PROJECT REPORT ON

“PERFORMANCE ANALYSIS OF ULIP FUNDS WITH SPECIAL REFERENCE TO LIC”

Submitted in partial fulfillment of Bachelor of Business Administration Rashtrasant Tukdoji Maharaj

Nagpur University, Nagpur

Submitted byDIPANSHOO S. SHENDE

Guidance byMS. ABHILASHA GEDAM

Dr. Ambedkar Institute of Management Studies & Research, Deeksha Bhoomi,Nagpur-440012

(2009-2010)

ACKNOWLEDGEMENT

“Words have never expressed human sentiments. This only an attempt to express my deep

gratitude which comes from my heart.”

It is a great pleasure for me to express my deep feeling of gratitude to my respected guide

Ms. Abhilasha Gedam, Lecturer, DAIMSR, for her great encouragement & unfailing

support which provided needed morale & confidence to carry on my work.

I am grateful to the Dr. Sujit Metre, Director of Dr. Ambedkar Institute of

Management Studies & Research, Nagpur for making all facilities available for my

work.

It is with profound gratitude that I wish to express my indebtedness to

Mr. Nirzar.Kulkarni (Coordinator, DAIMSR) for his invaluable guidance & supervision

for completion of this project work. “Thank you, Sir” for all you have done.

Last but not least I am thankful to my colleagues, friends & other faculties for their direct

& indirect help for completion of this work.

_______________________

DIPANSHOO S. SHENDE

2

DECLARATION

I, Dipanshoo Suresh Shende hereby declare that the project entitled

“PERFORMANCE ANALYSIS OF ULIP FUNDS WITH SPECIAL

REFERENCE TO LIC” is the outcome of my own research work based on personal

study during academic session 2009- 2010 and has not been submitted previously for

award of any degree or diploma to this university or any other university.

_______________________

DIPANSHOO S. SHENDE

3

CERTIFICATE

This is to certify that Mr. Dipanshoo S. Shende has satisfactorily completed the Project

work entitled “Performance Analysis Of ULIP Funds With Special Reference To LIC”

in not less than one academic session. This also certify that this Project work is the result of

the candidate’s own work and is of sufficiently high standard to warrant its presentation for

the BACHELOR OF BUSINESS ADMINISTRATION programme.

To the best of my knowledge this project or its part has not been submitted to this

university or any other university for any Degree/Diploma.

________________________

MS. ABHILASHA GEDAM

Guide

Internal Examiner External Examiner

Director

Place: Date:

4

CONTENT

SR.NO. CHAPTER PAGE NO.

1 INTRODUCTION TO TOPIC 6-28

2 COMPANY PROFILE 29-33

3 PRODUCT RANGE OF LIC 34-42

4 RESEARCH MEHFODOLOGY

43-46

5 PRIMARY DATA ANALYSIS 47-52

6 OBSERVATIONS 53-54

7 LIMITATIONS 55-56

8 ANNEXURE 57-60

9 BIBLIOGRAPHY 61-62

5

CHAPTER 1

INTRODUCTION TO TOPIC

6

INTRODUCTION

In the commercial arena, the choice of an effective strategy is perhaps the most

important and the toughest decision to take. The decision to select among the grand

strategies and deciding upon which strategy will best meet the enterprises objectives is

rendered complex by multiple considerations. The same is also true with the insurance

companies in India who are constantly revamping their strategies and coming out with

innovative options to stay in the competition. There were days when Life Insurance

Corporation of India (LIC) was the only insurance company available to people in India

and where people synonymed Insurance to LIC. Also since it was a Public Sector

Undertaking (PSU) it has a great support from people. But now times have changed a lot of

private players have entered into the fray. There have been a lot of Indian companies

collaborating with foreign insurance giants like ICICI Prudential, Bajaj Allianz etc who

have already made their presence felt in the Indian Insurance industry.

Even though LIC is still the market leader with more than over 60% of the market

share, the private players are giving it a tough time. Since the last decade the market share

of LIC had fallen down by about more than 20%.

The new private players have started offering a variety of unlimited schemes right

from insurance plans for a 30 day old baby to that of a 70 year old senior citizen. Also

the private companies have started creating the importance and need of insurance in today’s

life They have started positioning their brand sand are marketing their products in such

a way the people have started feeling the need of security in their lives.

Taking into account the huge population and growing per capita income besides

several other driving factors, a huge opportunity is in store for the insurance companies in

India. According to the latest research findings, nearly 80% of Indian population are

without life insurance cover while health insurance and non-life insurance continues to

be below international standards. And this part of the population is also subjected to

7

weak social security and pension systems with hardly any old age income security. As

per independent surveys, insurance in India is primarily used as a means to improve

personal finances and for income tax planning; Indians have a tendency to invest in

properties and gold followed by bank deposits. They selectively invest in shares also but

the percentage is very small (4-5%). This in itself is an indicator that growth potential for

the insurance sector is immense. It's a business growing at the rate of 15-20% per annum

and presently is of the order of around more than $55 billion.

India is a vast market for life insurance that is directly proportional to the growth in

premiums and an increase in life density. With the entry of private sector players backed by

foreign expertise, Indian insurance market has become more vibrant.

Competition in this market is increasing with companies’ continuous effort to lure

the customers with new product offerings. However, the market share of private insurance

companies remains low in the 25-35% range. Even to this day, Life Insurance Corporation

(LIC) of India dominates Indian insurance sector. The heavy hand of government still

dominates the market, with price controls, limits on ownership, and other restraints. They

private players are still in their initial days and would take some more time to capture a

good market share. At present they are coming up with new and innovative ideas.

Since the last decade the life insurance industry in India has been growing very fast

and many new companies have entered this business insurance. The Indian life insurance

industry has recorded a robust growth of more than 16 per cent for the nine-month period

which ended on December 31, 2008.It is expected to grow at an amazing rate of 20 per cent

this year Also in the present scenario the most sought after insurance plans are the Unit

Linked insurance Plans (ULIPs).

A ULIP is a life insurance policy which provides a combination of risk cover

and investment. ULIPs have gained high acceptance due to attractive features they offer

like flexibility, transparency, liquidity and a vast variety of fund option. Unit linked plans

8

are suitable for all customer profiles; however as a general belief the risk averse investors

tend to choose traditional plans and an informed customer prefers a ULIP. ULIPs offer the

kind of flexibility that no insurance product can. ULIPs essentially combine the benefits of

an insurance policy and a market-linked investment. Investors can select a ULIP with an

equity-debt combination that is in line with their risk profile. A risk-taking investor would

typically select one with a high equity component, while a risk-averse investor would opt

for a debt-heavy one. Simply put, ULIPs are structured in such a way that the protection

element and the savings element are distinguishable, and hence managed according to

your specific needs. In this way, the ULIP plan offers unprecedented flexibility and

transparency.

So with many players around for a company to really be successful it has to

really be very efficient on all fronts. It has to constantly adapt to the changing consumer

preferences with a lot of new innovations and implementing new technology try to

different from the lot. Especially if it is a new player in the market the company has to

really work very hard to get into the completion and stay afloat.

9

INDUSTRY PROFILE

INSURANCE

Insurance may be described as a social device to reduce or eliminate risk of loss to

life and property. Under the plan of insurance, a large number of people associate

themselves by sharing risks attached to individuals. The risks which can be insured against

include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon

these, may be insured against at a premium commensurate with the risk involved. Thus collective

bearing of risk is insurance.

CHARACTERISTICS OF INSURANCE

1. Sharing of risks

2. Cooperative device

3. Evaluation of risk

4. Payment on happening of a special event

5. The amount of payment depends on the nature of losses incurred.

HISTORY OF INDIAN INSURANCE:

History of Insurance in India can be broadly bifurcated into three eras:

a. Pre Nationalization

b. Nationalization and

c. Post Nationalization

The story of insurance is probably as old as the story of mankind. The same instinct

that prompts modern businessmen today to secure themselves against loss and disaster

existed in primitive men also. They too sought to avert the evil consequences of fire and

10

flood and loss of life and were willing to make some sort of sacrifice in order to achieve

security. Though the concept of insurance is largely a development of the recent past,

particularly after the industrial era – past few centuries – yet its beginnings date back

almost 6000 years.

Life Insurance in its modern form came to India from England in the year 1818.

Oriental Life Insurance Company started by Europeans in Calcutta was the first life

insurance company on Indian Soil. All the insurance companies established during that

period were brought up with the purpose of looking after the needs of European community

and these companies were not insuring Indian natives. However, later with the efforts of

eminent people like Babu Muttylal Seal, the foreign life insurance companies started

insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy

extra premiums were being charged on them. Bombay Mutual Life Assurance Society

heralded the birth of first Indian life insurance company in the year 1870, and covered

Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives,

insurance companies came into existence to carry the message of insurance and social

security through insurance to various sectors of society. Prior to 1912 India had no

legislation to regulate insurance business. In the year 1912, the Life Insurance Companies

Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912

made it necessary that the premium rate tables and periodical valuations of companies

should be certified by an actuary. But the Act discriminated between foreign and Indian

companies on many accounts, putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance

business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176

companies with total business-in-force as Rs.298 crore in 1938. The Insurance Act 1938

was the first legislation governing not only life insurance but also non-life insurance to

provide strict state control over insurance business. The demand for nationalization of life

insurance industry was made repeatedly in the past but it gathered momentum in 1944

when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative

Assembly. However, it was much later on the 19th of January, 1956, that life insurance in

India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies

11

and 75 provident were operating in India at the time of nationalization. The Parliament of

India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life

Insurance Corporation of India was created on 1st September, 1956, with the objective of

spreading life insurance much more widely and in particular to the rural areas with a view

to reach all insurable persons in the country, providing them adequate financial cover at a

reasonable cost.

12

INSURANCE MARKET - PRESENT

The insurance sector was opened up for private participation a decade back. For

years now, the private players are active in the liberalized environment. The insurance

market has witnessed dynamic changes, which include presence of a fairly number of

insurers both life, and non-life segment. Most of the private insurance companies have

formed joint venture partnering well-recognized foreign players across the globe.

The Indian life insurance market generated total revenues of $41.36 billion in

2007, thus representing a compound annual growth rate (CAGR) of 11.84% for the period

spanning 2000-2007. Life insurance market had a growth of $22.46 billion within a period

of 7 years with a growth rate of 118.24%. Estimated life premiums rose to INR 1,470,800

million ($36.77 billion) in 2006 from INR 1,301,540 million ($32.54billion) in 2005. We

envisage that life premiums in 2011 will be $65.96 billion, a growth larger than they were

in 2007. The performance of the market is forecast to accelerate, with an anticipated

CAGR of 9.78% for the four-year period 2007-2011 expected to drive the market to a

value of $65.96 billion by the end of 2011. There would be a growth of $24.6 billion i.e.

59.48% in the next 4 years.

Non-life premiums in India were $6.53 billion in 2007. Gross written premium

(GWP) in the Indian non-life insurance market reached a value of $5.75 billion in 2006,

this representing an annual growth of 13.55% for the period spanning 2006-2007.

Estimated non-life premiums rose from INR230 billion ($5.75 billion) in 2006 to INR261

billion ($6.53 billion) in 2007.

We anticipate that non-life premiums will grow by a CAGR of 9.40% between

2007-2011. We are looking for non-life premiums to rise by $405 million over the five

years to the end of 2011 with a growth rate of 62.02%.

With a huge population base and large untapped market, insurance industry is a

13

big opportunity area in India for national as well as foreign investors. India is the fifth

largest life insurance market in the emerging insurance economies globally and is growing

at 32-34% annually. This impressive growth in the market has been driven by

liberalization, with new players significantly enhancing product awareness and

promoting consumer education and information. The strong growth potential of the

country has also made international players to look at the Indian insurance market.

Moreover, saturation of insurance markets in many developed economies has made

the Indian market more attractive for international insurance players, according to

"Booming Insurance Market in India (2008-2011):

Total life insurance premium in India is projected to grow Rs 1,230,000 crore

by 2010-11.

Total non-life insurance premium is expected to increase at a CAGR of 25%

for the period spanning from 2008-09 to 2010-11.

With the entry of several low-cost airlines, along with fleet expansion by

existing ones and increasing corporate aircraft ownership, the Indian aviation

insurance market is all set to boom in a big way in coming years.

Home insurance segment is set to achieve a 100% growth as financial

institutions have made home insurance obligatory for housing loan approvals.

Health insurance is poised to become the second largest business for non-life

insurers after motor insurance in next three years.

A booming life insurance market has propelled the Indian life insurance

agents into the top 10 country list in terms of membership to the Million Dollar

Round Table (MDRT)

(Source:http://www.marketsmonitor.com/Report/IM588_related.htm)

14

CAPITAL REQUIREMENTS AND FOREIGN PARTICIPATION:

Minimum capital requirement for direct life and Non-life Insurance Company is

INR1000 million and that for Reinsurance Company is INR2000 million. A maximum 26%

foreign equity stake is allowed in direct insurance and reinsurance companies. In the 2004-

05 budget, the Government proposed for increasing the foreign equity stake to 49%.

(Source: www.irdaindia.org)

15

LIFE INSURANCE

It is evident from its very name it deals with insurance of human life. Life Insurance

Corporation of India- a public sector undertaking has the monopoly in this sector since its

nationalization.

In our wordily life, whenever there is uncertainty, there is an involvement of risk.

The instinct for security against such risk is one of the basic motivating forces

determining human attitudes. As a squeal to this quest for Security, the concept of

insurance must have been born. The urge to provide insurance or protection against the

loss of life & property must have prompted people to make some sort of sacrifice

willingly in order to achieve security through COLLECTIVE CO-OPER TION in this

sense story of insurance is probably as old as the story of mankind.

All life insurance companies in India have to comply with the strict regulations laid

out by Insurance Regulatory and Development Authority of India (IRDA). Therefore there is no

risk in going in for private insurance players. In terms of being rated for financial strength

like international players, only ICICI Prudential is rated by Fitch India at National Insurer

Financial Strength Rating of AAA (Ind) with stable outlook indicating the highest

claims paying ability rating.

Life Insurance Corporation of India (LIC), the state owned behemoth, remains by

far the largest player in the market. Among the private sector players, ICICI Prudential

Life Insurance (JV between ICICI Bank and Prudential PLC)is the largest followed by

Bajaj Allianz Life Insurance Company Limited (JV between Bajaj Group and Allianz).

The private companies are coming out with better products which are more

beneficial to the customer. Among such products are the ULIPs or the Unit Linked

Insurance Plans which offer both life cover as well as scope for savings or investment

16

options as the customer desires. Further, these types of plans are subject to a minimum

lock-in period of three years to prevent misuse of the significant tax benefits offered to

such plans under the Income Tax Act. Unlike the mutual fund product that has a very

simple cost structure, ULIPs carry a greater number of costs (administration and

mortality), in addition to the others. So comparing ULIPs with mutual funds is erroneous.

17

PRESENT STRUCTURE OF INSURANCE INDUSTRY IN INDIA

Life Insurance Corporation of India – Fully owned by government.

Postal Life Insurance

Private players:

1. Bajaj Allianz Life Insurance Co. Ltd.

2. Birla Sun Life Insurance Co. Ltd. (BSIL)

3. HDFC Prudential Life Insurance Co. Ltd. (HDFC STANDARD LIFE)

4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU)

5. ING Vyasa Life Insurance Co. Ltd. (ING VYASA)

6. Max New York Life Insurance Co. Ltd. (MNYL)

7. Met Life India Insurance Co. Ltd. (METLIFE)

8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd.

9. SBI Life Insurance Co. Ltd. (SBI Life)

10. TATA AIG Life Insurance Co. Ltd. (TATA AIG)

11. AMP Sanmar Assurance Co. Ltd. (AMP SANMAR)

12. Aviva Life Insurance Co. Ltd. (AVIVA)

13. Sahara India Life Insurance Co. Ltd. (SAHARA LIFE)

14. PNB Life Insurance

15. Reliance Life Insurance

16. Bharati Axa Life Insurance

18

64%

7%

3%

3%

3%2%

6%1%2%

9%

LIC

ICICI Prudential

Bajaj Allianz

SBI Life

Reliance

HDFC Standard Life

Birla Sun Life

Max Newyork Life

Kotak Mahindra

Others

(Source: As per a report published in 2008 by Ms Pinky Walia-Financial Advisor)

19

RELATED ACTS

The insurance sector went through a full circle of phases from being unregulated to be

completely regulated and now being partially deregulated. It is governed by number of

acts, with the first one being the Insurance Act, 1938.

The Insurance Act, 1938

The Insurance Act, 1938 was the first legislation governing all insurance titles to provide

strict state over insurance business.

Life Insurance Corporation Act, 1956

Even though the first legislation was enacted in 1938, it was only on 19th January, 1956,

that life insurance in India was completely nationalized through the Life Insurance

Corporation Act, 1956. There were 245 insurance companies of both Indian and foreign

origin companies in 1956. The government acquiring the companies accomplished

nationalization. The Life Insurance Corporation of India was then formed on 1st

September, 1956.

General Insurance Business (Nationalization) ACT, 1972

The general insurance business (nationalization) Act, 1972 was enacted to nationalize the

100 odd general insurance companies by merging them to form four different companies

named National Insurance, New India Assurance, Oriental Insurance and United India

Insurance headquartered in each of the four metropolitan cities of India.

20

Insurance Regulatory and Development Authority (IRDA) Act, 1999

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory body in

April 2000 has fastidiously stuck to its schedule of framing regulations and registering

the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the

insurance sector and in particular the life insurance companies was the launch of the

IRDA's online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured that the

insurance companies would have a trained workforce of insurance agents in place to sell

their products, which are expected to be introduced by early next year. Since being set up

as an independent statutory body the IRDA has put in a framework of globally

compatible regulations. In the private sector 12 life insurance and 6 general insurance

companies have been registered.

21

LIFE INSURANCE PRODUCTS

Life insurance products are broadly classified into two categories:

A) Traditional products which includes:

1. Term loan: It provides death risk cover for a specified term only. Every policy does

not result into a claim.

2. Whole life insurance: Here the sum assured is paid on death whenever it occurs.

The premium in this will be higher compared to term plan.

3. Endowment plan: It provides for the payment of the sum assured at the end of the

specified term or on early death. A money back plan, where survival benefits become

payable at definite interval, is also the variant of endowment plan.

4. Annuities: They are the series of periodic payments to the annuities for life or for a

specified period. Annuities can be immediate (where the payment of annuity is

immediate) or deferred (where the payment of annuity commences after a specific

period).

B) Non- traditional products:

Due to inflexibility of life insurance products, which results into high liquation,

inconvenience in sticking to premium payment regimen, lack of transparency, etc.

insurance company have come out with non-traditional products mainly in the form of

unit linked products, which have borrowed several beneficial features of mutual funds.

22

UNIT-LINKED INSURANCE PLANS (ULIP)

Unit linked insurance plan (ULIP) is a life insurance solution that provides the

client with the benefits of protection and flexibility in investment. It is a solution

which provides for life insurance where the policy value at any time varies according

to the value of the underlying assets at the time. The investment is denoted as unit and is

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

ULIPs are a category of goal-based financial solutions that combine the safety of

insurance protection with wealth creation opportunities. In ULIPs, a part of the

investment goes towards providing a life cover. The residual portion of the ULIP is

invested in a fund which in turn investing stocks or bonds; the value of investments alters

with the performance of the underlying fund opted by the customer.

Simply put, ULIPs are structured in such that the protection element and the

savings element are distinguishable, and hence managed according to your specific

needs. In this way, the ULIP plan offers unprecedented flexibility and transparency.

ULIPs came into play in 1960s and became very popular in Western Europe and

America. The reason that is attributed to the wide spread popularity of ULIP is because of

the transparency and the flexibility which it offers to the clients.

As time progressed the plans were also successfully mapped along with life

insurance needs to retirement planning in today’s times ULIP provides solution for all the

needs of a client like insurance planning financial needs financial planning for children’s

future and retirement planning

The number of units represents the policyholder’s share in the fund. The value of

the unit is determined by the total value of all the investments made by the fund divided

by the number of units.

23

If the insurance company offers a range of funds, the insured can direct the

company to invest in the fund of his choice. Insurers usually offer three choices — an

equity (growth) fund, balanced fund and a fund, which invests in bonds.

STRUCTURE OF ULIPs

ULIPs offered by different insurers have varying charge structures. Broadly the

different types of fees and charges are given below. However the insurers have the right

to revise or cancel the fees and charges over a period of time.

Charges, Fees and Deductions in ULIP

Premium Allocation Charge

This is a premium-based charge. After deducting this charge from premiums, the

remainder is invested to buy units. The Allocation charges are guaranteed for the

entire duration of policy term.

Mortality Charge

The Mortality Charge will apply on the Sum at Risk (SAR = Sum Assured less

the Fund Value pertaining to regular premiums). It will be deducted by monthly

cancellation of units from the accumulation unit account. The Mortality Charge

shall remain guaranteed throughout the policy term.

Fund Management Charge

1% p.a. on With Profits Fund, 1% p.a. on Debt Fund, 1.25% p.a. on Balanced

Fund and 1.50% p.a. on Growth Fund. FMC will be applied on the fund while

calculating NAV on a daily basis. The maximum FMC on any fund is 2% p.a.

subject to prior approval by the IRDA.

Policy Administration Charge

Rs. 60 per month, which will increase by 5% p.a. on the 1st of January each year.

PAC will be deducted monthly by cancellation of units from the accumulation

24

unit account. If premiums are discontinued, this charge would reduce to 60% of

the charge applicable for the premium paying policies

Surrender Charge

This is the charge that applies when the policy is surrendered. It is equal to 50%

of the difference between regular premiums expected and those paid in the first

year of the contract.

Service Tax Deductions

12.36% service tax is applicable on the first premium of life insurance policy.

Tax Benefits

Tax benefits will be as per Section 80C & Section 10(10D) of the Income Tax Act, 1961.

Insurance is tax free up to Rs. 100000 per annum and the returns on investment on

maturity of the policy are also tax free.

ULIPs Structure

Premium allocation charges

Mortality charges

Fund management charges

Administration charges

Investment amount

Administration charges

Fund management charges

Mortality charges

Premium allocation charges

Investment amount

Figure 3: Premium break -up under ULIPs

25

ADVANTAGES OF ULIPS

ULIP distinguishes itself through the multiple benefits that it provides to the

consumer. The plan is a one stop solution for everything the customers want. Unit Linked

Insurance Plans (ULIPs)are different from traditional plans purely because, they are

much more transparent, various charges are shared with the customer before the sale of

the product, so as to enable the customer to make an informed decision.

Customers have the flexibility to choose their life cover. Also the customers have

the choice of multiple fund options based on their risk appetite, thereby enabling an

investor to make the desired returns from the investment.

The following are some of the advantages of Unit linked plans:

A. Life protection

B. Investment and Savings

Market linked fund based on risk profile

Switch option

Premium redirection

Automatic Transfer Plan(ATP)

C. Tax Planning

D. Flexibility of cover continuance

E. Transparency

F. Extra protection with riders

Death due to accident

Disability

Critical illness

G. Liquidity

Partial withdrawals during the term

26

At maturity

H. Variable investment options

I. Premium holiday

J. Allow Top-ups

FACTORS INFLUENCING THE BUYING OF UNIT LINKEDINSURANCE

PLAN (ULIPs)

The degree of buying of ULIPs insurance varies from person to person. It depends

upon many factors. The factors can be classified into personal, social, economic,

psychological and company related variables. Age and experience of policyholder are

personal factors, while the co- education is a social factor. Economic factors include

occupation, income and wealth, and the psychological factors consist of perception,

satisfaction about the services rendered by insurance companies, the impact of

advertisement and personal selling made by insurance companies on policyholders.

The company related variables are the promotional efforts to sell the policies to

prospective buyers. These include advertisement and personal selling too.

27

TYPES OF FUNDS UNDER ULIPs

Most insurers offer a wide range of funds to suit one is investment objectives risk

profile and time horizons. Different funds have different risk profiles. The potential for

returns also varies from fund to fund. The following are some of the common types of

funds available along with an indication of their risk characteristics.

General Description

Nature of InvestmentsRisk

Category

Equity Funds

Primarily invested in company stocks with the general aim of capital appreciation

High

Income, fixed interest and Bond funds

Invested in corporate bonds,government securities and other fixed income instruments

Medium

Cash Funds

Sometimes known as Money

Market Funds — invested in cash, bank deposits and money market instruments

Low

Balanced FundsCombining equity

investmentwith fixed interest instruments

Medium

28

CHAPTER 2

COMPANY PROFILE

29

COMPANY PROFILE

The Parliament of India passed the Life Insurance Corporation Act on the 19th of

June 1956, and the Life Insurance Corporation of India was created on 1st September,

1956, with the objective of spreading life insurance much more widely and in particular

to the rural areas with a view to reach all insurable persons in the country, providing them

adequate financial cover at a reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from

its corporate office in the year 1956. Since life insurance contracts are long-term

contracts and during the currency of the policy it requires a variety of services need was

felt in the later years to expand the operations and place a branch office at each district

headquarter. Re-organization of LIC took place and large numbers of new branch offices

were opened. As a result of re-organization servicing functions were transferred to the

branches, and branches were made accounting units. It worked wonders with the

performance of the corporation. It may be seen that from about 200.00 crores of New

Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it

took another 10 years for LIC to cross 2000.00 crore mark of new business. But with re-

organization happening in the early eighties, by 1985-86 LIC had already crossed

7000.00 crore Sum Assured on new policies

.

Today LIC functions with 2048 fully computerized branch offices, 100 divisional

offices, 7 zonal offices and the corporate office. LIC’s Wide Area Network covers 100

divisional offices and connects all the branches through a Metro Area Network.

LIC continues to be the dominant life insurer even in the liberalized scenario of Indian

insurance and is moving fast on a new growth trajectory surpassing its own past records.

LIC has issued over one crore policies during the current year. It has crossed the

30

milestone of issuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthy

growth rate of 16.67% over the corresponding period of the previous year.

From then to now, LIC has crossed many milestones and has set unprecedented

performance records in various aspects of life insurance business.

31

BUSINESS OBJECTIVES

OBJECTIVES OF LIC

Spread Life Insurance widely and in particular to the rural areas and to the

socially and economically backward classes with a view to reaching all insurable

persons in the country and providing them adequate financial cover against death

at a reasonable cost.

Maximize mobilization of people's savings by making insurance-linked

savings adequately attractive.

Bear in mind, in the investment of funds, the primary obligation to its

policyholders, whose money it holds in trust, without losing sight of the interest

of the community as a whole; the funds to be deployed to the best advantage of

the investors as well as the community as a whole, keeping in view national

priorities and obligations of attractive return.

Conduct business with utmost economy and with the full realization that

the moneys belong to the policyholders.

Act as trustees of the insured public in their individual and collective

capacities.

Meet the various life insurance needs of the community that would arise in

the changing social and economic environment.

Involve all people working in the Corporation to the best of their

capability in furthering the interests of the insured public by providing efficient

service with courtesy.

Promote amongst all agents and employees of the Corporation a sense of

participation, pride and job satisfaction through discharge of their duties with

dedication towards achievement of Corporate Objective.

32

MISSION/VISSION OF LIC

Mission :

"Explore and enhance the quality of life of people through financial security by providing

products and services of aspired attributes with competitive returns, and by rendering

resources for economic development."

Vision:

"A trans-nationally competitive financial conglomerate of significance to societies and

Pride of India."

33

CHAPTER 3

PRODUCT RANGE OF LIC

34

PRODUCT SEGMENTS OF LIC

Individual Products

Life Insurance Corporation realizes that not everyone has the same kind of needs.

Keeping this in mind, it has a varied range of products that you can choose from to suit

all your needs. These will help secure your future as well as the future of your family.

These are:

Profit Plus

Market Plus-I

Fortune Plus

Money Plus-I

Child Fortune Plus

Profit Plus:

In this policy, the investment risk in investment portfolio is borne by the policy

holder.

It is a unit linked Endowment plan where the premium payment term (PPT) is

limited to single lump sum, or uniformly over 3, 4 or 5 years. You can choose the level of

cover within the limits, which will depend on whether the policy is a Single premium or

Limited premium contract, term chosen and on the level of premium you agree to pay.

Four types of investment Funds are offered. Premiums paid after allocation charge

will purchase units of the Fund type chosen. The Unit Fund is subject to various charges

and value of units may increase or decrease, depending on the Net Asset Value (NAV).

.

35

Market Plus –I:

In this policy, the investment risk in investment portfolio is borne by the policy holder.

This is a unit linked pension plan wherein the pension is payable after a   specified

period.  Four types of investment Funds namely Bond, Secured, Balanced and Growth

Fund are offered. Though primarily a Pension product, the plan has many attractive

features and options, which make it an ideal Retirement solution for the future.

Fortune Plus

It is a unit linked assurance plan where premium payment term (PPT) is 5 years

and the premium payable in the first year will be 50% of total premium payable under the

policy. The level of cover will depend on the level of premium you agree to pay.

Four types of investment funds are offered. Premiums paid after allocation charge

will purchase units of the Fund type chosen. The Unit Fund is subject to various charges

and value of the units may increase or decrease, depending on the Net Asset Value

(NAV). The plan therefore serves the purpose of insurance-cum-investment.

Money Plus-I

This is a unit linked Endowment plan with regular premium paying term, which

offers investment cum insurance during the term of the policy. You can choose the level

of cover within the limits, which will depend on the level of premium you agree to pay.

Four types of investment Funds are offered. Premiums paid after allocation charge

will purchase units of the Fund type chosen. The Unit Fund is subject to various charges

and value of units may increase or decrease, depending on the Net Asset Value (NAV).

36

Child Fortune Plus

In this policy, the investment risk in investment portfolio is borne by the

policy holder.

All of us wish to ensure the best possible future for our children. With the cost of

education sky rocketing, it is all the more important that an early provision is made to

ensure that your loved ones get a good head start in life. LICs Child Fortune Plus is a

total solution to their education and other needs. The plan is a unit linked one offering the

prospects of long term capital appreciation.

37

GENERAL FEATURES OF THE VARIED PRODUCTS OF LIC

MARKET PLUS-I

Min entry age

18 yrs

Max entry age

70 yrs

Max Maturity age 75 yrs

Min premium 5000 RP 10000 Single Premium

Riders ADBR

Min premium payment term 5 yrs

PROFIT PLUS(RP&SP)

Min entry age0 yrs

Max entry age65 yrs

Max Maturity age70,75 yrs

Min premium 1000 RP 20000 Single Premium

RidersADBR, CIBR

Min premium payment term 3 yrs

38

FORTUNE PLUS

Min entry age12 yrs

Max entry age60 yrs

Max Maturity age65 yrs

Min premium20000

RidersADBR

Min premium payment term 5 yrs

MONEY PLUS-I

Min entry age0 yrs

Max entry age65 yrs

Max Maturity age75 yrs

Min premiumRs.5,000

RidersADBR, CIBR

Min premium payment term 5 yrs

39

CHILD FORTUNE PLUSMin entry age

Less than17 yrsMax entry age

17 yrsMax Maturity age 25 yrs of child or of the

insured 75 yrsMin premium

Rs.10,000Riders

ADBRMin premium payment term 5 yrs

ADBR-Accidental Death Benefit Rider, CIBR-Critical Illness Benefit Rider

(Source: www.licindia.com)

40

PERFORMANCE OF ULIP FUNDS OF LIC

PRODUCT BASIC VALUE (AS ON DATE OF LAUNCH)

NET ASSET VALUE

REPURCHASE VALUE

SALE VALUE

(AS ON 12TH NOVEMBER, 2009)

MARKET PLUS-I:

DATE OF LAUNCH

17.06.2008

BOND FUND 10 11.4720 11.4720 11.4720

SECURED FUND

10 11.7832 11.7832 11.7832

BALANCED FUND

10 11.9203 11.9203 11.9203

GROWTH FUND

10 12.8098 12.8098 12.8098

PROFIT PLUS:DATE OF LAUNCH

23.08.2007

BOND FUND 10 12.5528 12.5528 12.5528

SECURED FUND

10 11.7868 11.7868 11.7868

BALANCED FUND

10 12.2553 12.2553 12.2553

GROWTH FUND

10 10.6895 10.6895 10.6895

FORTUNE PLUS:

DATE OF LAUNCH

23.08.2007

41

BOND FUND 10 12.2086 12.2086 12.2086

SECURED FUND

10 12.0740 12.0740 12.0740

BALANCED FUND

10 10.8677 10.8677 10.8677

GROWTH FUND

10 10.8518 10.8518 10.8518

Money plus-I:Date of launch22.05.2008

Bond fund 10 12.4177 12.4177 12.4177

Secured fund 10 13.8626 13.8626 13.8626

Balanced fund 10 13.6496 13.6496 13.6496

Growth fund 10 12.8678 12.8678 12.8678

Child fortune plus:

Date of launch01.11.2008

Bond fund 10 10.6557 10.6557 10.6557

Secured fund 10 13.6108 13.6108 13.6108

Balanced fund 10 13.5517 13.5517 13.5517

Growth fund 10 13.5517 13.5517 13.5517

42

CHAPTER 4

RESEARCH METHODOLOGY

43

SCOPE OF THE STUDY

This study aims to make a performance analysis of the Unit Linked Insurance Plans

(ULIPs) of LIFE INSURANCE CORPORATION OF INDIA in the Indian context, insurance

market and study the consumer perception towards various insurance products. The

performance analysis is based on the empirical data collected from the Nagpur city..

OBJECTIVES OF THE PROJECT

To understand the insurance products at length.

To understand Unit Linked Insurance Plans (ULIPs) of LIC.

To analyse the performance selective Unit Linked Insurance Plans (ULIPs) of

LIC.

To study the consumer perception towards various insurance products.

44

METHODOLOGY

The techniques used for data collection are:

a. Internet surveys and

b. Questionnaire method

The following methodology has been followed to achieve the objectives of the project.

Step: 1Developing a right research design and timeline for the project.

Step: 2Collecting Secondary data of the insurance Industry

Step: 3Designing of the Questionnaire

Step: 4Analysis of secondary data

Step: 5

45

Collection of primary data-Questionnaires and internet surveys

Step: 6Analysis of primary data

Step: 7Interpretation of the results

Step: 8Preparation of the final report

SOURCES OF DATA

There are two types of data used. They are primary and secondary data. Primary data is

defined as data that is collected from original sources for a specific purpose. Secondary

data is data collected from indirect sources. (Source: Research Methodology, By C. R.

Kothari)

Primary Data:

The primary data was collected by a survey based on the questionnaire. It was formulated

on the basis of information carefully gathered by me about the various mindsets of

the people. This questionnaire was mainly formulated to target the common man to see

his perception and awareness of various investment options available.

Sample Size:

The sample size for the survey conducted was 50 respondents.

Sampling Technique:

Random sampling technique was used in the survey conducted.

Study Area:

The samples referred to were residing in Nagpur City.

46

Secondary Data;

The secondary data was collected directly from the companies and their websites and

internet surveys. Also a lot of similar research studies and journals have been referred to.

LITERATURE STUDY

Till today a lot of research has been done on the Indian insurance industry especially

the life insurance sector. The material for this study was collected from various internet

sites, journal sand books by various authors.

47

CHAPTER 5

DATA ANALYSIS AND INTERPRETATION

48

PRIMARY DATA ANALYSIS

We have done a detailed survey in Nagpur city to understand and study the

consumers’ responses. The primary data was collected through questionnaires. This

questionnaire was mainly formulated to target the common man to see his perception and

awareness of various investment options available. The sample size of the survey was 50.

Out of these 34 were male and 16 were female. The sample of respondents was carefully

selected covering people in all age groups and with different backgrounds and

occupations. The analysis of these questionnaires gives us an insight about the mindset of

people regarding various investments. Customer preferences as to where they would like

to invest have been studied. Also we come to know about the preferences given by

customers towards various top life insurance companies and their reasons for it.

Following is the analysis of the primary data collected through questionnaires.

(Please refer to annexure I)

The sample included respondents from all the age groups out of which people in

the age group 18-40 constituted around 70%.

Age No of Respondents Percentage

18-30 19 38%

30-50 26 52%

>50 5 10%

Total 50 100%

49

Figure 12: Break-up of respondents between different age groups

The sample of respondents was heterogeneous with people of various occupations right

from government service to ones who were self employed. Out of these people who were

working in private companies constituted round 65%.

Figure: Break-up of respondents by their occupations

Also the customers’ preferences for different forms of savings have been carefully

studied the main savings instruments generally preferred by customers are bank deposits,

50

fixed deposits, investments and post office schemes. Out of these Investments has been

preferred by around 43% respondents and fixed deposits by around 27%.

The various forms of investments generally preferred by customers have been identified

as mutual funds, stocks and shares, insurance products and government bonds. Out of

these around 35% preferred stocks and shares and around 20% preferred insurance

products.

Figure: Break-up of respondents based on their preferences for various savings instruments

The various forms of investments generally preferred by customers have been identified

as mutual funds, stocks and shares, insurance products and government bonds. Out of

these around 35% preferred stocks and shares and around 20% preferred insurance

products.

51

Figure: Break-up of respondents based on preferences for various forms of investment

Figure: Break-down of respondents who own insurance policies in various life insurance companies

52

Around 63% respondents felt that there was an amount of moderate to high risk involved with ULIPs.

Figure: Break-down of respondents who rated risk involved in ULIPs

Around 63% of the respondents owned an insurance policy in LIC which clearly shows that LIC still continues to be the market leader in as it has been since the last 50 years or so in spite of the presence various powerful private players which are still finding hard to capture a major market share. Around 13%b respondents chose ICICI Prudential.

Figure: Break-down of respondents who own insurance policies in various life insurance companies

53

CHAPTEZ 6

OBSERVATIONS

54

OBSERVATIONS

There is a great future of the life insurance sector in India as 80% of the Indian

population is still without life cover and people are just now coming in response

to the awareness campaigns being carried out by almost all the insurance

companies.

We have found out that age plays a major role in deciding the investment patterns

of

people as generally the younger class of people tend to take more risk and

invest in various instruments more frequently, when compared with the older

class of people.

Life insurance Corporation (LIC) of India is the company to be least affected

during this market slowdown as NAV of its equity growth funds came down just

by 23% during this major recession.

Life Insurance Corporation (LIC) of India is still the undisputed market leader as

63% of the respondents surveyed owned a policy in it.

55

CHAPTER 7

LIMITATIONS

56

LIMITATIONS OF THE STUDY

The study is confined only to a small segment of the entire population due to

monetary and time constraints and hence the results are applicable only to the

Nagpur city.

The scope of the project is limited to conceptual aspects of Life Insurance

Companies and does not include all the ULIP as well as insurance products of

LIC part of the operations which are equally important aspect of learning

.

It is not always possible to evaluate companies under similar parameters since

many aspects affect the company performance, companies deal with various

businesses thus clubbing all parameters is not always possible.

57

CHAPTER 8

ANNEXURE

58

ANNEXURE

QUESTIONNAIRE

(This questionnaire is only for the sake of some research work being done on insurance companies. Confidentiality would be maintained.)

Name (Optional): ____________________________________________________

Gender:

Male Female Contact no (Optional):________________________

Age Group:

18-30 31-40 41-50 >50

Qualification:

Post Graduate Graduate 12th < 12th

Occupation:

Government Service Businessman Private Company

Self Employed Any Other (Please specify)____________________

59

Your income range (per annum):

Below 150000 150000-250000 250000-350000

350000-450000 More than 450000

Your savings per year:

Below 10000 10000-25000 25000-50000

50000-100000 More than 100000

You would prefer savings in which form?

Bank deposits Fixed deposits Investments

Post Office schemes Any other (please specify) _________________________

Your opinion about investment:

Tax Saving Good returns Better future post retirement

Wealth creation Any other (please specify) _________________________

Preferably you would like to invest in:

Mutual funds Stocks and shares Insurance products

Govt. Bonds & securities Any other (please specify) _____________________

Do you agree that Insurance products are susceptible to very low risk when compared to the other options for investment?

60

Yes No Don’t know

Name three insurance companies that come to your mind:

1. ___________________________________ 2. ___________________________________

3. ___________________________________

Do you own an insurance policy?

Yes No

If yes in which company? ______________________

According to you what is the amount of risk involved in (ULIPs) Unit Linked Investment Plans?

High risk Moderate risk They are Safe

Low risk No Idea

According to you which is the best insurance company and why?

________________________________________________________________________________________________________________________________________________________________________________________________________________________

--------------THANK YOU SO MUCH FOR YOUR VALUABLE TIME------------------

61

CHAPTER 9

BIBLIOGRAPHY

62

REFERENCES

Websites:

http://www.licindia.com

http://www.irdaindia.org

http://www.financialexpress.com

http://wealth.moneycontrol.com

http://economictimes.indiatimes.com/Personal-Finance/Insurance/Life-insurance-industry

http://www.marketsmonitor.com

http://www.quickmba.com/marketing/research

http://www.moneycontrol.com

Books:

Marketing Research- Naresh Malhotra

Insurance Principles and Practices- M.N. Mishra

S. B.Mishra

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