insurer who you can trust your hard>earned money with. !llian5 !: with over 11/ years of e+perience in over ?/ countries and 4a$a) auto, trusted for over ** years in the Indian mar%et, together are

$3

committed to offering you financial solutions that provide all the security you need for your tCmily and yourself. 4a$a$ !llian5 brings to you several innovative products, the details of which you can browse in this section.

)ey Achie*ements!

3aces past :0P of over 3e. 1 //12r, with growth of over B*?A over previous years :0P of 3s. 1- 2rores 7JP of 3s "./cr a B"/A growth over last years 7JP of 3s 1?- or. 3oc%eted to &o. C/ 2r. position as against &o . at the end of last financial year amongst Pvt. Life Insurance cos., with a clear lead of 3s

7astest growing insurance company with B"/A growth 6ar%et share $umps almost C times from /.-* A to B.B- A amongst all life Insurance cos. Increased its product portfolio from ? to 1- simple and fle+ible products Launched complete suite of employee benefit solutions (:roup products for 2orporate) &o.1 Pvt. Life Insurer 7J ///.. Leading by 3#. ?"2r. &o.1 Pvt. Life Insurer in 3etail 4usiness Leading by 3# BB- 2r. 0hopping growth of 1.A for the 7J //*>/. Fave sold over 1B,//,/// policies to satiated customers Is bac%ed by a networ% of **/ offices spanning the country !ccelerated :rowth

!ssets under management 3s B,B C 2r. #hareholder capital base of 3s *// 2r.
&o of policies sold in 7J 1,B?. 1,1*,-.* 1,".,CCB ,"",1"?,"1,."* -,B ,*C* :0P in 7J 3s. ? 2r. 3s. .- 2r. 3s. 1 2r. 3s. 1// 2r. 3s. B1BC 2r. 3s. C *1 2r.

&o of Policies //?> //"(.monts) //"> ////-> /1/ /1/> /11 /11> /1 /1 > /1B

$4

-a.a. 'llian2 ,The !resent

Product tailored to suit your needs 9ecentrali5ed organi5ation structure for faster response 0ide reach to serve you better O a nationwide networ% of ?// N branches #peciali5ed departments for 4anc assurance, 2orporate !gency and :roup 4usiness

0ell networ%ed 2ustomer 2are 2enters (222*) with state of art I( systems Fighest standard of customer service 8 simplified claims process in the Industry 0ebsite to provide all assistance and information on products and services, online buying and online renewals. (oll>free number to answer all your =ueries, accessible from anywhere in the country. #wift and easy claim settlement process e+perience of running a large organi5ation.

%ocused #ales Net ork:

$5

Ba$a$ Allian% &i"e 'nsurance

Agency Channel

Bancassurance

Group and Alternate Channel

Branches

Standard Chartered Bank

Group !mployee Bene"it

Satellite

Satellite

Satellite

Syndicate Bank

Corporate Agency

Various Cooperative banks

#ranchise

7 RRB and Numerous other Tie ups

Brokers

Tie Ups

ith -anks

!ioneers of -anc assurance in India: Faving pioneered the phenomenon, 4an% assurance is one our core business strategies. (wo of our strong 4anc assurance tie>ups are'

#tandard 2hartered 4an% #yndicate 4an%

0e have developed a range of life insurance products e+clusively for our 4an% assurance partners. !lso, our products are customi5ed to suit specific needs of ban%s.

$6

!RODUCT !RO%IL$

!RDUCT# O% -'3'3 'LLI'N4

Individual !lans

Unit *ain !lus *old

$7

! uni=ue )nit Lin%ed Plan

Ne

%a"ily *ain

! )nit Lin%ed 7le+ible Investment Plan

Ne

Unit *ain !lus #!

#ingle Premium Plan

!ension *uarantee !n !nnuity Pension Plan

Ter" Care (erm Plan with 3eturn>of>Premium

Invest *ain !n 1ndowment Plan

Lifeti"e Care 0hole Life Plan

Child *ain 2hildrens Policy

Loan !rotector ! 6ortgage 3educing (erm Insurance Plan

Cash *ain 6oney 4ac% Plan

# arna 5ishranti 3etirement Plan

Ne

Unit *ain !lus

)nit Lin% plan with higher allocation

%uture Inco"e *enerator 3etirement Pension Plan

Ne

Unit *ain $asy !ension !lus #!

)ni=ue )nit Lin%ed pension

$#

'lp Nivesh &o.ana !n endowment plan with Life cover and 6aturity benefit

#aral #uraksha &o.ana 6ost economical term insurance policy

*roup !lans

*roup Credit #hield !vailable for 1mployer > 1mployee :roups and &on 1mployer> 1mployee :roups

*roup Ter" Life !vailable for 1mployer > 1mployee :roups and &on 1mployer> 1mployee :roups

Ne

*roup *ratuity Care

1mployer > 1mployee :roup plan

Ne

*roup #uperannuation Care

1mployer > 1mployee :roup plan offering stable and independent post retirement life

*roup Ter" Life #che"e In lieu of 19LI (1mployees 9eposit Lin%ed Insurance)

(hese are the insurance plans that offer fle+ibility with ta+ benefits' Unit +ain Plus +old! A Unit Linked Plan 4a$a$ !llian5 )nit :ain Plus :old is a )ni=ue plan with the combination of protection and prospects of earning attractive returns with investments in

various mi+es of securities that ma%es a perfect plan to last you a lifetime of prosperity and happiness. )nder this plan there is a high allocation up to "*A. !lso, it guaranteed Life 2over with a choice of . Investment 7unds. Unit +ain Plus "P! A "in,le Premium Unit Linked Plan! (his plan enables one to protect hisMher loved ones, while ma%ing the money grow faster with the advantage of low charges. It provides one the option of allocating -"A of the single premium to purchase units in anyMall of the . funds available with 4a$a$ !llian5.

Customer!
4a$a$ !llian5 has products suitable for all income groups. 2ompany is a legal entity and has legal e+istence, but actually comes into life when it obtains customer. 2ustomers are first and last real asset of the company. In the mar%eting era customer is whole 8 sole. In our life insurance all the categories of human being comes and covers that varies from B@days of birth to .1yrs, and our company targeting lower, middle and higher incomes of group and our policies economical and access able to all income groups.

Competitors!
(he main competitors for 4a$a$ !llian5 Life Insurance 2o Ltd are'

Life Insurance 2orporation of India I2I2I Prudential Life Insurance 2o. Ltd 4irla #un Life Insurance 2o. Ltd F972 #tandard Life Insurance 2o. Ltd I&2 ,ysya Life Insurance 2ompany Pvt. Ltd 6a+ &ew Jor% Life Insurance 2o. Ltd 6et Life India Insurance 2ompany Put. Ltd. Kota% 6ahindra @ld 6utual Life Insurance Limited #4I Life Insurance 2o. Ltd (ata !I: Life Insurance 2ompany Limited 3eliance Life Insurance 2ompany Limit !viva Life Insurance 2o. India Pvt. Ltd #ahara India Life Insurance 2o, Ltd #hriram Life Insurance 2u, Ltd

3+

4harathi!+a Life Insurance 2o Ltd

31

Chapter , III

3$

CONC$!TU'L %R')$WOR6

Unit Linked Insurance !lans

33

ULI! is a mar%et lin%ed investment where the premium paid is invested in funds. 9ifferent options are available, li%e 1//A 1=uity, 4alanced, 9ebt, Li=uid etc and according to the fund selected, the ris%s and returns vary. (he costs are upfront and are transparent, the investment made is %nown to the investor (!s he is the one who decides where his money should be invested). (here is a greater fle+ibility in terms of premium payments i.e. ! premium holiday is possible. Jou can also invest surplus money by way of top ups which will increase your investment in the fund and thereby provide a push to returns as well. (here is no assured #um on survival, the higher of the #um !ssured or 7und ,alue is paid at the maturity or incase of death. 7ew reasons why we thin% )LIPs are better' 1. 7ree insurance cover' !s seen in the above e+ample, the insurance cover is freeI the policy even provides better returns . 4est solution for childrens educationMfuture needs )LIPs not only help save money systematically for a particular goal, but also helps protect that goal B. #witches without capital gains and entry loads' )nli%e e=uity and mutual fund investments which are sub$ect to capital gains when sale is madeI )LIPs have the convenience of switching among the funds without any entry loads or capital gains C. (he 6ortality charges are lower than traditional policies. Unit-linked insurance plans ()LIPs) are the flavor of the season. Launched a couple of years ago, these plans have contributed over */ percent of the new business of insurance companies such as I2I2I Prudential, 4irla #un Life and 4a$a$ !llian5 Life Insurance 2o Ltd. 1ncouraged by the response, other players, too, are launching variants of savings and endowment plans in the unit>lin%ed format, a recent addition to the range of insurance products. (he introduction of unit>lin%ed insurance plans ()LIPs) has been, possibly, the single>largest innovation in the field of life insurance in the past several decades. In a swoop, it has addressed and overcome several

34

concerns that customers had about life insurance >> li=uidity, fle+ibility and transparency and the lac% thereof. (hese benefits are possible because )LIPs are differently structured products and leave many choices to the policyholder. Fence, as a customer, you must carefully consider whether you can ma%e such a product wor% well for you. 4roadly spea%ing, I believe that )LIPs are best suited for those who have a conceptual understanding of financial mar%ets and are genuinely loo%ing for a fle+ible, long>term savings> cum>insurance solution. Put simply, )LIPs are structured such that the protection (insurance) element and the savings element can be distinguished and hence managed according to onePs specific needs. (raditionally, the savings element of insurance has been opa=ue, giving policyholders no control over asset allocation, no transparency, no fle+ibility to match onePs lifestyle, ine+plicable returns and an e+pensive, complicated e+it. )LIPs, by separating the two parts within the same product, and managing them independently, offer insurance buyers what no traditional policy had >> continuous information about how their policy is wor%ing for them. @ften, people wonder whether itPs better to purchase separate financial products for their protection and savings needs. 2ertainly, this is a viable option for those who have the time and s%ill to manage several products separately. Fowever, for those who want a convenient, economical, one>stop solution, )LIPs are the best bet. (o understand how a )LIP meets the multiple needs of protection of both health and lifeI and savings in the same policy, let us ta%e the e+ample of a B*>year>old man with young children. 0ith a premium of, say, 3s B/,/// p.a. he could begin with a sum assured of 3s * la%h, for which the life insurer would set aside a nominal amount of the premium to cover this ris%. (he balance could be invested in a fund of his choice, possibly a balanced or growth option. !s the children grow, he might want to increase the level of protection, which could be done by li=uidating some of the units to pay for a ris% premium. @n the other hand, if he gets a significant raise, he could increase the savings element in the policy by topping it up.

35

(he %ey to good financial planning is to understand onePs current and future financial goals, ris% appetite and portfolio mi+. (his done, the ne+t step is to allocate assets across different categories and systematically adhere to an investment pattern, so that they wor% in tandem to meet onePs re=uirements over the ne+t month, year or decade. 4ecause of their fle+ibility to ad$ust to different lifestage needs, )LIPs fit in very well with financial planning efforts. 6oreover, as a systematic investment plan, )LIPs greatly diminish the ha5ards of investing in a volatile mar%et, and using the concept of P3upee 2ost !veragingP, allow the policyholder to earn real returns over the long term. 0hen youPre buying a )LIP, ma%e sure you select one that wor%s well for you. (he important thing is to loo% for and understand the nuances, which can considerably alter the way the product wor%s for you. (a%e the following into consideration.

Char,es! )nderstand all the charges levied on the product over its tenure, not $ust the initial charges. ! complete charge structure would include the initial charges, the fi+ed administrative charges, the fund management charges, mortality charges and spreads, and that too, not only in the first year but also through the term of the policy. It might seem confusing at first, but a company provided benefit illustration should help ma%e this clearer. #ome companies levy a spread between the buy and sell rates of the units, which can significantly reduce the value of the investment over the long>term. 2lose e+amination and =uestioning of such aspects will reveal the growing power of your investment. .und ptions and Mana,ement! )nderstand the various fund options

available to you and the fund management philosophy and ob$ectives of each of them. 1+amine the trac% record of the funds thus far and how they are performing in comparison to benchmar%s. 0ho manages the funds and what e+perience do they haveH !re there ade=uate controlsH Importantly, loo% at how easily you can access information about your fundPs performance when you need it >> are their daily &!,sH Is the portfolio disclosed regularlyH

.eatures! 6ost )LIPs are rich in features such as allowing one to top>up or switch between funds, increase or decrease the protection level, or

36

premium holidays. 2arefully understand the conditions and charges associated with each of these. 7or instance, is there a minimum amount that must be switchedH Is there a charge on the sameH 6ust you go through medical underwriting if you want to increase the sum assuredH

Company! Last but not least, insure with a brand you can trust to honor its commitment and service you according to your re=uirements.

Faving bought a )LIP, its important that you monitor it on a regular basis, though not as fre=uently as you would a stoc% or mutual fund. Jour )LIP is a long>term investment and daily fluctuations in the &!, should not impact you. 2hec% once a =uarter to see how your fund is performing, and consider a switch if there is a change in the level of ris% you are willing to ta%e or in your personal mar%et view. 6onitor your fundI value it in the few wee%s or months before a planned withdrawal or top>up, or a change in your life stage or lifestyle. 7or those who are still finding their feet with their )LIP and its multitude of options, the best thing to do is to consult your advisor. Life insurance as a form of protection is the single>most important financial product any earning member of a family must have. Faving said this, a well>diversified portfolio is one of the first rules of financial planning, and as such one should consider different instruments as the ability to save increases. 2ertainly )LIPs successfully combine the first and most important need of protection, with savings, and hence are an e+cellent addition to your portfolio. (hese can be combined with various other products, after ta%ing into account your ris% appetite, financial goals and need for portfolio diversification. Possible investment options range from ban% deposits and government small saving schemes to mutual funds, stoc%s and property. 4uying a )LIP is =uite different from buying a traditional insurance productI and sometimes there are cases of people who believe they have been mis>sold a )LIP, the complaint most often being that they were not aware of the ris%s or the charges. !ll financial products have a certain amount of ris% and charges, be it a mutual fund, property, or even a ban% deposit. It would be unrealistic to assume that the features and benefits of a )LIP come at no cost, though the charges are considerably lower than that of a traditional product.

37

In fact, the very reason the product is transparent is because the customer %nows the charges and ris%s. 7urther, unli%e other financial products, all life insurance plans come with a 1*>day free loo%, which allows you to return the policy if you believe it does not meet your needs or e+pectations.

O1.ectives of ULI!#:
1.

(o give customer fle+ibility 1/ 2hoose #um !ssured Premium payment term Increase sum assured !dd riders and, 2ustomi5e the policy according to needs. (o give customer a decent inflation beating returns, in accordance with mar%et returns. (o protect the purchasing power of customers money in future times and to protect them against inflation and constant erosion in moneys value there of.

. B.

C. *. .. ?.

(o give a broader fund choices to customers according to their ris% appetite (o give customers a transparency and %eep them fully informed about fund, management and e+penses involved. !bility to increase M decrease sum assured according to changing life situations (such as loans) and increasing Fuman Life value. (o provide li=uidity to the customers in cases of emergency

3#

".

(o enable customers to actively manage their own funds according to their perceptions and changing mar%et situations.

Disadvanta+es of ULI!s:
1. . B. C. *. .. ?. ". -. 1/. 11. 0ide choice of fund options. !bility to withdraw money after some time, to avoid long loc%, 4ird in hand is worth in the bush. (o get inflation beating returns on investment 4rea%ing up of premium into insurance and investments. !bility to ma%e the )LIP as mainly insurance oriented (low premium and high sum assured) or predominantly Investment oriented (reverse) 1nables customers M policy holders to understand the companys Investment style, through investment reports. Premium holidays > accommodating fluctuating and unpredictable incomes. Policy never lapses, thus , ma%ing the optimum usage of insurance benefit 7le+ibility. #uitable to business classes with unsure incomes. 4lending of safety, attractive returns and li=uidity.

The follo in+ points 1efore +oin+ in for a ULI!:

1. It is prudent to ma%e e=uity>oriented investments based on an established trac% record of at least three years over different mar%et cycles. )LIPs do not fulfill this criterion now. . Insurance and savings are two different goals and it is better to address them separately rather than bundle them into a single product. ! combination of a term plan and a mutual fund could give better results over the long term B. C. If investment returns are your priority, you should compare alternative investment products before loc%ing in your money. (a+ advantages do wor% in favor of )LIPs for debt>oriented funds. 7or e=uity>oriented funds, e=uity>lin%ed savings products, which en$oy ta+ advantages and provide mar%et>lin%ed returns, are comparable. *. (he e+pense structure of insurance products does significantly dent returns.

7 Reasons

hy ULI!s +et the thu"1s up:

4+

!s% any individual who has purchased a life insurance policy in the past year or so and chances are high that the policy will be a unit lin%ed insurance plan ()LIP). )LIPs have been selling li%e proverbial Ehot ca%es in the recent past and they are li%ely to continue to outsell their plain vanilla counterparts going ahead. #o what is it that ma%es )LIPs so attractive to the individualH Fere, we have e+plored some reasons, which have made )LIPs so irresistible. 89 Insurance co*er plus sa*in,s! (o begin with, )LIPs serve the purpose of providing life insurance combined with savings at mar%et> lin%ed returns. (o that e+tent, )LIPs can be termed as a two>in>one plan in terms of giving an individual the twin benefits of life Insurance plus savings. (his is unli%e comparable instruments li%e a mutual fund for instance, which does not offer a life cover. /9 Multiple in*estment options! )LIPs offer a lot more variety than traditional life insurance plans. #o there are multiple options at the individuals disposal )LIPs generally come in three broad variants'

!ggressive )LIPs (which can typically invest "/A>1//A in e=uities, balance in debt) 4alanced )LIPs (can typically invest around C/A>./A in e=uities) 2onservative )LIPs (can typically invest up to /A in e=uities)

!lthough this is how the )LIP options are generally designed, the e+act debtMe=uity allocations may vary across insurance companies. Individuals can opt for a variant based on their ris% profile. 7or e+ample, a B/>Jr old individual loo%ing at buying a life insurance plan that also helps him build a corpus for retirement can consider investing in the 4alanced or even the !ggressive )LIP. Li%ewise, a ris%>averse individual who is not comfortable with a high e=uity allocation can opt for the 2onservative )LIP. :9 .le/ibility! Individuals may well as% how )LIPs are any different from mutual funds. !fter all, mutual funds also offer hybridMbalanced schemes that allow an individual to select a plan according to his ris% profile. (he difference lies in the fle+ibility that )LIPs afford the individualI Individuals can switch between the )LIP variants outlined above to capitali5e on investment opportunities across the e=uity and debt mar%ets. #ome insurance companies allow a certain number of Efree switches. (his is an important feature that allows the informed individualMinvestor to benefit from the vagaries of stoc%Mdebt mar%ets. 7or instance, when stoc%

41

mar%ets were on the brin% of ?,/// points (#ense+), the informed investor could have shifted his assets from an !ggressive )LIP to a low>ris% 2onservative )LIP. #witching also helps individuals on another front. (hey can shift from an !ggressive to a 4alanced or a 2onservative )LIP as they approach retirement. (his is a reflection of the change in their ris% appetite as they grow older. 79 $orks like an "IP! 3upee cost>averaging is another important benefit associated with )LIPs. Individuals have probably already heard of the #ystematic Investment Plan (#IP) which is increasingly being advocated by the mutual fund industry, 0ith an #IP, individuals invest their monies regularly over time intervals of a 6onthM=uarter and dont have to worry about Etiming the stoc% mar%ets. (hese are not benefits peculiar to mutual funds. &ot many reali5e that )LIPs also tend to do the same, albeit on a =uarterlyMhalf>yearly basis. !s a matter of fact, even the annual premium in a )LIP wor%s on the rupee cost>averaging principle. !n added benefit with )LIPs is that individuals can also invest a one>time amount in the )LIP either to benefit from opportunities in the stoc% mar%ets or if they have an investible surplus in a particular year that they wish to put aside for the future.

%ive Reasons for Investin+ #yste"atically

@ver the last 1 months investors in e=uity mar%ets have seen it all, from all time high level of . // levels to dismal low level of C //. ! lot of investors who entered at ., // e+pecting the mar%et to go even higher are very upset. 6ost investors cannot really stomach the %ind of volatility that is inherent in e=uity mar%ets. !t the end of the day, investors who can ta%e some ris% are actually shunning e=uities only because they entered e=uity mar%ets at the Ewrong time #ystematic investment plans (#IPs) ta%e care of this problem. 4ut mar%et timing is not the only reason for you to plump for #IPs, there are other advantages.

4$

89

Li,ht on the wallet! :iven that average per capital income of an Indian is appro+imately only 3s. *,/// (i.e. monthly income of 3s ,/"B), a 3s *,/// one>time entry in a mutual hind is still as%ing for a lot ( .C times the monthly income). !nd mutual funds were never meant to be elitistI far from it, the retail investor is as much a part of the mutual fund target audience as the ne+t high networth investor (F&I). #o if you cannot shell out 3s *,///, thats not a huge stumbling bloc%, ta%e the #IP route and trigger your mutual fund Investment with as low as 3s. *// (in most cases).

/9

Makes market timin, irrele*ant! If mar%et lows give you the $itters and ma%e you wish you had never invested in e=uity mar%ets, then #IPs can help you blunt that depression. 6ost retail investors are not e+perts on stoc%s and are even more out>of>sorts with stoc% mar%et oscillations. 4ut that does not necessarily ma%e stoc%s a loss>ma%ing investment proposition. #tudies have repeatedly highlighted the ability of stoc%s to outperform other asset classes (debt, gold, property) over the long>term (at least * years) as also to effectively counter inflation. #o if stoc%s are such a great thing, why are so many investors complainingH Its because they either got the stoc% wrong or the timing wrong. 4oth these problems can be solved through an #IP in a mutual fund with a study trac% record.

:9

0elps you build for the future! 6ost of us have needs that involve significant amounts of money, li%e childs education, daughters marriage, buying a house or a car. If you had to save for these milestones overnight or even a couple of years in advance, you are unli%ely to meet your ob$ective (wedding, education, house, etc). 4ut if you start saving a small amount every monthM=uarter through #IPs that is treated as sacred and that is set aside for some purpose, you have a far better chance of ma%ing that down payment on your house or getting your daughter married without drawing on your P7 (provident fund).

79

Compounds returns! (he early bird gets the worm, is not $ust a part of the $ungle fol%loreI even the early investor gets a lions share of the investment booty via>a>via the investor who comes in later. (his is mainly due to a thumb rule of finance called compounding. !ccording to a study by Principal 6utual 7und if Investor 1arly and Investor Late begin investing 3s 1,/// monthly in a balanced fund (*/'*/ O e=uity' debt) at

43

* years and B/ years of age respectively, Investor early will build a corpus of 3s " m (3s "/ la%hs) at ./ years, which is twice the corpus of 3s C m that Investor Late will accumulate. ! gap of * only years results in a doubling of the investment corpusQ (hat is why #IPs should become an investment habit. #IPs run over a period of time (decided by you) and help you avail of compounding. ;9 Lowers the a*era,e cost! #IPs wor% better as opposed to one>time investing. (his is because of rupee>cost averaging. )nder rupee>cost averaging an investor typically buys more of a mutual fund unit when prices are low. @n the other hand, he will buy fewer mutual fund units when prices are high. (his is a good discipline since it forces the investor to commit cash at mar%et lows, when other investors around him are wary and e+iting the mar%et. Inventors may even be pleased when prices fall because the fi+ed rupee investment mould now fetches more units.

Workin+ )echanis"
0or%ing 6echanism of )LIPs includes the following steps'

44

"ales! !gents and other channel sales people collect premium from customers. Allocation! @nce sales people collect premium from customers, all that money is not invested at once. Part of it is deducted towards administration e+penses, insurance e+penses (6ortality 2harges as they are usually called), and management e+penses. !fter deducting money for the !I6 (admin, insurance, management e+penses), the rest of the money is invested into the fund choice chosen by the customer. Administration E/penses: is the e+pense for ma%ing the policy document M bond ma%ing #tamp duty (insurance is a legal document sub$ect to Indian stamp act), agent commission and other fi+ed over heads spread. !dmin charges are deducted I6619I!(1LJ after premium is paid. &ot at the end of the year. Insurance E/penses or mortality char,es : (hese are nothing but the (erm Insurance 2harges chosen by the customer (for e+ample, let us say, 3s.1/ la%h), for a given premium (for e+ample, let us say, 3s.?/, ///M>). 6ortality charges (and any rider benefit premium) are deducted !( (F1 41:I&&I&: of the policy year and not at the end. .und Mana,ement char,es! 0hen company invests money into e=uity mar%ets, they incur bro%erage etc e+penses. 0hen they invest into debt based Mgilt scurrilities and other interest yielding instruments, they have to spend of bond trading charges. !ll these e+penses are passed on to the policy holders by the way of 7und 6anagement 2harges. (his is done !( (F1 1&9 of policy year. !fter money is deducted for !I6, the rest is invested into different funds, (6etLife has ., and 4ata (has C or * customers choice and agents discretion. (his fund is uniti5ed and a face value of 3s.1/M> is given to each unit during the &ew 7und @ffer. Let us for instance say, company invests 3s.1/ la%hs into e=uity M debt based fund. It has allocated 1 lac% units to all policy holders, depending on the premium each customer paid. &ow, &et !sset ,alue (&!,) is calculated by the following formula' Total fund value < no of units

45

I 0here, the denominator (units) does not change. @nly the numerator changes (total fund value) depending on the mar%et variations. If the fund, after one year of investment management, has attained a value of, say, 3s.1B lac%s, then, the &et !sset ,alue (&!,) of each unit would be Rs98: lacks < 8 lack units = Rs98: < per unit9 (his &!, is published every day in financial news papers. 6echanisms are same for a debt based fund or e=uity based fund. In case company feels necessary, they ta%e investment advice from 1=uity 3esearch !nalysts (in case of e=uity based funds) and 2redit 3ating 2ompanies (such as 23I#IL, I23!, 2!31 etc) for due diligence and for minimi5ing the ris%. 1ach Life Insurance 2ompany has software installed into their system (many companies use 2isco #ystems #0). !t the end of the trading session, that is after C.B/ P6 every evening, that software calculates the total value of each investment fund and divides the same by number of units (less withdrawals M death benefits given if any) and by C !.6 early morning, &!, computation would be over. (hat &!, is published in newspapers and published in the respective companys website. In most Life Insurance companies, customer has the option to choose the fund, switch the fund when heMshe wants, re>direct the new premiums, withdraw etc.

Net asset value:

(he Net 'sset 5alue or N'5 is a term used to describe the value of an entitys assets less the value of its liabilities. (he term is commonly used in relation to collective investment schemes. It may also be used as a synonym for the boo% value of a firm.

Contents:
#ariations! 0hile the above definition is simple, there are many different types of entities, and different ways of measuring the value of assets and liabilities. In the conte+t of collective investments (mutual funds, net asset value is the total value of the funds portfolio less liabilities. (he &!, is usually calculated on a daily basis. In terms of corporate valuations, net asset value is the value of assets less liabilities.

46

!nd, to give an indication of what we could mean by the value of assets considers some of these variations each one achieves something slightly different, and is applied in different ways'

4oo% value 2arrying value Fistorical cost !morti5ed cost 6ar%et value

Usa,e! Investors might want to %now if a company is cheap or e+pensive to invest in. @ne possibility is to compare its current mar%et capitali5ation with its net asset value since, all things being e=ualI one might e+pect them to be the same. (here are reasons why this might not be true.

&!, covers the companys current asset and liability position. Investors might e+pect the company to have large growth prospects, in which case they would be prepared to pay more for the company than the &!, suggests.

(he &!, is usually below the mar%et price because the current values of the funds assets are higher than the historical financial statements used in the &!, calculation. 4ut in the case of, for e+ample, Liberty 6edia 2orporation, analysts and management have estimated that it is actually trading for B/>*/A below its net asset value (or ;core asset value<).

(he &!, of an open>end fund will always e=ual its price. 4ut the price of a closed>end fund may not e=ual its &!, as closed>end funds are traded in the secondary mar%et and the above reasons cause price to vary from &!, (premium or discount applied) &et assets are sometimes the same as net worth, or shareholders e=uity > assets minus liabilities. In ;3eturn on &et !ssets< (3@&!) its often fi+ed assets plus net wor%ing capital (current assets minus current liabilities) which may be slightly less than total assets. (he &!, is usually below the mar%et price because the current values of the funds assets are higher than the historical financial statements used in the &!, calculation.

47

Calculatin+ Net 'sset 5alue >N'5? (he investor may have heard the term &et !sset ,alue (&!,) used when referring to )LIPs. &ow it is important to learn how to calculate a )LIPs &!, and understand what it really means. Calculatin+ N'5s: 2alculating )LIP net asset values is easy. #imply ta%e the current mar%et value of the funds net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. #o ifs fund had net assets of D*/ million and there are one million shares of the fund, then the price per share (or &!,) is D*/.//. (he most important thing to %eep in mind is that &!, change daily and is not a good indicator on how your portfolio is doing because things li%e distributions mess with the &!, (it also ma%es mutual funds hard to trac%.

ULI! *uidelines: IRD' "akes a start:

(his article was written by Personalfn for 4usiness India, and was carried in its #eptember C, //. issue with the title, I39! ma%es a start. (he original draft, in its entirety, has been retained here. !fter being witness to rampant misrepresentation of )LIP* (unit lin%ed insurance plans) the regulatorO Insurance 3egulatory and 9evelopment !uthority (I39!) finally introduced some much>needed guidelines to lend an element of insurance to an otherwise investment product. Fowever, we maintain that there is still more to be done to ma%e )LIP* more transparent and ma%e it even more insurance oriented. 7irst some bac%ground O )LIPs made an entry at a rather opportune time for insurance companies. (he mood in e=uity mar%ets was very pessimistic, however, at those levels) 4#1 #ense+ less than B,/// points) mar%ets could go in only one direction > up. !nd ta%e off they did in an unprecedented manner. 7rom B,/// points, the 4#1 #ense+ surged furiously to over 1 ,/// points leaving investors breathless. 0hy are we tal%ing of stoc% mar%ets in an insurance article where we propose to discuss the latest )LIP guidelinesH 4ecause unfortunately, not $ust fund managers, but also insurance companies were rather e+cited by the sharp rise in stoc% mar%ets. 0hen you come to thin% of it, insurance companies should be more concerned about insuring lives than the vagaries

4#

of stoc% mar%ets. Fowever, in )LIPs, they had a product that was more geared towards Eoffering a return than insuring lives. !nd this anomaly was put to good use by insurance agents. )LIP* were spo%en of in the same breath as mutual funds. In fact, many agents even went as far as pro$ecting )LIPs superior to mutual funds because they attract ta+ benefits (under #ection "/2) on all options, unli%e mutual funds where you get a ta+ benefit only on the 1L## (e=uity>lin%ed savings scheme) category. 6oreover, )LIP* were shown to be a short>cut investmentMinsurance avenue Ofor instance, investors were encouraged to pay premiums only for the first B years and not necessarily over the entire tenure of the policy. (he reason is because the e+penses in the initial B years premium are so high that insurance companies recover the entire cost of the policy (including life cover charges) and can Edo without the remaining premiums. 0hile these mar%eting gimmic%s were glaring, the I39!, to their credit, did intervene at regular intervals to infuse some much>needed sanity. 4ut as we, at Personalfn, have seen on the mutual fund side, at times the regulator must come down heavily as financial service providers can ta%e =uite awhile to get the hint. @n Ruly I, //., the I39! introduced revised )LIP guidelines to correct Esome< of these anomalies, we say some because much is yet to be achieved, but more on that later. 7or one I39! has given the new )LIP a Eface, in insurance a face can be ta%en as the sum assured and the tenure. (he old )LIP lac%ed both and individuals did not have in%ling about either even after ta%ing the )LIP. (he latest guidelines dictate that'

Ter"<Tenure:

(he )LIP client must have the option to choose a termMtenure. If no term is defined, then the term will be defined as E?/ minus the age of the client. 7or e+ample if the client is opting for )LIP at the age of B/ then the policy term would be C/ years.

(he )LIP must have a minimum tenure of * years.

"um Assured! @n the same lines, now there is a sum assured that clients can associate with. (he minimum sum assured is calculated as' >Ter"</ @ 'nnual !re"iu"? or >; @ 'nnual !re"iu"? whichever is higher. (here is no clarity with regards to the ma+imum sum assured. (he sum assured is treated as sacred under the new guidelinesI it cannot be reduced at any point during the term of the policy e+cept under certain conditions O li%e a partial withdrawal within two years of death or all partial withdrawals after ./ years of age. (his way the client is at ease with regards to the sum assured at his disposal. Premium payments! If less than first B years premiums are paid, the life cover will lapse and policy will be terminated by paying the surrender value. Fowever, if at least first B years premiums have been paid, then the life cover would have to continue at the option of the client. "urrender *alue! (he surrender value would be payable only after completion of B policy years. Top,ups: Insurance companies can accept top>up only if the client has paid regular premiums till date, If the top>up amount e+ceeds *A of total basic regular premiums paid till date, then the client has to be given a certain percentage of sum assured on the e+cess amount. (op>ups have a loc%>in of B years (unless the top>up is made in the last B years of the policy). Partial withdrawals! (he client can ma%e partial withdrawals only after B policy years. "ettlement! (he client has the option to claim the amount accumulated in his account after maturity of the term of the policy up to a ma+imum of * years. 7or instance, if the )LIP matures on Ranuary 1, //?, the client has the option to claim the )LIP monies till as late as 9ecember B1, life cover will not be available during the e+tended period. Loans! &o loans will be granted under the new )LIP. Char,es! (he insurance company must state the )LIP charges e+plicitly. (hey must also give the method of deduction of charges. %enefit Illustrations! (he client must necessarily sign on the sales benefit illustrations. (hese illustrations are shown to the client by the agent to give /1 . Fowever,

5+

him an idea about the returns on his policy. !gents are bound by guidelines to show illustrations based on an optimistic estimate of 1/A and a conservative estimate of .A. &ow clients will have to sign on these illustrations, because agents were violating these guidelines and pro$ecting higher returns. 0hile what the I39! has done is commendable, slot more needs to be done. !t Personalfn, we have our own wish list with regards to )LIP portfolios' a. 3egular disclosure of detailed )LIP portfolios. (his is a problem with the industryI for all their tal% on being $ust li%e (@r even better than) mutual funds, )LIP portfolios are nowhere near their mutual fund counterparts in fre=uency as well as in transparency. b. @n the same lines, other data points li%e portfolio turnover ratios need to be mentioned clearly so clients have an idea on whether the fund manager is investing or punting. c. )LIPs (especially the aggressive options) need to mention their investment mandate, is it going to aim for aggressive capital appreciation or steady growth. In other words will it be managed aggressively or conservativelyH 0ill it invest in large caps, mid caps or across both segmentsH 0ill it be managed with the growth style or the value styleH

1+posure to a stoc%Msector in a )LIP portfolio must be defined. 9iversified e=uity funds have a limit to how much they can invest in a stoc%Msector. Investment guidelines for )LIPs must also be crystalli5ed. @ur interaction with insurance companies indicates that there is little clarity on this frontI we believe that since )LIPs invest so heavily in stoc% mar%ets they must have very clear>cut investment guidelines.

51

5$

C('!T$R I5

To #tudy in detail a1outA t o ULI! products of -a.a. 'llian2 Life Insurance Co Ltd9
The -a.a. 'llian2 Unit *ain !lus B*oldC 0ith 4a$a$ !llian5 )nit :ain Plus E:old we have formulated a uni=ue combination of protection and prospects of attractive returns with investment in various mi+es of securities to ma%e a perfect plan to last you a lifetime of prosperity and happiness.

#o"e of the key features of this plan are:

:uaranteed life cover, with a fle+ibility to choose insurance cover

53

according to your changing needs.

Presenting a uni=ue investment E!sset !llocation 7und wherein you have not to worry to switch funds in case mar%et condition changes rather our e+perienced 7und 6anagers will monitor the mi+ of assets in the fund and will manage the mi+ in such situations to ma+imi5e your returns.

If you want to manage the mi+ of assets for your policy on your own, you have the choice of * other investment funds with complete fle+ibility to switch money from one fund to other to manage your investments better.

Jour policy continues to participate in investment performance of the fund(s) even if you are not able to pay B full years premium. 7le+ibility of partial withdrawals at any time after three years from commencement of the policy provided three full years premiums are paid.

:et maturity value e=ual to the 7und ,alue at maturity date or in periodic installments spread over a ma+imum period of five years. ! host of optional additional rider benefits which includes assurance to your family with family income benefit and waiver of premium benefit.

(o

does the plan

ork?

Premiums paid by you, net of premium allocation charge, are invested in fund(s) of your choice and units are allocated depending on the unit price of the fund(s). (he value of your policy is the total value of units that you hold in the fund(s). (he insurance cover charges, policy administration charges and the additional rider benefit charges (if any) are deducted through monthly cancellation of units. 7und 6anagement 2harge is priced in the unit value.

D-a.a. 'llian2 Unit *ain !lus B*oldC offers you the follo in+ cover choices:
6inimum #um !ssured S * times !nnuali5ed premium, @3 half of the Policy (erm times !nnuali5ed Premium, whichever is higher. 6a+imum #um !ssured S ;y< times the annual premium, where y will be as per the following table' !ge :roup /TB/ ;y< for base cover or 1// base cover with )L !94 8Mor B1TB* "* B.TC/ ?/ C1TC* */ C.>** B/ *.T./ /

54

)L !P(P94 rider ;y< for base cover or base cover with )L 2I andMor )L F24 rider

/.* times Policy (erm

If age of 7I4 life assured */ or base cover ;J< for base cover with N policy term is less multiplier, which ever is lower. )L 7I4, provided )L 2I than or e=ual to ./ 8Mor )L F24 rider has If age of 7I4 life assured not been opted for. N policy term is greater /.* times policy term than ./

-enefits availa1le under the plan:

@n death occurring before the age of ? years' (he death benefit will be the fund value as on date of receipt of intimation of death at the office. @n death after the age of ? years and before the age of ./ years' (he benefit payable would be the sum assured less value of partial withdrawals made in the last C months prior to the date of death or the fund value as on date of receipt of intimation of death at the 2ompanys office, whichever is higher. (he death benefit payable would be calculated separately for regular premiums and top up premiums.

@n death of the life assured on or after attaining the age of ./ years' (he benefit payable would be the sum assured less value of partial withdrawals made, within C months before attaining age ./ years and all partial withdrawals made after attaining age ./ years or the fund value as on the date of receipt of intimation of death at the office, whichever is higher. (he death benefit would be calculated separately for regular premiums and top up premiums

@n 6aturity, the 7und ,alue in respect of regular premium and top up premium will be paid. (he surrender value of the policy will be e=ual to the fund value less surrender charge, if any. !nytime after three years from the date of commencement of the policy, provided due premiums for first three policy years have been paid, the policyholder will have the option to avail of surrender benefit by complete surrender of units. 7urther if first three years regular premiums have not been paid and the policy is lapsed for insurance cover, the #urrender ,alue, if any, would be payable at the

55

e+piry of the revival period or at the end of third policy year, whichever is later. Unit Price! (he unit price of each fund is arrived at by dividing the &et !sset ,alue (&!,) of the fund by the number of units e+isting in the fund at the valuation date (before any new unit is allocated or cancelled) #aluation 1ate! (he 2ompany aims to value the 7unds on each day the financial mar%ets are open. Fowever, the 2ompany reserves the right to value less fre=uently in e+treme circumstances, where the value of the assets may be too uncertain. In such circumstances, the 2ompany may defer valuation of assets until a certainty on the value of assets is resumed. (he deferment of valuation of assets will be sub$ect to prior consultation with I39!. 2urrently, the cut>off time is B.// p.m. for applicability of )nit Price of a particular day for switches, redemptions and publication of )nit Price.

Co"putation of N'5:
$hen Appropriation price is applied! (he &!, of a fund shall be computed as 6ar%et value of investment held by the fund plus the e+penses incurred in the purchase of the assets plus the value of any current assets plus any accrued income net of fund management charges less the value of any current liabilities less provision, if any. (his gives the net asset value of the fund. 9ividing by the number of units e+isting at the valuation date (before any new units are allocated), gives the unit price of the fund under consideration. (his is applicable when the company is re=uired to purchase assets to allocate units at the valuation date. $hen E/propriation price is applied: (he &!, of a fund shall be computed as 6ar%et value of investment held by the fund less the e+penses incurred in the sale of the assets plus the value of any current assets plus any accrued income net of fund management charges less the value of any current liabilities less provision, if any. (his gives the net asset value of the fund. 9ividing by the number of units e+isting at the valuation date (before any units are redeemed), gives the unit price of the fund under consideration. (his is applicable when the company is re=uired to sell assets to redeem units at the valuation date.

56

Invest"ent Options:
4a$a$ !llian5 offers you a choice of si+ (.) investment funds as given below' Asset Allocation .und2 3isk Profile 2 0i,h! (he investment ob$ective of this fund will be to reali5e a level of total income, including current income and capital appreciation, which is consistent with reasonable investment ris%. (he investment strategy will involve a fle+ible policy for allocating assets among e=uities, bonds and cash. (he fund strategy will be to ad$ust the mi+ between these asset classes to capitali5e on the changing financial mar%ets and economic conditions. (he fund will ad$ust its weights in e=uity, debt and cash depending on the relative attractiveness of each asset class. %ond .und - 3isk profile - Moderate! (he investment ob$ective of this fund is to provide accumulation of income through investment in high =uality fi+ed income securities. E4uity +rowth .und - 3isk profile - #ery 0i,h! (he investment ob$ective of this fund is to provide capital appreciation through investment in selected e=uity stoc%s that have the potential for capital appreciation. E4uity Inde/ .und II - 3isk profile - 0i,h! (he investment ob$ective of this fund is to provide capital appreciation through investment in e=uities forming part of &#1 &I7(J. Accelerator Mid-Cap .und - 3isk profile - #ery 0i,h : (he investment ob$ective of this fund is to achieve capital appreciation by investing in a diversified bas%et of mid cap stoc%s and large cap stoc%s. 6inimum */A of 1=uity Investments would be in 6id 2ap stoc%s. (hese funds are professionally managed by asset managers of 4a$a$ !llian5, bac%ed with the rich e+perience of !llian5 !:, one of the largest asset managers in the world today, managing assets worth over a (rillion 1uros (over 3s. **,//,/// 2rores)

I"portant Details of the B-a.a. 'llian2 Unit *ain !lus B*oldC !lan:
Parameter 6inimum !ge at 1ntry 9etails / years, ris% commences at age ?. 6inimum age at entry for all riders is 1" years

57

6a+imum !ge at 1ntry 6inimum 6aturity !ge 6a+imum 6aturity !ge !dditional 3ider 4enefit 2easing !ge 6inimum (erm

./ years (*/ years in case of all !dditional 3ider 4enefits e+cept )L 0@P. .* years for )L 0@P) 1" years ?/ years .* years for all riders e+cept )L 0@P. ?/ years for )L 0@P

1/ years. In case of minor life minimum policy term is 1" less age at entry of the minor life. 2ustomer selectable term sub$ect to ma+ 6a+imum (erm maturity age 3s 1 ,/// per yearly installment, 3s .,/// per half>yearly installment, 3s. B,/// per =uarterly 6inimum installment 3s 1,/// per monthly mode Premium (6onthly mode is available through 12# and #alary #aving #cheme only). 6inimum (op )p Premium is 3s. *,///. UJou can change the premium payment mode on any policy anniversary.

"ettlement

ption!

Plan your maturity proceeds by e+ercising the #ettlement @ption with us. (his facilitates you to receive your maturity proceeds in e=ual installments (payable yearly, half yearly, =uarterly or monthly, at your option) spread over a ma+imum period of * years. (he amount paid out in each installment will be the outstanding fund value at that date divided by the number of outstanding installments. &o ris% cover will be available during the settlement period. (he company however will deduct all the charges (e+cept the mortality charge and rider premium charge, if any). &o partial withdrawals or switches are allowed during the settlement period.

.ree Look Period!

0ithin 1* days from the date of receipt of the policy, you have the option to review the terms and conditions and return the policy, if you disagree to any of the terms 8 conditions, stating the reasons for your ob$ections. Jou will be entitled to a refund of the premium paid, sub$ect only to a deduction of a proportionate ris% premium for the period on cover and the e+penses incurred on medical e+amination and stamp duty charges. (he refund paid to

5#

Jou will also be reduced M increased by the amount of any reduction M increase in the 7und ,alue, if any, due to a fall M rise in the unit price between the date of allocation and redemption of units (without reference to any premium allocation rate or charges).

1ays of +race!
! grace period of B/ days for the yearly, half yearly and =uarterly modes and of 1* days for the monthly mode is allowed under the policy. Jour policy remains in force for all insurance covers, if any, even if the due premiums are not paid during this period.

3e*i*al of the Policy!

It is possible to revive a policy that has lapsed due to non>payment of premiums within years from such date of lapse. Jou have to give a written application to the company to revive the policy with all due unpaid regular premiums. (he revival will effected sub$ect to underwriting.

5ermination Conditions!
(his Policy shall automatically terminate on the earlier occurrence of either of the following events'

(he units in the policy are fully surrenderedI (he 7und ,alue in respect of regular premium less surrender charge falls to be an amount e=uivalent to one annual premium provided regular premiums have been paid for B full yearsI

)pon death of the life assuredI )pon the policy remaining lapsed for two years or the policy remaining lapsed up to third policy anniversary whichever is later. )pon maturity, unless Jou have opted for the settlement option or, (he e+piry of the period for the settlement option

5a/ %enefits!
Premiums paid and benefits received will be eligible for ta+ benefits as per applicable ta+ laws.

As per the current ta/ laws! Premiums payable are eligible for ta+ benefits as per #ection "/2 of the Income (a+ !ct after deducting Premium paid towards )L 2ritical Illness 4enefit and )L Fospital 2ash 4enefit, if selected. 5

Partial 0ithdrawals, #urrender ,alue, 9eath 4enefit and 6aturity 4enefit are eligible for ta+ benefits as per #ection 1/(1/9) of the Income (a+ !ct. (he charges paid for )L 2ritical Illness and )L Fospital 2ash 4enefit are eligible for ta+ benefits as per #ection "/(9) of the Income (a+ !ct. In case of change in any ta+ laws relevant to the policyholder or the fund performance, the same will be applied as per regulations prevailing at that point of time. +eneral E/clusion! In case the life assured commits suicide within one year of the date of commencementMrevival of the policyI the amount payable would be the value of the units in your account.

Char,es under the Plan!

Policy Administration Char,e: 3s. .// per annum inflating at *A every 1st of !pril will be deducted at each monthly anniversary by cancellation of units. 7und )ana+e"ent Char,e: 1.?*A p. a. of the &!,
for 1=uity :rowth 7und and !ccelerator 6id>2ap 7und, 1. *A p.a. of the &!, for 1=uity Inde+ 7und II and !sset !llocation 7und, /.-*A p.a. of the &!, for 4ond 7und and Li=uid 7und. (he 7und 6anagement 2harge is charged on a daily basis and ad$usted in the unit price. !ll (op up premiums has a premium allocation charge of A. .und "witchin, Char,es! (hree free switches would be allowed every year. #ubse=uent switches would be charged V *A of switch amount or 3s. 1//, whichever is lower, on each such occasion. Miscellaneous Char,e! (he miscellaneous charge would be 3s.1//M> per transaction in respect of reinstatement, alteration of premium mode, increase M decrease in regular premium or issuance of copy of policy document. "urrender Char,e! If any due regular premium is not paid within the grace period in the first three policy years, the surrender charge would be ./A of the first years !nnuali5ed Premium. If first three years regular premiums have been paid in full, the surrender charge would be as follows' W1 T (1M1.1/) X&Y U 7irst Jears !nnuali5ed Premium. I 0here & is 1/ years less the elapsed policy duration in years and fraction thereof. &o #urrender 2harge will be applied on units in respect of (op up Premium. Mortality Char,es! (he mortality charge would vary according to the

6+

attained age of the life assured at the time of deduction of the charge. (his charge would be recovered through cancellation of units on a monthly basis and would be applied on #um at 3is% which is e=ual to sum assured less fund value. . 3ider Premium Char,es! (he charges for additional rider benefits selected shall be recovered through cancellation units on a monthly basis.

3e*ision of char,es! !fter ta%ing due approval from the Insurance

3egulatory and 9evelopment !uthority, the 2ompany reserves the right to change the following charges'

7und 6anagement 2harge up to a ma+imum of .?*A p.a. of the &!, for the 1=uity :rowth 7und and !ccelerator 6id>2ap 7und, . *A p.a. for the 1=uity Inde+ 7und II and !sset !llocation 7und, 1.?*A p.a. for the 4ond 7und and Li=uid 7und.

#witching charge up to a ma+imum of 3s. // per switch or *A of the switching amount, whichever is lower. 6iscellaneous charge up to a ma+imum of 3s. //M> per transaction 3ider Premium 2harges as per filed to I39!. If the PolicyholderMLife !ssured does not agree with the charges, heMshe will be allowed to e+it the plan at the prevailing price of units after applying surrender charge, if any.

Risks of Invest"ent in the Units of the !lan:

(he ProposerMLife !ssured should be aware that the investment in the )nits is sub$ect to the following, amongst other ris%s and should fully understand the same before entering into any unit lin%ed insurance contract with the 2ompany.

)nit Lin%ed Life Insurance products are different from the traditional insurance products and are sub$ect to the ris% factors. (he premium paid in unit lin%ed life insurance policies are sub$ect to investment ris%s associated with capital mar%ets and the )nit Price of the units may go up or down based on the performance of the fund and factors influencing the capital mar%et and the insuredMpolicyholder is responsible for hisMher decisions. 4a$a$ !llian5 Life Insurance is only the name of the insurance company

61

and 4a$a$ !llian5 )nit :ain Plus E:old is only the name of the policy and does not in any way indicate the =uality of the policy, its future prospects or returns.

Please %now the associated ris%s and the applicable charges from your policy document or by consulting the 2ompany, your Insurance agent or your Insurance intermediary. 1=uity Inde+ 7und II, !ccelerator 6id>2ap 7und, 1=uity :rowth 7und, !sset !llocation 7und, 4ond 7und and Li=uid 7und are the names of the funds offered currently with 4a$a$ !llian5 )nit :ain Plus E:old, and in any manner do not indicate the =uality of the respective funds, their future prospects or returns. (he investments in the )nits are sub$ect to mar%et and other ris%s and there can be no assurance that the ob$ectivities of any of the funds will be achieved. (he 1=uity :rowth 7und, 1=uity Inde+ 7und II, !ccelerator 6id>2ap 7und, !sset !llocation 7und, 4ond 7und and Li=uid fund do not offer a guaranteed or assured return. !ll benefits payable under the Policy are sub$ect to the ta+ laws and other financial enactments, as they e+ist from time to time. (he past performance of the funds of the company is not necessarily an indication of the future performance of any of these funds.

6$

Ne

Unit *ain !lus #!

(he thumb rule for buying an investment product is that it should provide good returns, low charges, complete fle+ibility and transparency in investment. 0e at 4a$a$ !llian5 Life Insurance have considered all these parameters and present to you &ew )nit :ain plus #P. (his #ingle Premium plan offers attractive investment in securities, complete fle+ibility and transparency and additional protection of a valuable life cover. 0ith a high allocation of -"A and C investment funds to choose from, this plan offers participation in financial mar%ets, a valuable life cover and attractive ta+ advantage. 0ith fund switching options and partial or full withdrawal facility this plan provides complete fle+ibility to our customers.

-a.a. 'llian2 Ne

Unit *ain !lus #!

63

4a$a$ !llian5 &ew )nit :ain plus #P comes with a host of features to allow you to have the best of all worlds T Protection and Investment with fle+ibility li%e never before.

6ey features of -a.a. 'llian2 Ne

Unit *ain !lus #! plan are:

It is a single premium unit lin%ed plan with ma+imum maturity age ?/. -"A of the single premium is allocated towards )nits. 6inimum :uaranteed death benefit' #um !ssured. 2hoice of C investment funds with fle+ible investment management' you can switch between funds at any time. !ttractive investment alternative to fi+ed>interest securities. Provision for surrender or partial withdrawals any time after three years from commencement. )nmatched fle+ibility Tto meet your changing needs.

0ow does the plan work(

In this plan -"A of the single premium is invested in a fund(s) of your choice 8 units are allocated depending on the price of units for the fund(s). (he fund value of your policy is the total value of units that you hold in the fund(s). (he mortality charges and policy administration charges are deducted through cancellation of units. (he 7und 6anagement 2harge is ad$usted in the )nit Price. "um Assured: Jou can choose a #um !ssured (Level of Protection) that you want in the &ew )nit :ain Plus #P Plan.

6inimum #um !ssured S 1 *A of the #ingle premium

6a+imum #um !ssured S J times the #ingle Premium where J will be as per the following table'

!ge :roup

/T1?

1"TB*

B.TC*

C.T*/

*1T**

*.T.*

J 1/ 1/ ? * B U U 6ultiplier may be increased to * in special cases on a case>to>case basis. -enefits availa1le under this plan:

@n death before the age of ? years' 7und ,alue as on date of receipt of intimation of death at the office.

64

@n death on or after the age of ? years and before the age of ./ years' sum assured less the value of partial withdrawals made in the last of intimation of death at the office, whichever is higher. C months prior to the date of death or the fund value as on date of receipt

@n death of the life assured on or after the age of ./ years' sum assured less the value of partial withdrawals made within two years before attaining age ./ years and all partial withdrawals made after attaining age ./ years or the fund value as on the date of intimation of death at the office, whichever is higher.

@n maturity, the fund value is payable to the policyholder.

.und #alue! (he fund value is e=ual to the number of units under this policy multiplied by the respective unit price on the relevant valuation date. Unit Price! (he unit price of each fund is arrived at by dividing the &et !sset ,alue (&!,) of the fund by the number of units e+isting in the fund at the valuation date (before any new unit is allocated or cancelled) #aluation 1ate! (he 2ompany aims to value the funds on each day the financial mar%ets are open. Fowever, the 2ompany reserves the right to value less fre=uently in e+treme circumstances, where the value of the assets may be too uncertain. In such circumstances, the 2ompany may defer valuation of assets until a certainty on the value of assets is resumed. (he deferment of valuation of assets will be sub$ect to prior consultation with I39!. 2urrently, the cut>off time is B p.m. for applicability of unit price of a particular day for switches, redemptions and publication of unit price.

Co"putation of N'5:
$hen Appropriation Price is applied! (he &!, of a )nit Lin%ed Life Insurance Product shall be computed as mar%et value of investment held by the fund plus the e+penses incurred in the purchase of the assets plus the value of any current assets plus any accrued income net of fund management charges less the value of any current liabilities less provision, if any. (his gives the net asset value of the fund. 9ividing by the number of units e+isting at the valuation date (before any new units are allocated), gives the unit price of the fund under consideration. (his is applicable when the company is re=uired to purchase assets to allocate units at the valuation

65

date. $hen E/propriation Price is applied! (he &!, of a )nit Lin%ed Life Insurance Product shall be computed as mar%et value of investment held by the fund less the e+penses incurred in the sale of the assets plus the value of any current assets plus any accrued income net of fund management charges less the value of any current liabilities less provision, if any. (his gives the net asset value of the fund. 9ividing by the number of units e+isting at the valuation date (before any units are redeemed), gives the unit price of the fund under consideration. (his is applicable when the company is re=uired to sell assets to redeem units at the valuation date.

In*estment

ptions!

4a$a$ !llian5 &ew )nit :ain Plus #P offers you a choice of C funds. Jou can choose to invest fully in any one fund or allocate your single premium into the various funds in a proportion that suits your investment needs. (he four funds offered are as under' E4uity Inde/ .und II- 3isk Profile 20i,h! (he investment ob$ective of this fund is to provide capital appreciation through investment in e=uities forming part of &#1 &I7(J. E4uity +rowth .und- 3isk Profile 2 #ery 0i,h ! (he investment ob$ective of this fund is to provide capital appreciation through investment in selected e=uity stoc%s that have the potential for capital appreciation. %ond .und- 3isk Profile 2 Moderate! (he investment ob$ective of this fund is to provide accumulation of income through investment in high =uality fi+ed income securities. Li4uid .und- 3isk Profile 2 Low! (he investment ob$ective of this fund is to have a fund that protects the invested capital through investments in li=uid money mar%et and short>term instruments. (hese funds are professionally managed by asset managers of 4a$a$ !llian5, bac%ed with the rich e+perience of !llian5 #1, one of the largest asset managers in the world today, managing assets worth over a (rillion 1uros (over 3s. **,//,/// 2rores). Apportionment of "in,le Premium! Jou can apportion your #ingle Premium between various funds available. (he apportionment to any chosen fund must be at least *A of the #ingle Premium.

66

.le/ibility to mana,e your in*estments! Initially, you can allocate the #ingle Premium into the C funds that are available in a proportion of your choice. 9epending on the performance of funds, you can switch between funds with three free switches every policy year, sub$ect to a minimum switching amount of 3s. *,/// or the value of the total units held in the fund to be ;switched<, whichever is lower. #witching should not lead to more than *A of total fund value in Li=uid 7und. Cash withdrawal option! !fter three years from the commencement of the policy, withdrawals through partial or complete surrender of units are allowed. In case of partial withdrawals, a minimum balance of 3s.1*, /// or 1M1/the of the #ingle Premium, whichever is higher, across all funds should be maintained after withdrawal and the minimum withdrawal amount should be 3s. *,///. In case the policy is ta%en on the life of a minor, the partial withdrawals shall not be allowed until the minor (life insured) attains ma$ority (i.e. on or after attainment of age 1").

I"portant Details of the -a.a. 'llian2 Ne !lan: 6inimum

!ge at 1ntry (erm !ge at 6aturity 6inimum #ingle Premium 1" Jrs / Jrs (3is% 2ommences at age ?) * Jrs

Unit *ain !lus #!

6a+imum
.* Jrs ?/ Jrs 3s. *///

"ettlement

ption!

Plan your maturity proceeds by e+ercising the #ettlement @ption. (his facilitates you to receive your maturity proceeds in installments (payable yearly, half yearly, =uarterly or monthly, at your option) spread over a ma+imum period of * years. (he amount paid out in each installment will be the outstanding fund value at that date divided by the number of outstanding installments. &o ris% cover will be available during the settlement period. (he company however will deduct all the charges (e+cept the mortality charges).

.ree Look Period!

67

0ithin 1* days of the receipt of this Policy, the Policyholder may, if dissatisfied with it for any reason, give the 2ompany a written notice of cancellation along with reasons for the same, and return the Policy 9ocument to the 2ompany, sub$ect to which the 2ompany shall send the Policyholder a refund comprising the #ingle Premium paid less the proportionate ris% premium for the period the Life !ssured that was on cover, and the e+penses incurred on medical e+amination and stamp duty charges. (he refund paid to the Policyholder will also be reduced by the amount of any reduction in the 7und ,alue due to fall in the )nit Price between the date of allocation and redemption of units (without reference to any premium allocation rate or 2harges).

5ermination of the Policy!

(he Policy shall automatically terminate on the occurrence of any of the following events'

(he units in the policy are fully surrendered and full surrender value is paid to the Policyholder. (he 7und ,alue becomes e=ual to one tenth of the #ingle Premium paidI (he death of the Life !ssured. @n maturity, unless the policyholder has opted for #ettlement @ption. (he e+piry of the period for settlement option.

5a/ %enefits!
Premiums paid will be eligible for ta+ deduction as per #ection "/2 of the Income (a+ !ct and partial withdrawals, full surrender and maturity benefits are eligible for ta+ benefits as per #ection 1/(1/)9 of the Income (a+ !ct.

6omination! &omination can be made for receiving policy proceeds in case of death. Jou can nominate your beneficiaries under this policy. In case of death, the policy proceeds will be given to the nominee. Jou can also change the nominee during the lifetime of the policy. +eneral E/clusion! In case the life assured commits suicide within one year of the date of commencement of the ris% cover (Policy !nniversary following !ge ? in the case of a minor)I the amount payable would be the 7und ,alue. Char,es under the Plan! 6#

:iven below are the details of the various charges that will be recovered from the plan to meet e+penses. Policy Administration Char,e! 3s .// per annum deductible monthly through cancellation of units, inflating at the rate of *A per annum. .und Mana,ement Char,e! (he fund management charge would be levied on &!, and the rate is as follows' 1=uity :rowth 7und 1.?*A p.a., 1=uity Inde+ 7und II 1. *A p.a., Li=uid 7und /.-* A p.a., and 4ond 7und /.-*A p.a. "witchin, Char,es! (hree free switches would be allowed every Policy year. #ubse=uent switches would be charged a fi+ed amount of 3s. 1// or *A of the switch amount, whichever is lower, on each such occasion. Mortality Char,es! (he mortality charge would vary according to the attained age of the life assured at the time of deduction of the charge and would be recovered through cancellation of units on a monthly basis. #ample standard mortality charge per annum per thousand of sum at ris% is given in the table below. (he sum at ris% is sum assured less fund value.

!ge / B/ C/ */ ./

6ortality 2harge 1.*? 1.?C ." ..*B 1*.*.

3e*ision of char,es!
!fter ta%ing due approval from the Insurance 3egulatory and 9evelopment !uthority, the company reserves the right to change the following charges'

7und 6anagement 2harge up to a ma+imum of

.?*A p.a. for

1=uity :rowth 7und, . *A p.a. for 1=uity Inde+ 7und II and 1.?*A p.a. for

4ond 7und 8 Li=uid 7und.

#witching charge up to a ma+imum of 3s. of the switching amount, whichever is lower.

// per switch or *A

Risks of Invest"ent in the Units of the !lan: (he ProposerMLife !ssured should be aware that the investment in the )nits is sub$ect to the following, amongst other ris%s and should fully understand the same before entering into any unit lin%ed insurance contract with the 2ompany.

)nit Lin%ed Life Insurance products are different from the traditional insurance products and are sub$ect to the mar%et ris% factors. (he premium paid in unit lin%ed life insurance policies are sub$ect to investment ris%s associated with capital mar%ets and )nit Price of the units may go up or down based on the performance of the fund and factors influencing the capital mar%et and the insuredMpolicyholder is responsible for hisMher decisions. 4a$a$ !llian5 Life Insurance is only the name of the insurance company and 4a$a$ !llian5 &ew )nit :ain Plus #P is only the name of the product and does not in any way indicate the =uality of the policy, its future prospects or returns. Please %now the associated ris%s and the applicable charges from your policy document or by consulting the 2ompany, your Insurance agent or your Insurance intermediary. 1=uity Inde+ 7und II, 1=uity :rowth 7und, Li=uid 7und and 4ond 7und are the names of the funds offered currently with 4a$a$ !llian5 &ew )nit :ain Plus #P, and do not in any way indicate the =uality of the respective funds, their future prospects or returns. (he investments in the )nits are sub$ect to mar%et and other ris%s and there can be no assurance that the ob$ectives of any of the funds will be achieved. 1=uity Inde+ 7und II, 1=uity :rowth 7und, Li=uid 7und and 4ond 7und do not offer a guaranteed or assured return. !ll benefits payable under the Policy are sub$ect to the ta+ laws and other financial enactments, as they e+ist from time to time.

7+

(he past performance of the funds of the company is not necessarily indicative of the future performance of any of these funds.

To )ake a Co"parison 1et een )utual %unds vs9 ULI!s:

)nit Lin%ed Insurance Policies ()LIPs) as an investment avenue are closest to mutual funds in terms of their structure arid functioning. !s is the case with mutual funds, investors in )LIPs is allotted units by the insurance company and a net asset value (&!,) is declared for the same on a daily basis. #imilarly )LIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified e=uity funds, balanced funds and debt funds to name a few. :enerally spea%ing, )LIP# can be termed as mutual fund schemes with an insurance component. Fowever it should not be construed that barring the insurance element there is nothing differentiating mutual funds from )LIPs.

(o

ULI!s can "ake so"eone rich?

9espite the seemingly comparable structures there are various factors wherein the two differ.

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In this article we evaluate the two avenues on certain common parameters and find out how they measure up.

ULI!s 5s )utual %unds: ULI!s

Investment amounts 9etermined by the investor and can be modified as well. &o upper limits e+penses 1+penses determined by the Insurance 2ompany. Portfolio 9isclosure 6odifying allocation (a+ benefit asset &ot mandatory generally permitted for free or at a nominal cost #ec "/2 benefits are available on all )LIP investments

)utual %unds
6inimum amounts are investment determined

by the fund house. )pper limits for e+penses 2hargeable have been regulator. Zuarterly disclosures are mandatory 1ntryMe+it loads have to be borne by the investor #ection "/2 benefits are available funds only on investments in ta+ saving to set investors by the

Mode of in*estment / in*estment amounts!

6utual fund investors have the option of either ma%ing lump sum investments or investing using the systematic investment plan (#IP) route which entails commitments over longer time hori5ons. (he minimum investment amounts are laid out by the fund house. )LIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. ma%ing premium payments on an annual, half>yearly, =uarterly or monthly basis. In )LIPs, determining the premium paid is often the starting point for the investment activity. (his is in star% contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter.

7$

)LIP investors also have the fle+ibility to alter the premium amounts during the policys tenure. 7or e+ample an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully investedI conversely an individual faced with a li=uidity crunch has the option of paying a lower amount (the difference being ad$usted in the accumulated value of his IRLIP). (he freedom to modify premium payments at ones convenience clearly gives )LIP investors an edge over their mutual fund counterparts.

E/penses!
In mutual fund investments, e+penses charged for various activities li%e fund management, sales and mar%eting, administration among others are sub$ect to pre>determined upper limits as prescribed by the #ecurities arid 1+change 4oard of India. 7or e+ample e=uity>oriented funds can charge their investors a ma+imum of .*A per annum on a recurring basis for all their e+pensesI any e+pense above the prescribed limit is borne by the fund house and not the investors. #imilarly funds also charge their investors entry and e+it loads (in most cases, either is applicable). 1ntry loads are charged at the timing of ma%ing an investment while the e+it load is charged at the time of sale. Insurance companies have a free hand in levying e+penses on their )LIP products with no upper limits being prescribed by the regulator, i.e. the Insurance 3egulatory and 9evelopment !uthority. (his e+plains the comple+ and at times Eunwieldy e+pense structures on )LIP offerings. (he only restraint placed is that insurers are re=uired to notify the regulator of all the e+penses that will be charged on their )LIP offerings. 1+penses can have far>reaching conse=uences on investors since higher e+penses translate into lower amounts being invested and a smaller corpus being accumulated. )LIP>related e+penses have been dealt with in detail in the article ;)nderstanding )LIP e+penses<.

Portfolio disclosure!
6utual fund houses are re=uired to statutorily declare their portfolios on a =uarterly 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.

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(here is lac% of consensus on whether )LIP* are re=uired to disclose their portfolios. 9uring our interactions with leading insurers we came across divergent views on this issue. 0hile one school of thought believes that disclosing portfolios on a =uarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are re=uired to disclose their portfolios only on demand. #ome insurance basis. companies Fowever policies is do the declare lac% of their portfolios in on a monthlyM=uarterly invested in transparency meant to )LIP for

investments could be a cause for concern considering that the amount insurance essentially provide contingencies and for long>term needs li%e retirementI regular portfolio disclosures on the other hand can enable investors to ma%e timely investment decisions. (here is lac% of consensus on whether )LIPs are re=uired to disclose their portfolios. 0hile some insurers claim that disclosing portfolios on a =uarterly basis is mandatory, others state that there is no legal obligation to do so.

.le/ibility in alterin, the asset allocation!

!s was stated earlier, offerings in both the mutual funds segment and )LIPs segment are largely comparable. 7or e+ample plans that invest their entire corpus in e=uities (diversified e=uity funds), a ./'C/ allotment in e=uity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both )LIPs and mutual funds. If a mutual fund investor in a diversified e=uity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an e+it load andMor entry load. @n the other hand most insurance companies permit their )LIP inventors to shift investments across various plansMasset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). 1ffectively the )LIP investor is given the option to invest across asset classes as per his convenience in a cost>affective manner. (his can prove to be very useful for investors, for e+ample in a bull mar%et when the )LIP investors

74

e=uity component has appreciated, he can boo% profits by simply transferring the re=uisite amount to a debt>oriented plan.

5a/ benefits!
)LIP investments =ualify for deductions under #ection "/2 of the Income (a+ !ct. (his holds well, irrespective of the nature of the plan chosen by the investor. @n the other hand in the mutual funds domain, only investments in ta+>saving funds (also referred to as e=uity>lin%ed savings schemes) are eligible for #ection "/2 benefits. 6aturity proceeds from )LIP* are ta+ free. In case of e=uity>oriented funds (for e+ample diversified e=uity funds, balanced funds), if the investments are held for a period over 1 months, the gains are ta+ freeI conversely investments sold within a 1 >month period attract short>term capital gains ta+ V1/A. #imilarly, debt>oriented funds attract a long>term capital gains ta+ V1/A, while a short>term capital gain is ta+ed at the investors marginal ta+ rate. 9espite the seemingly similar structures evidently both mutual funds and )LtP* have their uni=ue set of advantages to offer. !s always, it is vital for investors to be aware of the nuances in both offerings and ma%e informed decisions.

Relatively speakin+: ULI!s and )utual %unds:

!lthough both 6utual 7unds (67s) and unit lin%ed insurance plans ()LIP*) have been popular for some time now, due to certain similarities between the

75

two, there are still some grey areas in the minds of investors with respect to these investment vehicles. Feres a loo% at how they stac% up against each other to give you an idea about which could be more suitable for you.

b&ecti*e!
)%: 6utual 7unds are %nown for their good returns and variety of investment choices, including ta+ saving schemes called 1L##. ULI!: Popular for its triple benefits, this offers life cover, capital appreciation and income ta+ benefits.

"tructure!
)%: ! 67 collects money from the public and invests in e=uity, debt or a combination of both, as per a pre specified investment ob$ective. Investments are offered units depending on the value of their investment, on a pro rata basis. 1=uity funds invest predominantly in the stoc% mar%et to generate growth by way of capital appreciation for investors, where as debt funds invest in fi+ed funds invest in fi+ed income securities such as bonds, debentures, government securities, reverse repos, etc. ! balanced fund invests partly in both e=uity and debt. ! mutual fund scheme can be open O ended (no defined time period)or close O ended (three or five years), ULI!: !lthough the investment proportion of a )LIP is structured li%e mutual funds, the prime ob$ective of this product is insurance and capital appreciation. !ccordingly, a part of the premium paid to the company is allocated towards life insurance cover, administrative charges and management fees. (he rest is invested in mar%et>lin%ed instruments li%e stoc%s, corporate bonds government securities, depending on the asset allocation plan. 6ost LRLIP* offers policy folders a choice of plans, namely e=uity oriented, debt oriented and balanced, too. Jou can switch from one plan to another, a specified number of times. (he value of units of both )LIP* and 67* are calculated and declared on a daily basis at their mar%et worth and called the &et !sset ,alue (&!,) of the investment fund Investors can gauge whether their investment has appreciated according or depreciated to &!, movement.

5enure!

76

)%: (here no minimum holding period for most mutual fund schemes, e+cept in the case of ta+ saving schemes (1L##), which have a three year loc% Oin period. 2lose ended funds, which have a three year loc% in period, are either listed on the stoc% e+change or provide li=uidity by accepting redemptions at periodic time intervals (e.g. every three months or si+ months) ULI!: these usually have a minimum tenure of * years and the ma+imum term defends of the age of the investor. (hese are also sub$ect to a loc%>in period of three years before which an investor has no access to the investment amount.

E/penses!
!" 1+penses such as fund management, sales and mar%eting, administration, etc., are charged sub$ect to predetermined upper limits as prescribed by the #ecurities and 1+change 4oard of India. 7or e+ample e=uity oriented funds can charge their investors a ma+imum of .* per cent per annum on a recurring basis. !ny e+pense above the prescribed limit is borne by the fund house and not passed on to the investor entry and[or e+it loads are charged at the time of ma%ing an investment while e+it load is charged at the time of scale. ULI!: (here are no ma+imum limits prescribed by the Insurance 3egulatory and 9evelopment authority, as regards levy of e+penses on )LIP products. Fowever, the insurance company is re=uired to get the e+pense limit pre O approved from the insurance regulator. (he e+penses charged by )LIPs are rather high and could range between * to .* per cent for the first year and then fall to B to / per cent in subse=uent years.

3eturns!
)%: 6utual funds usually give better returns on investment than )LIPs since a large contribution is invested in securities. (he returns vary with the investment pattern. 7or e+ample debt scheme are presently offering, on average basis, annuali5ed returns of B to " per cent, where as e=uity oriented schemes are presently offering returns in the range of B/ to ./ per cent per annum. ULI!: )LIP charge higher e+penses as a percentage of your investment than 67# O the amount available for investment to that e+tent. Life insurance cover charges and other e+penses are factored in to the )LIP premium. #ince

77

the base for investment is lower, the returns offered by )LIP will mostly lower than those on mutual funds schemes.

ptions for recei*in, returns!

)%: 3eturns are available to investors in the form of dividends if the dividend option is chosen by investor. In the case of the growth option, these are in the form of capital appreciation. ULI!: (he returns is in the form of capital appreciation and insurance cover in case of premature death

3edemption Procedure!
)%: (he redemption amount is calculated by multiplying the &!, (minus e+it load, if any) on the date of redemption with the number of units redeemed. 6utual fund investments are highly li=uid (the redemption amount is received within 1 to B wor%ing days based on scheme type). ULI!: In the case of )LIP, you can redeem units under any of the following situation' 6aturity' this is on the e+piryMmaturity date of the )LIP, #urrender, if you surrender your policy, you receive the surrender value as stated in the policy, only after the loc%ing period of three years. 9eath' in the event of unfortunate demise of the investor, his nominee receives the sum assured or the value of the units, which ever is higher. Partial withdrawals' some funds allow partial withdrawal at periodic time intervals. Jour units will stand reduced to that e+tent.

"uitability!
! )% offers certain advantages in terms of cost various types and sub types plan and li=uidity. ULI!s in other hand, give you the fle+ibility to shift between various plans with in the insurance company, with @ut high load cost and capital gains implications, further, if you plan to invest for the long term (more than 1/ years), o could consider )LIPs as this vehicle would ensure that your insurance needs are ta%en care of and you en$oy capital appreciation as well.

7#

To "ake a co"parison 1et een Traditional policies 5s ULI!s:

&ot too long bac%, the good old endowment plan was the preferred way to meeting the dual ob$ective of insuring oneself against an eventuality and setting aside savings to meet ones financial ob$ectives. (hen the insurance sector was thrown open to the private sector. (he result was the launch of a wide variety of insurance plansI including )LIPs (unit>lin%ed insurance plans). (wo factors were responsible for the advent of )LIP* on the domestic insurance hori5on. 7irst was the arrival of private insurance companies. )LIPs were one of the most significant innovations introduced by private insurers. (he other factor that saw investors ta%e to )LIPs was the decline of assured returns in endowment plans. 0hile these were the two factors most instrumental in mar%ing the arrival of )LIPs, another factor that has helped their cause is the impressive economic performance over the past few years that have translated into e=ually impressive returns on the stoc% mar%ets. 0hile this now appears as one of the primary reasons for their popularity, we believe )LIP* have some fundamental positives li%e enhanced fle+ibility and merging of investment and insurance in a single entity that have really endeared them to individuals. :iven that )LIPs are relatively new and remain an enigma for a large section of insurance>see%ers, in this note we compare them to the traditional endowment plans to give you a perspective.

ULI!s
Figher #um assured Investments of ((enure premium) e=uities, of or

Traditional $ndo "ent !olicy

policyM U!nnual !llocation to

(*U!nnual premium) bonds, Larger allocation to bonds,

money 6ar%et depending on the option. 1+penses 7le+ibility (ransparency Li=uidity (a+ 4enefits Lower agent commissions, higher fund management charges. Figh Figh Figh !vailable

gsecs,

money

mar%et,

smaller e=uity allocation. Figher agent commissions. Low Low Low !vailable

"um assured!
Perhaps the most fundamental difference between )LIPs and traditional endowment plans is in the concept of premium and sum assured. 0hen you want to ta%e a traditional endowment plan, the =uestion your agent will as% you is > how much insurance cover do you needH @r in other words, what is the sum assured you are loo%ing forH (he premium is calculated based on the number you give your agent.

In*estments!
(raditionally, endowment plans have invested in government securities, corporate bonds and money mar%et instruments. (hey generally shir%ed from investing in the stoc% mar%ets, although there was a provision for the same. Fowever, for some time now, endowment plans have discarded their traditional outloo% on investing and allocate about 1@A>1*A of monies to

stoc%s. (his percentage varies across life insurance companies.

)LIPs have no such constraints on investments. (hey invest across the board in stoc%s, government securities, corporate bonds and money mar%et instruments. @f course, within a )LIP there are options wherein there are caps on each investment avenue (stoc%s, bonds).

E/penses!
)LIPs are considered to be e+pensive when compared to traditional endowment plans. (his notion is rooted more in perception than reality. Let us ta%e agent commissions to understand this better. #ale of a traditional endowment plan could fetch a commission as high as B/A (of premium) in the first year and ./A (of premium) over the first five years. (hen there is ongoing commission in the region of *A.

#+

#ale of a )LIP fetches a relatively lower commission ranging from as low as *A to B/A of premium (depending on the insurance company) over 1> B years. !fter the initial years, it stabili5es at 1A>BA (again depending on the insurer). )nli%e endowment plans, there are no I39! regulations on )LIP commissions. 6ortality e+penses for )LIPs and traditional endowment plans remain the same. (here is also little difference ii, the administration charges. @ne area where )LIPs prove to be more e+pensive than traditional endowment is in fund management #ince )LIPs have an e=uity component that needs to be managed actively, they incur fund management charges. (hese charges fluctuate in the /."/A>i .*/A (of premium) range. 0e could not get a fi+ on the fund management charges of traditional endowment plans despite having spo%en to several insurance companies.

.le/ibility!
!s we mentioned at the very beginning of this article, one aspect that gives )LIPs an edge over traditional endowment is fle+ibility. )LIPs offer a host of options to the individual based on his ris% profile. (here are insurance companies that offer as many as si+ options within a )LIP with the e=uity component varying from 5ero to a ma+imum of 1//A (of corpus). Jou can select an option that best fits your ob$ectives and ris%>ta%ing capacity. Faving selected an option, you still have the fle+ibility to switch to another option. 6ost insurance companies allow a number of free switches in a year. !nother innovative feature with )LIPs is the Etop>up facility. ! top>up is a one time additional investment in the )LIP over and above the annual premium. (his feature wor%s well when you have a surplus that you are loo%ing to invest in a mar%et>lin%ed avenue, rather than %eep in a savings account or a fi+ed deposit. 0ith traditional endowment, there are no investment options. Jou select the only option you have and must remain with it till maturity. (here is also no concept of a top>up facility. Jour premium amount cannot be enhanced on a one> time basis and s%ipped premiums will result in your policy lapsing.

5ransparency!
)LIPs are also more transparent than traditional endowment plans. #ince they are mar%et>lin%ed, there is a price per unit. (his is the net asset value

#1

(&!,), which is declared on a daily basis. ! simple calculation can tell you the value of your )LIP investments. @ver time you %now e+actly how your )LIP has performed. 6ost )LIPs also disclose their portfolios regularly. (his gives you an idea of how your money is being managed. It also tells you whether or not your mutual fund andMor stoc% investments coincide with your )LIP investments. If they are, then you have the opportunity to do a rethin% on your investment strategy across the board so as to ensure you are well> diversified across investment avenues at all times. 0ith traditional endowment, there is no concept of a &!,. Fowever, 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. (raditional endowment also does not have the practice of disclosing portfolios. 4ut given that there are provisions that ensure a large chun% of the endowment portfolio is in high =uality (!!!Msovereign rating\ debt paper, disclosure of portfolios is li%ely to evo%e little investor interest.

Li4uidity!
!nother fle+ibility that )LIPs offer the individual is li=uidity. #ince )LIP investments are &!,>based it is possible to withdraw a portion of your investments before maturity. @f course, there is an initial loc%>in period (B years) after which the withdrawal is possible provided the minimum fund value is to be maintained. (raditional endowment has no provision for pre>mature withdrawal. Jou can surrender your policy, but you wont 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>bac% endowment

TaE 1enefits:
(a+ation is one area where there is common ground between )LIPs and traditional endowment. Premiums in )LIPs as well as traditional endowment plans are eligible for ta+ benefits under #ection "/2 sub$ect to a ma+imum limit of 3s 1//,///. @n the same lines, money received on maturity on )LIPs and traditional endowments are ta+>free under #ection 1/.

#$

#i"ilarities 1et een )utual %und 5s ULI!s:

1. 67s and )LIPs are %nown for their good returns. . 67s and )LIPs are Li=uidity and 7le+ible B. 67s and )LIPs are collect money from the public and invest in e=uity debt or a combination of both. C. (he value of both )LIPs and 67s are calculated and declared on a daily basis at their mar%et worth and called &et !sset ,alue (&!,) of investment fund. *. In 67s 1=uity lin%ed savings scheme (1L##) have minimum lac%ing period is B years !ll )LIPs have minimum B years loc%ing period. .. In 67s 1L## and !ll )LIPs are eligible for ta+ benefit under #ec "/c.

#i"ilarities 1et een Traditional !olicies vs9 ULI!s:

1. (raditional Policies and )LIPs are available insurance coverage. . 4oth are future ob$ective B. 4oth are available ta+ benefit under sec "2c and ta+ free returns under #ec 1@(1@9)

#3

C('!T$R 5
#4

%INDIN*#

)LIP is gaining importance as it could suffice the needs of the small investor while offering the dual options of insurance and the investment.

)nit Lin%ed Insurance Plans are purely sub$ect to mar%et ris%. !ny person having the perfect %nowledge of the mar%ets can poc%et huge returns.

If the investor invests in e=uity no minimum guarantee is offered to the investor amount. If the investor invest in 4ond fund, there is minimum guarantee to the investor amount Popular for its triple benefits, this offers life cover, capital appreciation and income ta+ benefits )LIPs are better when

compare with (raditional policies and 6utual 7unds

#5

)LIPs are li=uid and offer fle+ibility to the investor after some period

CONCLU#ION# In conclusion, the )LIPs there by collects money or funds from the investors with similar investment goals. It is one of the ways of mobili5ing the funds and channeli5ing them properly. ,ery small percentage of the population is well aware of the )LIPs. (he advertisement has become an effective tool to create public awareness, thus educating them about the various avenues available to them. (he switching off from the )LIPs are very low. (he investment manager has to guide the investor to choose the correct available funds which they prefer.

#6

In rural areas, people have no idea about the )LIPs, while they totally depend on the agents who often cheat them. (herefore, it is the duty of the fund managers to guide investors properly. In 7inal, )LIPs are better than 6utual 7unds and (raditional policies

-i1lio+raphy:
I27!I Rournal @utloo% 6oney 6aga5ine We1sites: http'MMpersonalfn.comM http'MMwww.moneycontrol.comM http'MMndpar%ing.comMmutualfunds.comM http'MMba$a$allian5life.co.inM #7

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