8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
1/136
Downloaded from a2zmba.blogspot.com
PREFACE
MBA is a stepping-stone to the management carrier and to develop good
manager it is necessary that the theoretical must be supplemented with
exposure to the real environment.
Theoretical knowledge just provides the base and it’s not suicient to
produce a good manager that’s why practical knowledge is needed.
Thereore the research product is an essential re!uirement or the student o
MBA. This research project not only helps the student to utili"e his skills
properly learn ield realities but also provides a chance to the organi"ation to
ind out talent among the budding managers in the very beginning.
#n accordance with the re!uirement o MBA course # have summer trainingproject on the topic $%omparitive Analysis o Mutual unds and &lips'. The
main objective o the research project was to study the two instruments and
make a detailed comparison o the two.
(or conducting the research project sample si"e o )* customers
o +B#M( and +B, was selected. The inormation regarding the project
research was collected through the !uestionnaire ormed by me which was
illed by the customers there.
1
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
2/136
Downloaded from a2zmba.blogspot.com
2
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
3/136
Downloaded from a2zmba.blogspot.com
3
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
4/136
Downloaded from a2zmba.blogspot.com
INDUSTRY PROFILE
The mutual und industry is a lot like the ilm star o the inance business.
Though it is perhaps the smallest segment o the industry it is also the most
glamorous / in that it is a young industry where there are changes in the rules
o the game everyday and there are constant shits and upheavals.
The mutual und is structured around a airly simple concept the mitigationo risk through the spreading o investments across multiple entities which is
achieved by the pooling o a number o small investments into a large bucket.
0et it has been the subject o perhaps the most elaborate and prolonged
regulatory eort in the history o the country.
A little history1
The mutual und industry started in #ndia in a small way with the &T# Act
creating what was eectively a small savings division within the 2B#. ,ver aperiod o 3) years this grew airly successully and gave investors a good
return and thereore in 4565 as the next logical step public sector banks
and inancial institutions were allowed to loat mutual unds and their success
emboldened the government to allow the private sector to oray into this area.
The initial years o the industry also saw the emerging years o the #ndian
e!uity market when a number o mistakes were made and hence the mutual
und schemes which invested in lesser-known stocks and at very high levels
became loss leaders or retail investors. (rom those days to today the retail
investor or whom the mutual und is actually intended has not yet returned
to the industry in a big way. But to be air the industry too has ocused on
brining in the large investor so that it can create a signiicant base corpus
which can make the retail investor eel more secure.
4
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
5/136
Downloaded from a2zmba.blogspot.com
The Indian MF industry has 2s ).78 lakh crore o assets under
management. As per data released by Association o Mutual (unds in #ndia
the asset base o all mutual und combined has risen by 8.93: in April theirst month o the current iscal. As o now there are 99 und houses in
the country including 47 joint ventures and 9 whollyowned oreign asset
managers.
According to a recent Mc;insey report the total A&M o the #ndian mutual
und industry could grow to hile the revenue and proit ?AT@ pools o #ndian AM%s are
pegged
at
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
6/136
Downloaded from a2zmba.blogspot.com
Major
players in
Indian
mutual
fund
industry
and teir
!UM
Mutual Fund NameNo. of
Schemes*
As on Corpus
AB AM2, M (998 Culy 94
3**6
86*9
A# lobalM ()= Culy 94
3**6
9)49
SI Mutual Fund 488 Culy 94
3**6
354)4.**
Birla Mutual (und 9=9 Culy 94
3**6
98=58.**
B,B Mutual (und 33 Culy 94
3**6
)7.**
%anara 2obeco Mutual (und )= Culy 94
3**6
=)87.**
DB+ %hola Mutual (und 6* Culy 94
3**6
46)9.**
Deutsche Mutual (und 468 Culy 94
3**6
4*853.**
D+ Merrill Eynch Mutual (und 344 (eb 35 3**6 45=69.**Fscorts Mutual (und 37 (eb 35 3**6 488.**(idelity Mutual (und 95 Mar 94 3**6 8=7=.**
(ranklin Templeton #nvestments
39* Culy 94
3**6
3===4.**
GD(% Mutual (und 984 Culy 94
3**6
)*8)3.**
G+B% Mutual (und 334 Culy 94
3**6
4796).**
#%#%# rudential Mutual (und =94 Culy 94
3**6
))474.**
# Mutual (und 373 Culy 94
3**6
8*54.**
CMorgan Mutual (und5 Culy 94
3**6
9*)=.**
;otak Mahindra Mutual (und 46) Culy 943**6
46863.**
E#% Mutual (und 443 Culy 94
3**6
48=55.**
Eotus #ndia Mutual (und347 Culy 94
3**6
8694.**
Morgan +tanley Mutual (und 9 Culy 94
3**6
364=.**
2#%#AE Mutual (und 4)4 Culy 94
3**6
449)5.**
Huantum Mutual (und 7 Culy 94
3**6
77.**
2eliance Mutual (und 9=) Culy 943**6
6=)7=.**
+ahara Mutual (und =) Culy 94
3**6
48).**
Mirae asset mutual und3)) Culy 94
3**6
3)=7.**
+undaram Mutual (und 345 Culy 94
3**6
44656.**
Tata Mutual (und 965 Culy 94
3**6
3*==9.**
Taurus Mutual (und 4= Culy 94
3**6
365.**
&T# Mutual (und 94) Culy 94
3**6
=743*.**
6
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM046http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM026http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM047http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM026http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM047http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM046
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
7/136
Downloaded from a2zmba.blogspot.com
"ISTORY OF MUTU!L FUND
The mutual und industry in #ndia started in 4579 with the ormation o &nit
Trust o #ndia at the initiative o the overnment o #ndia and 2eserve Bank.
The history o mutual unds in #ndia can be broadly divided into our distinct
phases1 -
First Phase ! "#$%&'(
An Act o arliament established &nit Trust o #ndia ?&T#@ on 4579. #t was set
up by the 2eserve Bank o #ndia and unctioned under the 2egulatory and
administrative control o the 2eserve Bank o #ndia. #n 4586 &T# was de-
linked rom the 2B# and the #ndustrial Development Bank o #ndia ?#DB#@ took
over the regulatory and administrative control in place o 2B#. The irst
scheme launched by &T# was &nit +cheme 457=. At the end o 4566 &T# had2s.78** crores o assets under management.
Second Phase ! "#'(&"##) Entry of Pu+lic Sector Funds,
7
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
8/136
Downloaded from a2zmba.blogspot.com
4568 marked the entry o non- &T# public sector mutual unds set up by
public sector banks and Eie #nsurance %orporation o #ndia ?E#%@ and eneral
#nsurance %orporation o #ndia ?#%@. +B# Mutual (und was the irst non- &T#
Mutual (und established in Cune 4568 ollowed by %an bank Mutual (und
?Dec 68@ unjab ational Bank Mutual (und ?Aug 65@ #ndian Bank Mutual
(und ?ov 65@ Bank o #ndia ?Cun 5*@ Bank o Baroda Mutual (und ?,ct 53@.
E#% established its mutual und in Cune 4565 while #% had set up its mutual
und in December 455*.
At the end o 4559 the mutual und industry had assets under management
o 2s.=8**= crores.
Third Phase ! "##)&-) Entry of Pri/ate Sector Funds,
>ith the entry o private sector unds in 4559 a new era started in the #ndian
mutual und industry giving the #ndian investors a wider choice o und
amilies.
Also 4559 was the year in which the irst Mutual (und 2egulations came into
being under which all mutual unds except &T# were to be registered and
governed. The erstwhile ;othari ioneer ?now merged with (ranklin
Templeton@ was the irst private sector mutual und registered in Culy 4559.
Fourth Phase ! since Fe+ruary -)
#n (ebruary 3**9 ollowing the repeal o the &nit Trust o #ndia Act 4579 &T#
was biurcated into two separate entities. ,ne is the +peciied &ndertaking o
8
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
9/136
Downloaded from a2zmba.blogspot.com
the &nit Trust o #ndia with assets under management o 2s.3569) crores as
at the end o Canuary 3**9 representing broadly the assets o &+ 7=
scheme assured return and certain other schemes. The +peciied
&ndertaking o &nit Trust o #ndia unctioning under an administrator and
under the rules ramed by overnment o #ndia and does not come under the
purview o the Mutual (und 2egulations.
The second is the &T# Mutual (und Etd sponsored by +B# B B,B and
E#%. #t is registered with +FB# and unctions under the Mutual (und
2egulations. >ith the biurcation o the erstwhile &T# which had in March
3*** more than 2s.87*** crores o assets under management and with the
setting up o a &T# Mutual (und conorming to the +FB# Mutual (und2egulations and with recent mergers taking place among dierent private
sector unds the mutual und industry has entered its current phase o
consolidation and growth. As at the end o +eptember 3**= there were 35
unds which manage assets o 2s.4)94*6 crores under =34 schemes.
0R12T3 IN ASSETS 4N5ER MANA0EMENT
9
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
10/136
Downloaded from a2zmba.blogspot.com
E#ONOMI# EN$IRONMENT
0R12T3 1F M4T4A6 F4N5 IN54STR7 IN IN5IA
>hile the #ndian mutual und industry has grown in si"e by about 93*: rom
March 4559 ?2s. =8* billion@ to December 3**= ?2s. 4)*) billion@ in terms o A&M the A&M o the sector excluding &T# has grown over 6 times rom 2s.
4)3 billion in March 4555 to < 4=6 billion as at March 3**6.
10
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
11/136
Downloaded from a2zmba.blogspot.com
Though #ndia is a minor player in the global mutual und industry its A&M as
a proportion o the global A&M has steadily increased and has doubled over
its levels in 4555.
The growth rate o #ndian mutual und industry has been increasing or thelast ew years. #t was approximately *.43: in the year o 4555 and it is
noticed *.3): in 3**= in terms o A&M as percentage o global A&M.
Some facts for the 8ro9th of mutual funds in India
• 4**: growth in the last 7 years.
• umber o oreign AM%’s is in the !ueue to enter the #ndian markets.
• ,ur saving rate is over 39: highest in the world. ,nly channeli"ing
these savings in mutual unds sector is re!uired.
• >e have approximately 35 mutual unds which is much less than &+
having more than 6**. There is a big scope or expansion.
• Mutual und can penetrate rurals like the #ndian insurance industry with
simple and limited products.
• +FB# allowing the M(Is to launch commodity mutual unds.• Fmphasis on better corporate governance.
• Trying to curb the late trading practices.
• #ntroduction o (inancial lanners who can provide need based advice.
Re%ent trends in mutual fund industry
The most important trend in the mutual und industry is the aggressive
expansion o the oreign owned mutual und companies and the
decline o the companies loated by the nationali"ed banks and smaller
private sector players.
11
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
12/136
Downloaded from a2zmba.blogspot.com
Many nationali"ed banks got into the mutual und business in the early
nineties and got o to a start due to the stock market boom was
prevailing. These banks did not really understand the mutual und
business and they just viewed it as another kind o banking activity.
(ew hired speciali"ed sta and generally chose to transer sta rom
the parent organi"ations. The perormance o most o the schemes
loated by these unds was not good. +ome schemes had oered
guaranteed returns and their parent organi"ations had to bail out these
AM%s by paying large amounts o money as a dierence between the
guaranteed and actual returns. The service levels were also very bad.
Most o these AM%s have not been able to retain sta loat new
schemes etc.
12
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
13/136
Downloaded from a2zmba.blogspot.com
TE#"NOLO&I#!L EN$IRONMENT
IMPACT 1F TEC3N16107
Mutual und during the last one decade brought out several innovations in
their products and is oering value added services to their investors. +ome o
the value added services that are being oered are1
•
Flectronic und transer acility.• #nvestment and re-purchase acility through internet.
• Added eatures like accident insurance cover mediclaim etc.
• Golding the investment in electronic orm doing away with the
traditional orm o unit certiicates.
• %he!ue writing acilities.
• +ystematic withdrawal and deposit acility.
ONLINE MUTU!L FUND TR!DIN&
The innovation the industry saw was in the ield o distribution to make it more
easily accessible to an ever increasing number o investors across the
country. (or the irst time in #ndia the mutual und start using the automated
trading clearing and settlement system o stock exchanges or sale and
repurchase o open-ended de-materiali"ed mutual und units.
13
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
14/136
Downloaded from a2zmba.blogspot.com
+ystematic #nvestment lan ?+#@ and +ystematic >ithdrawal lan ?+>@
were options introduced which have come in very handy or the investor to
maximi"e their returns rom their investments. +# ensures that there is a
regular investment that the investor makes on speciied dates making his
purchases to spread out reducing the eect o the short term volatility o
markets. +> was designed to ensure that investors who wanted a regular
income or cash low rom their investments were able to do so with a pre-
deined automated orm. Today the +> acility has come in handy or the
investors to reduce their taxes.
6E0A6 AN5 P16ITICA6 EN:IR1NMENT
!SSO#I!TION OF MUTU!L FUNDS IN INDI! '!MFI(
>ith the increase in mutual und players in #ndia a need or mutual und
association in #ndia was generated to unction as a non-proit organi"ation. Association o Mutual (unds in #ndia ?AM(#@ was incorporated on 33nd August
455).
AM(# is an apex body o all Asset Management %ompanies ?AM%@ which has
been registered with +FB#. Till date all the AM%s are that have launched
mutual und schemes are its members. #t unctions under the supervision and
guidelines o board o directors. AM(# has brought down the #ndian Mutual
(und #ndustry to a proessional and healthy market with ethical lines
enhancing and maintaining standards. #t ollows the principle o both
protecting and promoting the interest o mutual unds as well as their unit
holders.
14
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
15/136
Downloaded from a2zmba.blogspot.com
#t has been a orum where mutual unds have been able to present their
views debate and participate in creating their own regulatory ramework. The
association was created originally as a body that would lobby with the
regulator to ensure that the und viewpoint was heard. Today it is usually the
body that is consulted on matters long beore regulations are ramed and it
oten initiates many regulatory changes that prevent malpractices thatemerge rom time to time.
AM(# works through a number o committees some o which are standing
committees to address areas where there is a need or constant vigil and
improvements and other which are adhoc committees constituted to address
speciic issues. These committees consist o industry proessionals romamong the member mutual unds. There is now some thought that AM(#
should become a sel-regulatory organi"ation since it has worked so
eectively as an industry body.
O)*E#TI$ES+
To deine and maintain high proessional and ethical standards in all areaso operation o mutual und industry
To recommend and promote best business practices and code o conduct
to be ollowed by members and others engaged in the activities o mutual
und and asset management including agencies connected or involved in the
ield o capital markets and inancial services.
To interact with the +ecurities and Fxchange Board o #ndia ?+FB#@ and to
represent to +FB# on all matters concerning the mutual und industry.
To represent to the overnment 2eserve Bank o #ndia and other bodies
on all matters relating to the Mutual (und #ndustry.
15
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
16/136
Downloaded from a2zmba.blogspot.com
To develop a cadre o well trained Agent distributors and to implement a
programme o training and certiication or all intermediaries and other
engaged in the industry.
To undertake nation wide investor awareness programme so as to
promote proper understanding o the concept and working o mutual unds.
To disseminate inormation on Mutual (und #ndustry and to undertake
studies and research directly andJor in association with other bodies.
16
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
17/136
Downloaded from a2zmba.blogspot.com
MEM)ERS OF !MFI+
o an; Sponsored
".
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
18/136
Downloaded from a2zmba.blogspot.com
o Pri/ate Sector
". Indian
4. Benchmark Asset Management %ompany vt. Etd.
3. DB+ %holamandalam Asset Management Etd.9. Deutsche Asset Management ?#ndia@ vt. Etd.
=. Fdelweiss Asset Management Eimited
). Fscorts Asset Management Eimited
7. #D(% Asset Management %ompany rivate Eimited
8. CM (inancial Asset Management rivate Eimited
6. ;otak Mahindra Asset Management %ompany
Eimited?;MAM%E@
5. Huantum Asset Management %o. rivate Etd.
4*.2eliance %apital Asset Management Etd.
44. +ahara Asset Management %ompany rivate Eimited
43.Tata Asset Management Eimited
49.Taurus Asset Management %ompany Eimited
18
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
19/136
Downloaded from a2zmba.blogspot.com
-. Forei8n
4. A# lobal Asset Management %ompany ?#ndia@ vt. Etd.
3. (#E (und Management rivate Eimited
9. (ranklin Templeton Asset Management ?#ndia@ rivate
Eimited
=. Mirae Asset lobal #nvestment Management ?#ndia@ vt.
Etd.
).
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
20/136
Downloaded from a2zmba.blogspot.com
). CMorgan Asset Management #ndia vt. Etd.
7. Eotus #ndia Asset Management %o. rivate Etd.
8. Morgan +tanley #nvestment Management vt.Etd.
6. rincipal nb Asset Management %o. vt. Etd.
RE&UL!TORY ME!SURES )Y SE)I
Eike Banking L #nsurance up to the nineties o the last century Mutual (und
industry in #ndia was set up and unctioned exclusively in the state monopoly
represented by the &nit Trust o #ndia. This monopoly was diluted in the
eighties by allowing nationali"ed banks and insurance companies ?E#% L #%@to set up their institutions under the #ndian Trusts Act to transact mutual und
business allowing the #ndian investor the option to choose between dierent
service providers. &nit Trust was a statutory corporation governed by its own
incorporating act. There was no separate regulatory authority up to the time
+FB# was made a statutory authority in 4553. but it was only in the year 4559
when a government took a policy decision to deregulate #ndian Fconomy rom
government control and to transorm it market oriented that the industry was
opened to competition rom private and oreign players. By the year 3***
there came to be established in the market 9= mutual unds oerings a variety
o about ))* schemes.
20
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
21/136
Downloaded from a2zmba.blogspot.com
SE#URITIES !ND E,#"!N&E )O!RD OF INDI!
'MUTU!L FUNDS( RE&UL!TIONS- .//0
The ast growing industry is regulated by +ecurities and Fxchange Board o
#ndia ?+FB#@ since inception o +FB# as a statutory body. +FB# initially
ormulated $+F%&2#T#F+ AD FK%GAF B,A2D ,( #D#A ?M&T&AE
(&D+@ 2F&EAT#,+ 4559' providing detailed procedure or
establishment registration constitution management o trustees asset
management company about schemesJproducts to be designed about
investment o unds collected general obligation o M(s about inspectionaudit etc. based on experience gained and eedback received rom the
market +FB# revised the guidelines o 4559 and issued resh guidelines in
4557 titled $+F%&2#T#F+ AD FK%GAF B,A2D ,( #D#A ?M&T&AE
(&D+@ 2F&EAT#,+ 4557'. The said regulations as amended rom time
to time are in orce even today.
The +FB# mutual und regulations contain ten chapters and twelve schedules.
%hapters containing material subjects relating to regulation and conduct o
business by Mutual (unds.
21
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
22/136
Downloaded from a2zmba.blogspot.com
RE&ISTR!TION OF MUTU!L FUND+
Application for re8istration
". An application or registration o a mutual und shall be made to the Boardin (orm A by the sponsor.
!ppli%ation fee to a%%ompany te appli%ation
-. Fvery application or registration under regulation 9 shall be accompanied
by nonreundable application ee as speciied in the +econd +chedule.
!ppli%ation to %onform to te re1uirements). An application which is not complete in all respects shall be liable to be
rejected1
Pro/ided that beore rejecting any such application the applicant shall be
given an opportunity to complete such ormalities within such time as may be
speciied by the Board.
Furnisin2 information
%. The Board may re!uire the sponsor to urnish such urther inormation or
clariication as may be re!uired by it.
Eli2i3ility %riteria
=. (or the purpose o grant o a certiicate o registration the applicant has to
ulill the ollowing namely 1
a, the sponsor should have a sound track record and general reputation o
airness and integrity in all his business transactions.Fxplanation 1 (or the purposes o this clause $sound track record' shall mean
the
sponsor should
i , be carrying on business in inancial services or a period o not less than
ive
22
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
23/136
Downloaded from a2zmba.blogspot.com
yearsN and
?ii @ the networth is positive in all the immediately preceding ive yearsN and
iii , the networth in the immediately preceding year is more than the capital
contribution o the sponsor in the asset management companyN and
i4 , the sponsor has proits ater providing or depreciation interest and tax in
three out o the immediately preceding ive years including the ith yearN
3, in the case o an existing mutual und such und is in the orm o a trust
and the trust deed has been approved by the BoardN
% , the sponsor has contributed or contributes at least =*: to the net worth o
the asset management company1Pro/ided that any person who holds =*: or more o the net worth o an
asset
management company shall be deemed to be a sponsor and will be re!uired
to ulill the eligibility criteria speciied in these regulationsN
d , the sponsor or any o its directors or the principal oicer to be employed
by the mutual und should not have been guilty o raud or has not been
convicted o an oence involving moral turpitude or has not been ound guiltyo any economic
oenceN
e, appointment o trustees to act as trustees or the mutual und in
accordance with the provisions o the regulationsN
f , appointment o asset management company to manage the mutual und
and operate the scheme o such unds in accordance with the provisions o
these regulationsN
2 , appointment o a custodian in order to keep custody o the securities 4*>or
gold and gold related instruments and carry out the custodian activities as
may be authori"ed by the trustees.23
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
24/136
Downloaded from a2zmba.blogspot.com
#onsideration of appli%ation
'. The Board may on receipt o all inormation decide the application.
&rant of #ertifi%ate of Re2istration
#. The Board may register the mutual und and grant a certiicate in (orm B
on the applicant paying the registration ee as speciied in +econd +chedule.
Terms and %onditions of re2istration
". The registration granted to a mutual und under regulation 5 shall be
subject to the ollowing terms and conditions1
a, the trustees the sponsor the asset management company and thecustodian shall comply with the provisions o these regulationsN
?3, the mutual und shall orthwith inorm the Board i any inormation or
particulars previously submitted to the Board was misleading or alse in any
material respectN
% , the mutual und shall orthwith inorm the Board o any material change in
the
inormation or particulars previously urnished which have a bearing on theregistration granted by itN
d , payment o ees as speciied in the regulations and the +econd +chedule.
Reje%tion of appli%ation
"". >here the sponsor does not satisy the eligibility criteria mentioned in
regulation 8 the Board may reject the application and inorm the applicant o
the same.
Payment of annual ser4i%e fee+
"-. A mutual und shall pay beore the 4)th April each year a service ee as
speciied in the +econd +chedule or every inancial year rom the year
ollowing the year o registration1
24
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
25/136
Downloaded from a2zmba.blogspot.com
Pro/ided that the Board may on being satisied with the reasons or the
delay permit the mutual und to pay the service ee at any time beore the
expiry o two months rom the commencement o the inancial year to which
such ee relates.
25
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
26/136
Downloaded from a2zmba.blogspot.com
Failure to pay annual ser4i%e fee
"). The Board may not permit a mutual und who has not paid service ee to
launch any scheme.
#ONSTITUTION !ND M!N!&EMENT OF !SSET
M!N!&EMENT
#OMP!NY !ND #USTODI!N
!ppli%ation 3y an asset mana2ement %ompany
"%. ", The application or the approval o the asset management company
shall be made in (orm D.
-, The provisions o regulations ) 7 and 6 shall so ar as may be apply to
the
application made under sub-regulation ?4@ as they apply to the application or
registration o a mutual und.
!ppointment of an asset mana2ement %ompany
"=. ", The sponsor or i so authorised by the trust deed the trustee shall
appoint an asset management company which has been approved by the
Board under sub-regulation?3@ o regulation 34.
-, The appointment o an asset management company can be terminated by
majority o the trustees or by seventy-ive per cent o the unitholders o thescheme.
), Any change in the appointment o the asset management company shall
be subject to prior approval o the Board and the unitholders.
26
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
27/136
Downloaded from a2zmba.blogspot.com
Eli2i3ility %riteria for appointment of asset mana2ement %ompany
"$. ", (or grant o approval o the asset management company the applicant
has to ulill the ollowing 1
?a@ in case the asset management company is an existing asset management
company it has a sound track record general reputation and airness in
transactions.
E5planation: (or the purpose o this clause sound track record shall mean
the
networth and the proitability o the asset management companyN
?aa@ the asset management company is a it and proper personN
3, the directors o the asset management company are persons having
ade!uate proessional experience in inance and inancial services relatedield and not ound guilty o moral turpitude or convicted o any economic
oence or violation o any se%urities la6s7
% , the key personnel o the asset management company 38Ohave not been
ound guilty o moral turpitude or convicted o economic oence or violation o
securities laws or worked or any asset management company or mutual und
or any intermediary 35Oduring the period when itsP registration has been
suspended or cancelled at any time by the BoardN?d , the board o directors o such asset management company has at least
ity per cent directors who are not associate o or associated in any manner
with the sponsor or any o its subsidiaries or the trusteesN
e, the %hairman o the asset management company is not a trustee o any
mutual undN
f , the asset management company has a networth o not less than rupees
ten crores 1
Pro/ided that an asset management company already granted approval
under the provisions o +ecurities and Fxchange Board o #ndia ?Mutual
(unds@ 2egulations 4559 shall within a period o twelve months rom the date
o notiication o these regulations increase its networth to rupees ten crores 1
27
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
28/136
Downloaded from a2zmba.blogspot.com
Pro/ided Ofurther P that the period speciied in the irst proviso may be
extended in appropriate cases by the Board up to three years or reasons to
be recorded in writing 1
Pro/ided further that no new schemes shall be allowed to be launched or
managed by such asset management company till the networth has been
raised to rupees ten crores.
E5planation 1 (or the purposes o this clause $networth' means the
aggregate o the paid up capital and ree reserves o the asset management
company ater
deducting thererom miscellaneous expenditure to the extent not written o or
adjusted or deerred revenue expenditure intangible assets and accumulated
losses.-, The Board may ater considering an application with reerence to the
matters
speciied in sub-regulation ?4@ grant approval to the asset management
company.
Terms and %onditions to 3e %omplied 6it
"(. The approval granted under sub-regulation ?3@ o regulation 34 shall be
subject to the
ollowing conditions namely1
a, any director o the asset management company shall not hold the oice o
the
director in another asset management company unless such person is an
independent director reerred to in clause ?d @ o sub-regulation ?4@ o
regulation 34 and approval o the Board o asset management company o
which such person is a director has been obtainedN
3, the asset management company shall orthwith inorm the Board o any
material change in the inormation or particulars previously urnished which
have a bearing on the approval granted by itN
28
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
29/136
Downloaded from a2zmba.blogspot.com
% , no appointment o a director o an asset management company shall be
made without prior approval o the trusteesN
d , the asset management company undertakes to comply with these
regulationsN
e, no change in the controlling interest o the asset management company
shall be made unless
i , prior approval o the trustees and the Board is obtainedN
?ii @ a written communication about the proposed change is sent to each
unitholder and an advertisement is given in one Fnglish daily newspaper
having
nationwide circulation and in a newspaper published in the language o the
region where the Gead ,ice o the mutual und is situatedN and?iii @ the unitholders are given an option to exit on the prevailing et Asset
Qalue
without any exit loadNP
?f @ the asset management company shall urnish such inormation and
documents to the trustees as and when re!uired by the trustees.
Pro%edure 6ere appro4al is not 2ranted
"'. >here an application made under regulation 45 or grant o approval does
not satisy the eligibility criteria laid down in regulation 34 the Board may
reject the application.
Restri%tions on 3usiness a%ti4ities of te asset mana2ement %ompany
"#. The asset management company shall
", not act as a trustee o any mutual undN
-, not undertake any other business activities except activities in the nature
o
portolio management servicesP management and advisory services to
oshore unds pension unds provident unds venture capital unds
management o insurance unds inancial consultancy and exchange o29
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
30/136
Downloaded from a2zmba.blogspot.com
research on commercial basis i any o such activities are not in conlict with
the activities o the mutual und 1
Pro/ided that the asset management company may itsel or through its
subsidiaries undertake such activities i it satisies the Board that the key
personnel o the asset management company the systems back oice bank
and securities accounts are segregated activity-wise and there exist systems
to prohibit access to inside inormation o various activities 1
Pro/ided further that asset management company shall meet capital
ade!uacy
re!uirements i any separately or each such activity and obtain separate
approval i necessary under the relevant regulations.), The asset management company shall not invest in any o its schemes
unless ull disclosure o its intention to invest has been made in the oer
documents 9=Oin case o schemes launched ater the notiication o these
regulations 1
Pro/ided that an asset management company shall not be entitled to charge
any ees on its investment in that scheme.
!sset mana2ement %ompany and its o3li2ations
-. ", The asset management company shall take all reasonable steps and
exercise due diligence to ensure that the investment o unds pertaining toany scheme is not contrary to the provisions o these regulations and the trust
deed.
-, The asset management company shall exercise due diligence and care in
all its investment decisions as would be exercised by other persons engaged
in the same business.
30
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
31/136
Downloaded from a2zmba.blogspot.com
), The asset management company shall be responsible or the acts o
commission or omission by its employees or the persons whose services
have been procured by the asset management company.
%, The asset management company shall submit to the trustees !uarterly
reports o each year on its activities and the compliance with these
regulations.
=, The trustees at the re!uest o the asset management company may
terminate the assignment o the asset management company at any time1
Pro/ided that such termination shall become eective only ater the trustees
have accepted the termination o assignment and communicated theirdecision in writing to the asset management company.
$, otwithstanding anything contained in any contract or agreement or
termination the asset management company or its directors or other oicers
shall not be absolved o liability to the mutual und or their acts o
commission or omission while holding such position or oice.
$A, The %hie Fxecutive ,icer ?whatever his designation may be@ o the
asset
management company shall ensure that the mutual und complies with all the
provisions o these regulations and the guidelines or circulars issued in
relation thereto rom time to time and that the investments made by the und
managers are in the interest o the unit holders and shall also be responsible
or the overall risk management unction o the mutual und.
E5planation.(or the purpose o this sub-regulation the words $these
regulations' shall mean and include the +ecurities and Fxchange Board o
#ndia ?Mutual (unds@ 2egulations 4557 as amended rom time to time.
31
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
32/136
Downloaded from a2zmba.blogspot.com
$, The und managers ?whatever the designation may be@ shall ensure that
the unds o the schemes are invested to achieve the objectives o the
scheme and in the interest o the unit holders.
(, a, An asset management company shall not through any broker
associated with the sponsor purchase or sell securities which is average o )
per cent or more o the aggregate purchases and sale o securities made by
the mutual und in all its schemes 1
Pro/ided that or the purpose o this sub-regulation the aggregate purchase
and sale o securities shall exclude sale and distribution o units issued by the
mutual und 1
Pro/ided further that the aoresaid limit o ) per cent shall apply or a blocko any three months.
3, An asset management company shall not purchase or sell securities
through any broker Oother than a broker reerred to in clause a, o sub-
regulation ?8@ which is average o ) per cent or more o the aggregate
purchases and sale o securities made by the mutual und in all its schemes
unless the asset management company has recorded in writing the
justiication or exceeding the limit o ) per cent and reports o all suchinvestments are sent to the trustees on a !uarterly basis 1
Pro/ided that the aoresaid limit shall apply or a block o three months.
', An asset management company shall not utilise the services o the
sponsor or any o its associates employees or their relatives or the purpose
o any securities transaction and distribution and sale o securities 1
Pro/ided that an asset management company may utilise such services i
disclosure to that eect is made to the unitholders and the brokerage or
commission paid is also disclosed in the hal-yearly annual accounts o the
mutual und 1
Pro/ided further that the mutual unds shall disclose at the time o declaring
halyearly and yearly results 1
32
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
33/136
Downloaded from a2zmba.blogspot.com
i , any underwriting obligations undertaken by the schemes o the mutual
unds with respect to issue o securities associate companies
ii , devolvement i any
iii , subscription by the schemes in the issues lead managed by associate
companies
i4 , subscription to any issue o e!uity or debt on private placement basis
where the sponsor or its associate companies have acted as arranger or
manager.
#, The asset management company shall ile with the trustees the details o
transactions in securities by the key personnel o the asset management
company in their own name or on behal o the asset management companyand shall also report to the Board as and when re!uired by the Board.
", #n case the asset management company enters into any securities
transactions with any o its associates a report to that eect shall be sent to
the trustees at its next meeting.
"", #n case any company has invested more than ) per cent o the net assetvalue o a scheme the investment made by that scheme or by any other
scheme o the same mutual und in that company or its subsidiaries shall be
brought to the notice o the trustees by the asset management company and
be disclosed in the hal-yearly and annual accounts o the respective
schemes with justiication or such investment =*Oprovided the latter
investment has been made within one year o the date o the ormer
investment calculated on either side.
"-, The asset management company shall ile with the trustees and the
Board
a, detailed bio-data o all its directors along with their interest in other
companies
within iteen days o their appointmentN33
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
34/136
Downloaded from a2zmba.blogspot.com
3, any change in the interests o directors every six monthsN and
% , a !uarterly report to the trustees giving details and ade!uate justiication
about the purchase and sale o the securities o the group companies o the
sponsor or the asset management company as the case may be by the
mutual und during the said !uarter.
"), Fach director o the asset management company shall ile the details o
his transactions o dealing in securities with the trustees on a !uarterly basis
in accordance with guidelines issued by the Board.
"%, The asset management company shall not appoint any person as key
personnel who has been ound guilty o any economic oence or involved in
violation o securities laws.
"=, The asset management company shall appoint registrars and share
transer agents who are registered with the Board1
Pro/ided i the work relating to the transer o units is processed in-house
the charges at competitive market rates may be debited to the scheme and
or rates higher than the competitive market rates prior approval o the
trustees shall be obtained and reasons or charging higher rates shall bedisclosed in the annual accounts.
"$, The asset management company shall abide by the %ode o %onduct as
speciied in the (ith +chedule.
!ppointment of %ustodian
-". ", The mutual und shall appoint a %ustodian to carry out the custodial
services or the schemes o the und and sent intimation o the same to the
Board within iteen days o the appointment o the %ustodian1
Pro/ided that in case of a gold exchange traded fund scheme, the assets of
the scheme being gold or gold related instruments may be kept in custody of
a bank which is registered as a custodian with the Board.
34
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
35/136
Downloaded from a2zmba.blogspot.com
-, o custodian in which the sponsor or its associates hold )* per cent or
more o the voting rights o the share capital o the custodian or where )* per
cent or more o the directors o the custodian represent the interest o the
sponsor or its associates shall act as custodian or a mutual und constituted
by the same sponsor or any o its associates or subsidiary company.
!2reement 6it %ustodian
--. The mutual und shall enter into a custodian agreement with the
custodian which shall contain the clauses which are necessary or theeicient and orderly conduct o the aairs o the custodian1
Pro/ided that the agreement the service contract terms and appointment o
the
custodian shall be entered into with the prior approval o the trustees.
#"!R!#TERISTI#S OF MUTU!L FUNDS
• The ownership is in the hands o the investors who have pooled in their
unds.
• #t is managed by a team o investment proessionals and other service
providers.
• The pool o unds is invested in a portolio o marketable investments.
• The investors share is denominated by Runits’ whose value is called aset Asset Qalue ?AQ@ which changes everyday.
• The investment portolio is created according to the stated investment
objectives o the und.
35
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
36/136
Downloaded from a2zmba.blogspot.com
!D$!NT!&ES OF MUTU!L FUNDS
The advantages o mutual unds are given below1 -
Portfolio 5i/ersification
Mutual unds invest in a number o companies. This diversiication
reduces the risk because it happens very rarely that all the stocks decline at
the same time and in the same proportion. +o this is the main advantage o
mutual unds.
Professional Mana8ement
Mutual unds provide the services o experienced and skilled
proessionals assisted by investment research team that analysis the
perormance and prospects o companies and select the suitable investments
to achieve the objectives o the scheme.
6o9 Costs
Mutual unds are a relatively less expensive way to invest as compare to
directly investing in a capital markets because o less amount o brokerage
and other ees.
6i?uidity
This is the main advantage o mutual und that is whenever an investor needs money he can easily get redemption which is not possible in most o
other options o investment. #n open-ended schemes o mutual und the
investor gets the money back at net asset value and on the other hand in
close-ended schemes the units can be sold in a stock exchange at a
prevailing market price.
36
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
37/136
Downloaded from a2zmba.blogspot.com
Transparency
#n mutual und investors get ull inormation o the value o their
investment the proportion o money invested in each class o assets and the
und manager’s investment strategy
Fle@i+ility
(lexibility is also the main advantage o mutual und. Through this
investors can systematically invest or withdraw unds according to their needs
and convenience like regular investment plans regular withdrawal plans
dividend reinvestment plans etc.
Con/enient Administration
#nvesting in a mutual und reduces paperwork and helps investors to
avoid many problems like bad deliveries delayed payments and ollow up
with brokers and companies. Mutual unds save time and make investing
easy.
Afforda+ility
#nvestors individually may lack suicient unds to invest in high-grade
stocks. A mutual und because o its large corpus allows even a small investor
to take the beneit o its investment strategy.
2ell Re8ulated
All mutual unds are registered with +FB# and they unction with in the
provisions o strict regulations designed to protect the interest o investors.
The operations o mutual unds are regularly monitored by +FB#.
37
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
38/136
Downloaded from a2zmba.blogspot.com
DIS!D$!NT!&ES OF MUTU!L FUNDS
Mutual unds have their ollowing drawbacks1
No 0uarantees
o investment is risk ree. # the entire stock market declines in value the
value o mutual und shares will go down as well no matter how balanced the
portolio. #nvestors encounter ewer risks when they invest in mutual unds
than when they buy and sell stocks on their own. Gowever anyone who
invests through mutual und runs the risk o losing the money.
Fees and Commissions
All unds charge administrative ees to cover their day to day expenses.
+ome unds also charge sales commissions or loads to compensate brokers
inancial consultants or inancial planners. Fven i you don’t use a broker or
other inancial advisor you will pay a sales commission i you buy shares in a
Eoad (und.
Ta@es
During a typical year most actively managed mutual unds sell anywhere
rom 3* to 8* percent o the securities in their portolios. # your und makes a
proit on its sales you will pay taxes on the income you receive even youreinvest the money you made.
38
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
39/136
Downloaded from a2zmba.blogspot.com
Mana8ement Ris;
>hen you invest in mutual und you depend on und manager to make the
right decisions regarding the und’s portolio. # the manager does not perormas well as you had hoped you might not make as much money on your
investment as you expected. , course i you invest in index unds you
orego management risk because these unds do not employ managers.
39
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
40/136
Downloaded from a2zmba.blogspot.com
STRU#TURE OF MUTU!L FUND
There are many entities involved and the diagram below illustrates the structu
re o mutual unds1 -
Stru%ture of Mutual Funds
SEI
The regulation o mutual unds operating in #ndia alls under the preview
o authority o the $Securities and E@chan8e oard of India ?+FB#@. Any
person proposing to set up a mutual und in #ndia is re!uired under the +FB#
?Mutual (unds@ 2egulations 4557 to be registered with the +FB#.
40
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
41/136
Downloaded from a2zmba.blogspot.com
Sponsor
The sponsor should contribute at least =*: to the net worth o the AM%.
Gowever i any person holds =*: or more o the net worth o an AM% shallbe deemed to be a sponsor and will be re!uired to ulill the eligibility criteria
in the Mutual (und 2egulations. The sponsor or any o its directors or the
principal oicer employed by the mutual und should not be guilty o raud or
guilty o any economic oence.
Trustees
The mutual und is re!uired to have an independent Board o Trusteesi.e. two third o the trustees should be independent persons who are not
associated with the sponsors in any manner. An AM% or any o its oicers or
employees are not eligible to act as a trustee o any mutual und. The trustees
are responsible or - inter alia / ensuring that the AM% has all its systems in
place all key personnel auditors registrar etc. have been appointed prior to
the launch o any scheme.
Asset Mana8ement Company
The sponsors or the trustees are re!uired to appoint an AM% to manage
the assets o the mutual und. &nder the mutual und regulations the
applicant must satisy certain eligibility criteria in order to !ualiy to register
with +FB# as an AM%.
". The sponsor must have at least =*: stake in the AM%.
-. The chairman o the AM% is not a trustee o any mutual und.
). The AM% should have and must at all times maintain a minimum net
worth o %r. 4** million.
%. The director o the AM% should be a person having ade!uate
proessional experience.
41
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
42/136
Downloaded from a2zmba.blogspot.com
=. The board o directors o such AM% has at least )*: directors who are
not associate o or associated in any manner with the sponsor or any
o its subsidiaries or the trustees.
The Transfer A8ents
The transer agent is contracted by the AM% and is responsible or
maintaining the register o investors J unit holders and every day settlements
o purchases and redemption o units. The role o a transer agent is to collect
data rom distributors relating to daily purchases and redemption o units.
Custodian
The mutual und is re!uired under the Mutual (und 2egulations to
appoint a custodian to carry out the custodial services or the schemes o the
und. ,nly institutions with substantial organi"ational strength service
capability in terms o computeri"ation and other inrastructure acilities are
approved to act as custodians. The custodian must be totally delinked rom
the AM% and must be registered with +FB#.
4nit 3olders
They are the parties to whom the mutual und is sold. They are ultimate
beneiciary o the income earned by the mutual unds.
42
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
43/136
Downloaded from a2zmba.blogspot.com
TYPES OF MUTU!L FUND S#"EMES
#n #ndia there are many companies both public and private that are engaged
in the trading o mutual unds. >ide varieties o Mutual (und +chemes exist
to cater to the needs such as inancial position risk tolerance and returnexpectations etc. #nvestment can be made either in the debt +ecurities or
e!uity .The table below gives an overview into the existing types o schemes
in the #ndustry.
T7PES 1F M4T4A6 F4N5 SC3EME
43
By structure B !n"estment
#b$ect%"es
Other Schemes
#pen&ended'c(emes
!nter"al 'c(emes
'ector spec%ff)nd
!nde* 'c(em
+a* sa"%ng f)
'mall cap
f)nd
,-)%t'c(emesDebt'c(emes
lose ,nded'c(emes
// /)t)alf)nd
#t(er Debt
'c(emes
/
n #t(er
,-)%t )nd
/%d cap)nd
arge capf)nd
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
44/136
Downloaded from a2zmba.blogspot.com
enerally two options are available or every scheme regarding
dividend payout and growth option. By opting or growth option an investor
can have the beneit o long-term growth in the stock market on the other side
by opting or the dividend option an investor can maintain his li!uidity by
receiving dividend time to time. +ome time people reer dividend option as
dividend und and growth und. enerally decisions regarding declaration o the dividend depend upon the perormance o stock market and perormance
o the und.
1PTI1N RE0AR5IN0 5I:I5EN5
44
D%"%dend rowt(
e%n"estedao)t
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
45/136
Downloaded from a2zmba.blogspot.com
Systematic In/estment Plan SIP,
+ystematic investment plan is like 2ecurring Deposit in which investor
invests in the particular scheme on regular intervals. #n the case it isconvenient or salaried class and middle-income group. #n this case on regular
interval units o speciied amount is created. An investor can make payment by
regular payments by issuing che!ues post dated che!ues F%+ standing
Mandate etc. +# can be started in the any open-ended und i there is
provision o it. There are some entry and exit load barriers or discontinuation
and redemption o the und beore the said period.
!%%ordin2 to Stru%ture
1pen ! Ended Funds
An open / ended und is one that is available or subscription all through theyear. These do not have a ixed maturity. #nvestors can conveniently buy and
sell units at et Asset Qalue ?AQ@ related prices. The key eature o open /
ended schemes is li!uidity.
Close ! Ended Funds
A close / ended und has a stipulated maturity period which generally
ranging rom 9 to 4) years. The und is open or subscription only during aspeciied period. #nvestors can invest in the scheme at the same time o the
initial public issue and thereater they can buy and sell the units o the
scheme on the stock exchanges where they are listed. #n order to provide an
exit route to the investors some close / ended unds give an option o selling
45
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
46/136
Downloaded from a2zmba.blogspot.com
back the units to the mutual und through periodic repurchase at AQ related
prices.
Inter/al Funds
#nterval unds combine the eatures o open / ended and close / ended
schemes. They are open or sales or redemption during pre-determined
intervals at their AQ.
!%%ordin2 to In4estment O3je%ti4e+
0ro9th Funds
The aim o growth unds is to provide capital appreciation over the
medium to long term. +uch schemes normally invest a majority o their
corpus in e!uities. #t has been proven that returns rom stocks are
much better than the other investments had over the long term. rowth
schemes are ideal or investors having a long term outlook seekinggrowth over a period o time.
Income Funds
The aim o the income unds is to provide regular and steady
income to investors. +uch schemes generally invest in ixed incomesecurities such as bonds corporate debentures and government
securities. #ncome unds are ideal or capital stability and regular
income.
46
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
47/136
Downloaded from a2zmba.blogspot.com
alanced Funds
The aim o balanced unds is to provide both growth and regular
income. +uch schemes periodically distribute a part o their earningand invest both in e!uities and ixed income securities in the proportion
indicated in their oer documents. #n a rising stock market the AQ o
these schemes may not normally keep pace or all e!ually when the
market alls. These are ideal or investors looking or a combination o
income and moderate growth.
Money Mar;et Funds
The main aim o money market unds is to provide easy li!uidity
preservation o capital and moderate income. These schemes
generally invest in sae short term instruments such as treasury bills
certiicates o deposit commercial paper and inter / bank call money.
2eturns on these schemes may luctuate depending upon the interest
rates prevailing in the market. These are ideal or corporate and
individual investors as a means to park their surplus unds or shortperiods.
Oter S%emes
Ta5 Sa4in2 S%emes
These schemes oer tax rebates to the investors under speciicprovisions o the #ndian #ncome Tax laws as the government oers tax
incentives or investment in speciied avenues. #nvestments made in
F!uity Einked +aving +chemes ?FE++@ and ension +chemes are
allowed as deduction uJs 66 o the #ncome Tax Act 4574. The Act also
provides opportunities to investors to save capital gains.
47
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
48/136
Downloaded from a2zmba.blogspot.com
Spe%ial S%emes+
Inde@ Schemes
#ndex unds attempt to replicate the perormance o a particular
index such as the B+F +ensex or the +F )*.
Sector Specific Schemes
+ector unds are those which invest exclusively in a speciied
industry or a group o industries or various segments such as RA’ groupshares or initial public oerings.
ond Schemes
#t seeks investment in bonds debentures and debt related
instrument to generate regular income low.
48
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
49/136
Downloaded from a2zmba.blogspot.com
FRE8UENTLY USED TERMS
Ad/isor - #s employed by a mutual und organi"ation to give proessional
advice on the und’s investments and to supervise the management o its
asset.
5i/ersification ! The policy o spreading investments among a range o
dierent securities to reduce the risk.
Net Asset :alue NA:, & et Asset Qalue is the market value o the assets
o the scheme minus its liabilities. The per unit AQ is the net asset value o
the scheme divided by the number o units outstanding on the Qaluation
Date.
Sales Price - #s the price you pay when you invest in a scheme. Also called
,er rice. #t may include a sales load.
Repurchase Price & #s the price at which a close-ended scheme
repurchases its units and it may include a back-end load. This is also called
Bid rice.
Redemption Price - #s the price at which open-ended schemes
repurchase their units and close-ended schemes redeem their units on
maturity. +uch prices are AQ related.
Sales 6oad & #s a charge collected by a scheme when it sells the units. Also
called R(ront-end’ load. +chemes that do not charge a load are called Ro
Eoad’ schemes.
49
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
50/136
Downloaded from a2zmba.blogspot.com
&E#+
50
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
51/136
Downloaded from a2zmba.blogspot.com
P6ATF1RMS 1F 6IFE INS4RANCE& UNIT LIN9ED
INSUR!N#E PL!NS
>orld over insurance come in dierent orms and shapes . although thegeneric names may ind similar the dierence in product eatures makes one
wonder about the basis on which these products are designed .>ith
insurance market opened up #ndian customer has suddenly ound himsel in
a market place where he is bombarded with a lot o jargon as well as
marketing gimmicks with a very little knowledge o what is happening . This
module is aimed at clariying these underlying concepts and simpliying the
dierent products available in the market.
>e have many products like Fndowment >hole lie Money back etc. All
these products are based on ollowing basic platorms or structures vi".
Traditional Eie
&niversal Eie or &nit Einked olicies
)." TRA5ITI1NA6 6IFE ! AN 1:ER:IE2The basic and widely used orm o design is known as Traditional Eie
latorm. #t is based on the concept o sharing . Fach o the policy holder
contributes his contribution ?premium@ into the common large und is
managed by the company on behal o the policy holders.
51
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
52/136
Downloaded from a2zmba.blogspot.com
Administration o that common und in the interest o everybody was
entrusted to the insurance company .#t was the responsibility o the company
to administer schemes or beneit o the policyholders. olicyholders played a
very passive roll . #n the course o time the same concept o sharing and a
common und was extended to dierent areas like saving investment etc.
)."." FEAT4RES 1F T6 B
This is the simplest way o designing product as ar as concerned. Ge
has no other responsibility but to pay the premium regularly.
%ompany is responsible or the protection as well as maximi"ation o
the policyholder’s unds.
There is a common und where in all the premiums paid are
accumulated. Fxpenses incurred as well as claims paid are then taken
out o this und.
%ompanies carry out the valuation o the und periodically to ascertain
the position. #t is also a practice to increase the minimum possible
guarantee under a policy every year in the orm o declaring and
attaching bonuses to the sum assured on the basis o this valuation.
Declaration o bonuses is not mandatory .
Based on the end objective companies may oer dierent plans like
saving plans investment plans etc.?e.g. Fndowment +>E#@
#t helps to maintain a smooth growth and protects against the vagaries o the
market. #n other words it minimi"es the risk o investments or an average
individual. Ge shares his risk with a group o like-minded individuals.
46IP is the Product Inno/ation of the con/entional Insurance product.
2ith the decline in the popularity of traditional Insurance products
chan8in8 In/estor needs in terms of life protectionD periodicityD returns
li?uidityD it 9as need of the hour to ha/e an Instrument that offers all
these features +undled into one.
52
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
53/136
Downloaded from a2zmba.blogspot.com
A &nit Eink #nsurance olicy ?&E#@ is one in which the customer is provided
with a lie insurance cover and the premium paid is invested in either debt or
e!uity products or a combination o the two. #n other words it enables the
buyer to secure some protection or his amily in the event o his untimely
death and at the same time provides him an opportunity to earn a return on
his premium paid. #n the event o the insured personIs untimely death his
nominees would normally receive an amount that is the higher o the sum
assured or the value o the units ?investments@.
To put it simply &E# attempts to ulill investment needs o an investor with
protectionJinsurance needs o an insurance seeker. #t saves theinvestorJinsurance-seeker the hassles o managing and tracking a portolio or
products. More importantly &E#s oer investors the opportunity to select a
product which matches their risk proile.
&nit Einked #nsurance lans came into play in the 457*s and became very
popular in >estern Furope and Americas. #n #ndia The irst unit linked
#nsurance lan popularly known as &E# / &nit Einked #nsurance lan in#ndia was brought out by &nit Trust , #ndia in the year 4584 by entering into
a group insurance arrangement with E#% o provide or lie cover to the
investors while &T# as a mutual was taking care o investing the unit
holders money in the capital market and giving them a air return .
+ubse!uently in the year 4565 another &nit Einked roduct was launched
by the E#% Mutual (und called by the name o $DGAA2A;+GA' which was
more or less on the line o &E# o &T# . Thereater E#% itsel came out with a
&nit Einked #nsurance roduct known by name $B#MA E&+ $ in the year
3**4-*3 .
resently a number o private lie insurance companies have launched &nit
Einked #nsurance roducts with a variety o new eatures.53
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
54/136
Downloaded from a2zmba.blogspot.com
TYPES OF ULIP
There are various unit linked insurance plans available in the market.
Gowever the key ones are pensionD childrenD 8roup and capital 8uarantee
plans.
The pension plans come with two variations with and without lie cover
and are meant or people who want to generate returns or their sunset years.
The children plans on the other hand are aimed at taking care o their
educational and other needs..
Apart rom unit-linked plans or individuals group unit linked plans are also
available in the market. The roup linked plans are basically designed or
employers who want to oer certain beneits or their employees such as
gratuity superannuation and leave encashment.
The other important category o &E#s is capital guarantee plans. The planpromises the policyholder that at least the premium paid will be returned at
maturity. But the guaranteed amount is payable only when the policyIs
maturity value is below the total premium paid by the individual till maturity.
Gowever the guarantee is not provided on the actual premium paid but only
on that portion o the premium that is net o expenses ?mortality sales and
marketing administration@.
"o6 ULIPs 6or:
&E#s work on the lines o mutual unds. The premium paid by the client ?less
any charge@ is used to buy units in various unds ?aggressive balanced or
conservative@ loated by the insurance companies. &nits are bought according
54
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
55/136
Downloaded from a2zmba.blogspot.com
to the plan chosen by the policyholder. ,n every additional premium more
units are allotted to his und. The policyholder can also switch among the
unds as and when he desires. >hile some companies allow any number o
ree switches to the policyholder some restrict the number to just three or
our. # the number is exceeded a certain charge is levied.
#ndividuals can also make additional investments ?besides premium@ rom
time to time to increase the savings component in their plan. This acility is
termed Stop-upS. The money parked in a &E# plan is returned either on the
insuredIs death or in the event o maturity o the policy. #n case o the insured
personIs untimely death the amount that the beneiciary is paid is the higher
o the sum assured ?insurance cover@ or the value o the units ?investments@.
Gowever some schemes pay the sum assured plus the prevailing value othe investments.
ULIP ; 9EY FE!TURES
• remiums paid can be single regular or variable. The payment period
too can be regular or variable. The risk cover can be increased or
decreased.
• As in all insurance policies the risk charge ?mortality rate@ varies with
age.
• The maturity beneit is not typically a ixed amount and the maturity
period can be advanced or extended.
• #nvestments can be made in gilt unds balanced unds money market
unds growth unds or bonds.
• The policyholder can switch between schemes or instance balanced
to debt or gilt to e!uity etc.
55
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
56/136
Downloaded from a2zmba.blogspot.com
• The maturity beneit is the net asset value o the units.
• The costs in &E# are higher because there is a lie insurance
component in it as well in addition to the investment component.
• #nsurance companies have the discretion to decide on their investment
portolios.
• Being transparent the policyholder gets the entire episode on the
perormance o his und.
• &E# products are exempted rom tax and they provide lie insurance.
• rovides capital appreciation.
• #nvestor gets an option to choose among debt balanced and e!uity
unds.
USP of ULIPS
Insurance co/er plus sa/in8s
&E#s serve the purpose o providing lie insurance combined with savings at
market-linked returns. To that extent &E#+ can be termed as a two-in-one
plan in terms o giving an individual the twin beneits o lie insurance plus
savings.
Multiple in/estment options
&E#+ oer a lot more variety than traditional lie insurance plans. +o there
are multiple options at the individual’s disposal. &E#+ generally come in
three broad variants1
56
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
57/136
Downloaded from a2zmba.blogspot.com
Aggressive &E#+ ?which can typically invest 6*:-4**: in e!uities
balance in debt@
Balanced &E#+ ?can typically invest around =*:-7*: in e!uities@
%onservative &E#+ ?can typically invest upto 3*: in e!uities@
Although this is how the &E# options are generally designed the exact
debtJe!uity allocations may vary across insurance companies. #ndividuals can
opt or a variant based on their risk proile.
Fle@i+ility
The lexibility with which individuals can switch between the &E# variants tocapitalise on investment opportunities across the e!uity and debt markets is
what distinguishes it rom other instruments. +ome insurance companies
allow a certain number o Rree’ switches. +witching also helps individuals on
another ront. They can shit rom an Aggressive to a Balanced or a
%onservative &E# as they approach retirement. This is a relection o the
change in their risk appetite as they grow older.
2or;s li;e an SIP
2upee cost-averaging is another important beneit associated with &E#+.
>ith an +# individuals invest their monies regularly over time intervals o a
monthJ!uarter and don’t have to worry about Rtiming’ the stock markets.
"URDLES OF ULIP
NO ST!ND!RDI
All the costs are levied in ways that do not lend to standardisation. # one
company calculates administration cost by a ormula another levies a lat
rate. # one company allows a range o the sum assured ?+A@ another allows
only a multiple o the premium. There was also the problem o a varying cost
structure with age57
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
58/136
Downloaded from a2zmba.blogspot.com
L!#9 OF FLE,I)ILITY IN LIFE #O$ER
&E# is known to be more lexible in nature than the traditional plans and onmost counts they are. Gowever some insurance companies do not allow the
individual to ix the lie cover that he needs. These rely on a multiplier that is
ixed by the insurer
O$ERST!TIN& T"E YIELD
#nsurance companies work on illustrations. They are allowed to show you howmuch your annual premium will be worth i it grew at 4* per cent per annum.
But there are costs so each company also gives a post-cost return at the 4*
per cent illustration calling it the yield. some companies were not including
the mortality cost while calculating the yield. This amounts to overstating the
yield.
INTERN!LLY M!DE S!LES ILLUSTR!TION
During the process o collecting inormation it was ound that the sales
beneit illustration shown was not conorming to the #nsurance 2egulatory and
Development Authority ?#rda@ ormat. in many locations9* per cent return
illustrations are still rampant
NOT !LL S"O= T"E )EN#"M!R9 RETURN
To talk about returns without pegging them to a benchmark is misleading the
customer. Though most companies use +ensex B+F 4** or the ity as the
58
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
59/136
Downloaded from a2zmba.blogspot.com
benchmark or the measuring rod o perormance some companies are not
using any benchmark at all.
E!RLY E,IT OPTIONS
The &lip product works over the long term. The earlier the exit the worse o
is the investor since he ends up redeeming a high-ront-load product and is
then encouraged to move into another higher cost product at that stage. An
early exit also takes away the beneit o compounding rom insured.
59
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
60/136
Downloaded from a2zmba.blogspot.com
#REEPIN& #OSTS
+ince the investors are now more aware than beore and have begun to ask
or costs some companies have ound a way to answer that withoutdisclosing too much. eople are now asking how much o the premium will go
to work. There are plans that are able to say 53 per cent will be invested that
is will have a ront load o just 6 per cent. >hat they do not say is the much
higher policy administration cost that is tucked away inside ?adjusted rom the
und value@.
>hile most insurance companies charge an annual ee o about 2s 7** as
administration costs that stay ixed over time there are plans that charge thisamount but it grows by as much as ) per cent a year over time. There are
others that charge a multiple o this amount and that too grows
60
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
61/136
Downloaded from a2zmba.blogspot.com
C1MPARIS1N
ET2EEN 46IPS
AN5 M4T4A6
F4N5S
61
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
62/136
Downloaded from a2zmba.blogspot.com
#OMP!RISON )ET=EEN ULIPS !ND MUTU!L FUNDSB
&nit Einked #nsurance olicies ?&E#s@ as an investment avenue are closest
to mutual unds in terms o their structure and unctioning. As is the case with
mutual unds investors in &E#s are allotted units by the insurance company
and a net asset value ?AQ@ is declared or the same on a daily basis.
+imilarly &E# investors have the option o investing across various schemes
similar to the ones ound in the mutual unds domain i.e. diversiied e!uity
unds balanced unds and debt unds to name a ew. enerally speaking
&E#s can be termed as mutual und schemes with an insurance component.
Gowever it should not be construed that barring the insurance element there
is nothing dierentiating mutual unds rom &E#s.
Points of difference +et9een the t9oB
". Mode of in/estment in/estment amounts
Mutual und investors have the option o either making lump sum investments
or investing using the systematic investment plan ?+#@ route which entails
commitments over longer time hori"ons. The minimum investment amounts
are laid out by the und house.
&E# investors also have the choice o investing in a lump sum ?single
premium@ or using the conventional route i.e. making premium payments onan annual hal-yearly !uarterly or monthly basis. #n &E#s determining the
premium paid is oten the starting point or the investment activity.
62
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
63/136
Downloaded from a2zmba.blogspot.com
This is in stark contrast to conventional insurance plans where the sum
assured is the starting point and premiums to be paid are determined
thereater.
&E# investors also have the lexibility to alter the premium amounts during
the policyIs tenure. (or example an individual with access to surplus unds
can enhance the contribution thereby ensuring that his surplus unds are
gainully investedN conversely an individual aced with a li!uidity crunch has
the option o paying a lower amount ?the dierence being adjusted in the
accumulated value o his &E#@. The reedom to modiy premium payments at
oneIs convenience clearly gives &E# investors an edge over their mutual
und counterparts.
-. E@penses
#n mutual und investments expenses charged or various activities like und
management sales and marketing administration among others are subject
to pre-determined upper limits as prescribed by the +ecurities and Fxchange
Board o #ndia.
(or example e!uity-oriented unds can charge their investors a maximum o
3.): per annum on a recurring basis or all their expensesN any expense
above the prescribed limit is borne by the und house and not the investors.
+imilarly unds also charge their investors entry and exit loads ?in most cases
either is applicable@. Fntry loads are charged at the timing o making an
investment while the exit load is charged at the time o sale.
#nsurance companies have a ree hand in levying expenses on their &E#
products with no upper limits being prescribed by the regulator i.e. the
#nsurance 2egulatory and Development Authority. This explains the complex
and at times IunwieldyI expense structures on &E# oerings. The only63
8/20/2019 21042903 Comparitive Analysis of Mutual Funds and Ulips Project Report
64/136
Downloaded from a2zmba.blogspot.com
restraint placed is that insurers are re!uired to notiy the regulator o all the
expenses that will be charged on their &E# oerings.
Fxpenses can have ar-reaching conse!uences on investors since higher
expenses translate into lower amounts being invested and a smaller corpus
being accumulated. &E#-related expenses have been dealt with in detail in
the article S&nderstanding &E# expensesS.
). Portfolio disclosure
Mutual und houses are re!uired to statutorily declare their portolios on a
!uarterly basis albeit most und houses do so on a monthly basis. #nvestorsget the opportunity to see where their monies are being invested and how
they have been managed by studying the portolio.
There is lack o consensus on whether &E#s are re!uired to disclose their
portolios. During our interactions with leading insurers we came across
divergent views on this issue.
>hile one school o thought believes that disclosing portolios 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 portolios on