1. A PROJECT REPORT ON
A COMPARATIVE STUDY OF
ULIPS VS MUTUAL FUNDS
AT
SBI MUTUAL FUNDS
In partial fulfillment of the requirements for the award of the degree in
MASTER OF BUSINESS ADMINISTRATION
Submitted by
P.REDDY RAJA REDDY
H.T.No. 13691E0083
Under the guidance of
Miss. G.ARUNA REDDY
Asst. Professor
MALLA REDDY INSTITUTE OF MANAGEMENT
(Affiliated to Osmania University)
MAISAMMAGUDA, DHULAPALLY,
SECUNDERABAD – 500014.
2007-2009
1

2. ACKNOWLEDGEMENT
It is my bounded duty to place on record my the gratitude to Shri V. Crist general manager, SBI
MUTUAL FUNDS, Hyderabad for permitting me to undertake this project work.
I would like to extend my gratitude and sincere thanks to Shri S. Mallikarjun, Agency Manager
for the guidance offered and personal involvement in completing this project work.
I also confer my sincere thanks to Ms. Aruna asst Prof of Mallareddy Institute of Management
secbad.
I’m greatly indebted to my beloved parents for their invaluable encouragement, support, guidance,
and for building self-confidence in me at every step in my career.
P.REDDY RAJA REDDY
2

3. DECLARATION
I here by declare that this project work entitled “A COMPARATIVE STUDYOF ULIPS VS
MUTUAL FUNDS” in SBI MUTUAL FUNDS, is strictly an original one and has been carried out by
me and submitted in partial fulfillment for the award of the Degree of Master of business
Administration (MBA). In the department of commerce, Osmania university for the academic year
2008-2009.
Place: SECBAD (P.REDDY RAJA REDDY)
Date:
HALL TICKET NO:
3

4. ABSTRACT OF THE STUDY
The present project work “A COMPARATIVE STUDY OF ULIPS VS MUTUAL FUNDS” is
carried out in “SBI MUTUAL FUNDS”.
Chapter1: Deals with Introduction of the topic, Objectives, Needs, Scope & Importance of the
study, .Methodology and Limitations.
Chapter2: Deals with the Introduction & Briefing about “A COMPARATIVE STUDY OF ULIPS
VS MUTUAL FUNDS”.
Chapter3: Deals with the Industry profile and Company profile.
Chapter4: Deals with Data analysis & Interpretation.
Chapter5: Deals with Findings.
Chapter6: Deals with Suggestions.
Chapter7: Deals with Conclusions.
CONTENT
4

5. Chapter no Content Page no
1 Introduction 1-3
Objectives 4
Need, scope & importance 5-6
Methodology 7
Limitations 8
2 Review of literature 9-37
3 Industry profile & Company profile 38-67
4 Data analysis and interpretation 68-82
5 Findings 83
6 Suggestions 84
7 Conclusions 85
ANNEXURE Bibliography
5

6. CHAPTER-I
INTRODUCTION
6

7. INTRODUCTION TO LIFE INSURANCE
OVER VIEW OF INSURANCE
Life insurance has traditionally been looked upon predominantly as an avenue that offers tax
benefits while also doubling up as a saving instrument. The purpose of life insurance is to identify the
nominees in case of an eventuality to the insured. In other words, life insurance is intended to secure
the financial future of the nominees in the absence of the person insured.
The purpose of buying a life insurance is to protect your dependents from any financial difficulties
in your absence. It helps individuals in providing them with the twin benefits of insuring themselves
while at the same time acting as a compulsory savings instrument to take care of their future needs. Life
insurance can aid your family on a rainy day, at a time when help from every quarter is welcome and of
course, since some plans also double up as a savings instrument, they assist you in planning for such
future needs like children’s marriage, purchase of various house hold items, gold purchases or as seed
capital for starting a business.
Traditionally, buying life insurance has always formed an integral part of an individual’s annual tax
planning exercise. While it is important for individuals to have life cover, it is equally important that
they buy insurance keeping both their long-term financial goals and their tax planning in mind. This
note explains the role of life insurance in an individual’s tax planning exercise while also evaluating the
various options available at one’s disposal.
Life is full of dangers, but with insurance, you can at least ensure that you and your dependents
don’t suffer. It’s easier to walk the tightrope if you know there is a safety net. You should try and take
cover for all insurable risks. If you are aware of the major risks and buy the right products, you can
cover quite a few bases. The major insurable risks are as follows:
7

8. • Life
• Health
• Income
• Professional Hazards
• Assets
• Outliving Wealth
• Debt Repayment
INTRODUCTION TO ULIPS
ULIPs are basically work like a mutual fund with a life cover thrown in. They invest the premium
in market-linked instruments like stocks, corporate bonds and government securities (gsecs). The basic
difference between ULIPs and traditional insurance plans is that while traditional plans invest mostly in
bonds and gsecs, ULIPs’ mandate is to invest a major portion of their corpus in stocks. However,
investments in ULIP should be in tune with the individual’s risk appetite. ULIPs offer flexibility to the
policy holder-the policy holder can shift his money between equity and debt in varying proportions.
8

9. INTRODUCTION TO MUTUAL FUNDS
As you probably know, mutual funds have become extremely popular over the last 20 years. What
was once just another obscure financial instrument is now a part of our daily lives. More than 20
million people, or one half of the households in America, invest in mutual funds. That means that, in
the United States al one, trillions of dollars are invested in mutual funds.
In fact, too many people, investing means buying mutual funds. After all, its common knowledge
that investing in mutual funds is (or at least should be) better than simply letting your cash waste away
in a savings account, but, for most people, that’s where the understanding of funds ends. It doesn’t help
that mutual fund sale people speak a strange language that is interspersed with jargon that many
investors don’t understand.
Originally, mutual funds were heralded as a way for the little guy to get a piece of the market.
Instead of spending all your free time buried in the financial pages of the wall street journal, all you had
to do was buy a mutual fund and you’d be set on your way to financial freedom. As you might have
guessed, it’s not that easy. Mutual funds are an excellent idea in theory, but, in reality, they haven’t
always delivered. Not all mutual funds are created equal, and investing in mutual’s isn’t as easy as
throwing your money at the first salesperson who solicits your business.
Types of Mutual Funds
There are wide varieties of Mutual Fund schemes that cater to investor needs, whatever the age,
financial position, risk tolerance and return expectations. The mutual fund schemes can be classified
according to both their investment objective (like income, growth, tax saving) as well as the number of
9

10. units (if these are unlimited then the fund is an open-ended one while if there are limited units then the
fund is close-ended.
OBJECTIVES OF THE STUDY
1. To study about the concept of unit linked insurance policies (ULIPS) and mutual funds.
2. To study and compare the returns of SBI ULIPS with SBI MUTUAL FUND.
3. To study and compare the returns of SBI ULIPS with HDFC ULIPS.
4. To observe which investment option (Ulips/Mutual Funds) is beneficial to investors.
10

11. NEED OF THE STUDY
ULIPS have been selling like proverbial ‘hot cakes’ in the recent past and they are likely to
continue to outsell their going ahead. So what is it that makes ULIPs so attractive to the individual?
Here are some reasons, which made ULIPs so irresistible.
To begin with, ULIPs serve the purpose of providing life insurance combined with savings at
market-linked returns. To that extent, ULIPs can be termed as a two-in-one plan in terms of giving an
individual the twin benefits of life insurance plus savings. This is unlike comparable instruments like a
mutual fund for instance, which does not offer a life cover.
ULIPs offer a lot more variety than traditional life insurance plans. So there are multiple plans. So
there are options at the individual’s disposal. ULIPs generally come in three broad variants:
• Aggressive ULIPs (which can typically invest 80%-100% in equities, balance in debt)
• Balanced ULIPs (can typically invest around 40%-60% in equities)
• Conservative ULIPs (can typically invest up to 20% in equities)
Although this is how the ULIP options are generally designed, the exact debt/equity allocations
may vary across insurance companies.
SCOPE OF THE STUDY
11

12. The scope of the study is limited to different mutual fund schemes and different life insurance
schemes of SBI. The present study has taken to observe the returns of ULIPs and Mutual funds for a
period of 5years, 10 years, 15 years, and 20 years .this enables me to study short term and long term
returns.
IMPORTANCE OF THE STUDY
One may well ask how ULIPs are any different from mutual funds. After all, mutual funds also
offer hybrid/balanced schemes that allow an individual to select a plan according to his risk profile. The
difference lies in the flexibility that ULIPs afford the individual. Individuals can switch between the
ULIP variants outlined above to capitalize on investment opportunities across the equity and debt
market. Some insurance companies allow a certain number of ‘free’ switches. This is an important
feature that allows the informed individual/investor to benefit from the vagaries of stock/debt markets.
Rupee cost-averaging is another benefit associated with ULIPs. Individuals have probably already
heard of the systematic investment plan (SIP) which is increasingly being advocated by the mutual fund
industry. With an SIP, individuals invest their monies regularly over time intervals of a month/quarter
and don’t have to worry about ‘timing’ the stock markets. These are not benefits peculiar to mutual
funds. Not many realize that ULIPs also tend to do the same, albeit on a quarterly/half-yearly basis. As
a matter of fact, even the annual premium in a ULIP works on the rupee cost-average principle. An
added benefit with ULIPs is that individuals can also invest a one-time amount in the ULIP either from
opportunities in the stock markets or if they have an investible surplus in a particular year that they
wish to put aside for the future.
12

13. Keeping in mind the rapid growth of the life insurance industry as well as the mutual funds industry
and the above mentioned factors, it was important to understand the features that distinguished ULIPS
from Mutual Funds.
METHODOLOGY
The research design used to undertake the project is of exploratory research.
Data Sources
The data sources used for the study are
1. Primary data:
The data is collected by interaction with executives of SBI MUTUAL FUNDS and HDFC standard
life insurance.
2. .Secondary data:
The secondary data is obtained from sources like
 Study reference books
 Internet
13

14.  Current NAVs of SBI MUTUAL FUNDS and HDFC standard life insurance
 Fact sheets
Data analysis:
The data about different schemes in SBI is obtained and the analysis is performed and compared
with the schemes of other insurance company and different mutual fund schemes of SBI.
LIMITATIONS
 Comparison of funds with ULIPS is difficult as each of them come with different
objectives. Moreover the past performance of various funds may or may not be sustained in the future.
 There is limited availability of data comparison.
 Since this project was undertaken for a less period meticulous study could not be carried
out.
 Much of the data is collected from secondary sources. The calculations so made with the
help of above data may not be accurate
14

15. CHAPTER-II
LITERATURE SURVEY
15

16. INTRODUCTION & BREAFING ABOUT TOPIC
ULIPS
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which
provides a combination of risk cover and investment. The dynamics of the capital market have a direct
bearing on the performance of the ULIPs. It is to be REMEMBERED THAT IN AUNIT LINKED
POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.
Most insurers in the year 2004 have started offering at least a few unit-linked plans. Unit-linked life
insurance products are those where the benefits are expressed in terms of number of units and unit
price. They can be viewed as a combination of insurance and mutual funds. The number of units, which
the customer would get, would depend on the unit price when he pays his premium. The daily unit price
is based on the market value of the underlying assets (equities, bonds, government securities etc.) and
computed from the net asset value.
The advantage of Unit linked plans are that they are simple, clear, and easy to understand. Being
transparent the policyholder gets the entire upside on the performance of his fund. Besides all the
advantages they offer to the customers, unit-linked plans also lead to an efficient utilization of capital.
Unit-linked products are exempted from tax and they provide life insurance. Investors welcome
these products as they provide capital appreciation even as the yields on government securities have
fallen below 6 per cent, which has made the insurers slash payouts.
According to the IRDA, a company offering unit linked plans must give the investor an option to
choose among debt, balanced and equity funds. If you opt for a unit-linked endowment policy, you can
choose to invest your premiums in debt, balanced or equity plans. If you choose a debt plan, the
16

17. majority of your premiums will get invested in debt securities like gilts and bonds. If you choose
equity, then a major portion of your premiums will be invested in the equity market. The plan you
choose would depend on your risk profile and your investment need.
The ideal time to buy a unit-linked plan is when one can expect long-term growth ahead. This is
especially so if one also believes that current market values (stock valuations) are relatively low. So if
you are opting for a plan that invests primarily in equity, the buzzing market could lead to windfall
returns. However, should the buzz die down, investors could be left stung.
If one invests in a unit-linked pension plan early on, say 25, one can afford to take the risk
associated with equities, at least in the plan's initial stages. However, as one approaches retirement the
quantum of returns should be subordinated to capital preservation. At this stage, investing in a plan that
has an equity tilt may not be a good idea.
Considering that unit-linked plans are relatively new launches, their short history does not permit an
assessment of how they will perform in different phases of the stock market. Even if one views
insurance as a long-term commitment, investments based on performance over such a short time span
may not be appropriate.
The chart below shows how one product can meet multiple needs at different life stages of
Integrated Financial Planning
17

18. Starting a
job, Single
individual
Recently
married, no
kids
Married,
with kids
Kids going
to school,
college
Higher studies
for child, marriage
Children
independent,
nearing the
golden years
Your Need Low
protection, high
asset creation and
accumulation
Reasonable
protection, still
high on asset
creation
Higher
protection, still
high on asset
creation but
steadier
options,
increase
savings for
child
Higher
Protection, high
on asset
creation but
steadier options,
liquidity for
education
expenses
Lumpsum
money for
education, marriage.
Facility to stop
premium for 2-3 yrs
for these extra
expenses
Safe
accumulation for
the golden
yrs.Considera-bly
lower life
insurance as the
dependencies
have decreased
Flexibility Choose low
death benefit,
choose
growth/balanced
option for asset
creation
Increase
death benefit,
choose
growth/balance
d option for
asset creation
Increase
death benefit;
choose
balanced option
for asset
creation.
Choose riders
for enhanced
protection. Use
top-ups to
increase your
Withdrawal
from the
account for the
education
expenses of the
child
Withdrawal
from the account for
higher
education/marriage
expenses of the
child. Premium
holiday-to stop
premium for a
period without
lapsing the policy
Decrease the
death benefit-
reduce it to the
minimum
possible. Choose
the income
investment
option. Top-ups
form the
accumulation
(with reduced
18

19. accumulation expenses) for the
golden yrs cash
accumulation
Unit fund
The allocated(invested) portions of the premiums after deducting for all the charges and premium
for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together
to form a unit fund.
Unit
It is a component of the fund in a unit linked policy.
Types of ULIP offers
Most insurers offer a wide range of funds to suit one’s investment objective, 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 Investment Risk Category
Equity Funds Primarily invested in company stocks with the general aim of
capital appreciation
Medium to
High
19

20. Income, fixed interest
and bond funds
Invested in corporate bonds, government securities and other
fixed income instruments
Medium
Cash Funds Some times known as money market funds – invested in cash,
bank deposits and money market instruments
Low
Balanced Funds Combining equity investment with fixed interest instruments Medium
Investment guarantee in a ULIP
Investment returns from ULIP may not be guaranteed. “In unit linked products/policies, the
investment risk in investment portfolio is borne by the policy holder”. Depending upon the
performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her
investments. It should also be noted that the past returns of a fund are not necessarily indicative of the
future performance of the fund.
Charges, fees and deductions in a ULIP
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of
fees and charges are given below. However it may be noted that insurers have the right to revise fees
and charges over a period of time.
1) Premium allocation charge
This is a percentage of the premium appropriated towards charges before allocating the units under
the policy. This charge normally includes initial and renewal expenses apart from commission
expenses.
20

21. 2) Morality charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges
depend on number of factors such as age, amount of coverage, state of health etc
3) Fund management fees
These are fees levied for management of the fund(s) and are deducted before arriving at
the Net Asset Value (NAV).
4) Policy administration charges
These are the fees for administration of the plan and levied by cancellation of units. This could be
flat throughout the policy term or vary at a pre-determined rate.
5) Surrender charges
A surrender charge may be deducted for premature partial or full encashment of units wherever
applicable, as mentioned in the policy conditions.
6) Fund switching charge
Generally a limited number of fund switches may be allowed each year without charge, with
subsequent switches, subject to a charge.
7) Service tax deductions
Before allotment of the units the applicable service is deducted from the risk portion of the
premium.
21

22. Investors may note that the portion of the premium after deducting for all charges and premium for
risk cover is utilized for purchasing units.
Amount of the premium that is used to purchase units
The full amount of premium paid is not allocated to purchase units. Insurers allot units on the
portion of the premium remaining after providing for various charges, fees and deductions. However
the quantum of premium used to purchase units varies from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid
because the charges are first deducted from the premium collected and the remaining amount is used
for allocating units.
Refund of premiums if one is not satisfied with the policy, after purchasing it
The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the
policy, within 15 days of receipt of the policy document (free look period). The policyholder shall be
refunded the fund value including charges levied through cancellation of units subject to deduction of
expenses towards medical examinations, stamp duty and proportionate risk for the period of cover.
Net asset value (NAV)
22

23. NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on
the website of the respective insurers.
The benefit payable in the event of risk occurring during the terms of the policy
The value of the fund units with bonuses, if any is payable on maturity of the policy.
Possibility to invest additional contribution above the regular premium One can invest
additional contribution over the regular premiums as per their choice subject to the feature being
available in the product. This facility as “TOP UP” facility.
MUTUAL FUND
History of the Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank then the history of mutual funds in India can be
broadly divided into four distinct phases
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve
Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India
(IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under
management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
23

24. 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI
Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank
Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov
89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in
June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund
industry had assets under management of Rs.47, 004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry,
giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first
Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the
first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised
Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund)
Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up
funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of
24

25. January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of
India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into
two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under
management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US
64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by Government of India and does not
come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered
with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI
which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting
up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers
taking place among different private sector funds, the mutual fund industry has entered its current phase
of consolidation and growth.
The graph indicates the growth of assets over the years.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as shares,
debentures and other securities. The income earned through these investments and the capital
25

26. appreciation realized is shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow
chart below describes broadly the working of mutual funds.
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing
funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus
the risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual funds are known as unit
holders.
The investors in proportion to their investments share the profits or losses. The mutual funds
normally come out with a number of schemes with a number of schemes with different investment
objectives that are launched from time to time. A mutual fund is required to be registered with
Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect
funds from the public.
26

27. Different investment avenues are available to investors. Mutual funds also offer good investment
opportunities to the investors. Like all investments, they also carry certain risks. The investors should
compare the risks and expected yields after adjustment of tax on various instruments while taking
investment decisions.
Mutual fund structure:
Sponsor:
27

28. Sponsor is the person who acting alone or in combination with another body corporate establishes a
mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and
meet the eligibility criteria prescribed under the securities and Exchange Board of India (mutual Funds)
Regulations, 1996. The sponsor is not responsible or liable for any loss or shortfall resulting from the
operation of the schemes beyond the initial contribution made by it towards setting up of the Mutual
Fund.
Trust:
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The
main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure
that the AMC functions in the interest of investors and in accordance with the securities and Exchange
Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer
Documents of the respective schemes. At least 2/3rd
directors of the trustee are independent directors
who are not associated with the sponsor in any manner.
Asset Management Company:
The trustee as the Investment manager of the Mutual fund appoints the AMC. The AMC is required
to be approved by the securities and Exchange Board of India (SEBI) to act as an asset management
company of the mutual Fun. At least 50% of the directors of the AMC are independent directors who
are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 cores
at all times.
28

29. History of Mutual Funds in India and role of SEBI in mutual funds industry:
Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s,
government allowed public sector banks and institutions to set up mutual funds.
In the year 1992, securities and exchange Board of India (SEBI) Act was passed. The objectives of
SEBI are to protect the interest of investors in securities and to promote the development of and to
regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to
protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter,
mutual funds sponsored by private sector entities were allowed to enter the capital market. The
regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has
also issued guidelines to the mutual funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector entities including promoted
by foreign entities are governed by the same set of Regulations.
There is no distinction in regulatory requirements for these mutual funds and the entire subject to
monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual
funds sponsored by these entities are of similar type.
Types of Mutual Funds
By structure
Open-Ended schemes
Close-Ended schemes
29

30. Interval-schemes
By Investment objective
Growth schemes
Income schemes
Balanced schemes
Money market schemes
Other schemes
Tax saving schemes
Special saving schemes
Index schemes
Sector specific schemes
Getting a handle on what's under the hood helps you become a better investor and put together a
more successful portfolio. To do this one must know the different types of funds that cater to investor
needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund
schemes can be classified according to both their investment objective (like income, growth, tax
saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while
if there are limited units then the fund is close-ended).
This section provides descriptions of the characteristics -- such as investment objective and
potential for volatility of your investment -- of various categories of funds. These descriptions are
30

31. organized by the type of securities purchased by each fund: equities, fixed-income, money market
instruments, or some combination of these.
Open-ended schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-
related prices from and to the mutual fund on any business day. These schemes have unlimited
capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can
buy from the fund and the unit capital can keep growing. These funds are not generally listed on any
exchange.
Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any
time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis.
The advantages of open-ended funds over close-ended are as follows:
Any time exit option, the issuing company directly takes the responsibility of providing an entry
and an exit. This provides ready liquidity to the investors and avoids reliance on transfer deeds,
signature verifications and bad deliveries. Any time entry option, an open-ended fund allows one to
enter the fund at any time and even to invest at regular intervals.
Close ended schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the
period when these funds are open in the initial issue. After that such scheme cannot issue new units
except in case of bonus or rights issue. However, after the initial issue, you can buy or sell units of the
31

32. scheme on the stock exchanges where they are listed. The market price of the units could vary from the
NAV of the scheme due to demand and supply factors, investors’ expectations and other market factors
Classification according to investment objectives
Mutual funds can be further classified based on their specific investment objective such as growth
of capital, safety of principal, current income or tax-exempt income.
In general mutual funds fall into three general categories:
1] Equity Funds are those that invest in shares or equity of companies.
2] Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return
are
3] While funds that invest in a combination of both stocks and bonds are called Balanced Funds.
Growth Funds
Growth funds primarily look for growth of capital with secondary emphasis on dividend. Such
funds invest in shares with a potential for growth and capital appreciation. They invest in well-
established companies where the company itself and the industry in which it operates are thought to
have good long-term growth potential, and hence growth funds provide low current income. Growth
funds generally incur higher risks than income funds in an effort to secure more pronounced growth.
Some growth funds concentrate on one or more industry sectors and also invest in a broad range of
industries. Growth funds are suitable for investors who can afford to assume the risk of potential loss in
32

33. value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for
investors who must conserve their principal or who must maximize current income.
Growth and Income Funds
Growth and income funds seek long-term growth of capital as well as current income. The
investment strategies used to reach these goals vary among funds. Some invest in a dual portfolio
consisting of growth stocks and income stocks, or a combination of growth stocks, stocks paying high
dividends, preferred stocks, convertible securities or fixed-income securities such as corporate bonds
and money market instruments. Others may invest in growth stocks and earn current income by selling
covered call options on their portfolio stocks.
Growth and income funds have low to moderate stability of principal and moderate potential for
current income and growth. They are suitable for investors who can assume some risk to achieve
growth of capital but who also want to maintain a moderate level of current income.
Fixed-Income Funds
Fixed income funds primarily look to provide current income consistent with the preservation of
capital. These funds invest in corporate bonds or government-backed mortgage securities that have a
fixed rate of return. Within the fixed-income category, funds vary greatly in their stability of principal
and in their dividend yields. High-yield funds, which seek to maximize yield by investing in lower-
33

34. rated bonds of longer maturities, entail less stability of principal than fixed-income funds that invest in
higher-rated but lower-yielding securities.
Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely
payment of interest and principal is backed by the full faith and credit of the Indian Government. Fixed-
income funds are suitable for investors who want to maximize current income and who can assume a
degree of capital risk in order to do so.
Balanced
The Balanced fund aims to provide both growth and income. These funds invest in both shares and
fixed income securities in the proportion indicated in their offer documents. Ideal for investors who are
looking for a combination of income and moderate growth.
Money Market Funds/Liquid Funds
For the cautious investor, these funds provide a very high stability of principal while seeking a
moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt
securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of
their short-term investments, money market mutual funds are able to keep a virtually constant unit
price; only the yield fluctuates.
Therefore, they are an attractive alternative to bank accounts. With yields that are generally
competitive with - and usually higher than -- yields on bank savings account, they offer several
advantages. Money can be withdrawn any time without penalty. Although not insured, money market
34

35. funds invest only in highly liquid, short-term, top-rated money market instruments. Money market
funds are suitable for investors who want high stability of principal and current income with immediate
liquidity.
Specialty/Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health care,
technology, leisure, utilities or precious metals. The funds enable investors to diversify holdings among
many companies within an industry, a more conservative approach than investing directly in one
particular company.
Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in
favor" but also entail the risk of capital losses when the industry is out of favor. While sector funds
restrict holdings to a particular industry, other specialty funds such as index funds give investors a
broadly diversified portfolio and attempt to mirror the performance of various market averages.
Index funds generally buy shares in all the companies composing the BSE Sensex or NSE Nifty or
other broad stock market indices. They are not suitable for investors who must conserve their principal
or maximize current income.
NET ASSET VALUE:
A unit is a basic measure of investment in a mutual fund. Each scheme or plan will have different
market values depending on the market value of the underlying asset it has invested in. this value is
called net asset value. Similarly market value of underlying asset changes every day, net asset value
also varies on day-to-day basis.
35

36. NAV is computed using a formula: (total assets-liabilities)/no. of assets.
Advantage of mutual fund:
• Lowest per unit investment in almost all the cases start for Rs 10 in INDIA
• Your investment will be managed by professional money managers so you need not worry
about your money.
• You can merge from one fund to another fund.
• Easy earning opportunity in share market.
• For long term they will provide good result.
• Your investment will be diversified
Disadvantage of mutual fund:
• Simply one line show you that mutual fund investment is depend on market risk please read
offer document carefully before investing means market down mutual fund down.
• Mutual funds are like many other investments without a guaranteed return so it is not
necessary you will get profit from mutual fund.
36

37. ULIPS vs. MUTUAL FUNDS
Unit linked Insurance Policies (ULIPs) as an investment avenue is closest to mutual funds in terms
of their structure and functioning. As is the case with mutual funds, investors in ULIPs is allotted units
by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to the ones
found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name
a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs.
Despite the seemingly comparable structures there are various factors wherein the two differ
In this article we evaluate the two avenues on certain common parameters and find out how they
measure up.
1. Mode of investment/investment amounts
Mutual fund investors have the option of either making lump sum investment or investing using the
systematic investment plan (SIP) route which entails commitments over longer time horizons. The
minimum investment amounts are laid out by the fund house.
ULIP investors also have the choice of investing in a lump sum (single premium) or using the
conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly
basis. In ULIPs, determining the premium paid is often the starting point for the investment activity.
37

38. This is in stark conventional insurance plans where the sum assured is the starting point and
premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the policy’s tenure.
For example an individual with access to surplus funds can enhance the contribution thereby ensuring
that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has
the option of paying a lower amount (the difference being adjusted in the accumulated value of his
ULIP). The freedom to modify premium payments at one’s convenience clearly gives ULIP investors
an edge their mutual fund counterparts.
2. Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales
and marketing, administration among others are subject to pre-determined upper limits as prescribed by
the securities and exchange board of India.
For example equity-oriented funds can charge their investors a maximum of 25% per annum on a
recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house
and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable).
Entry loads are charged at the timing of making an investment while the exit; load is charged at the
time of sale.
38

39. Insurance companies have a free hand in levying on their ULIP products with no upper limits being
prescribed by the regulator, i.e. the insurance regulatory and development authority. This explains the
complex and at times ‘unwidely’ expense structures on ULIP offerings. The only restraint placed is that
insurers are required to notify the regulator of all the expenses that will be charged on their offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate into
lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have
been dealt with in the article “Understanding ULIP expenses”.
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit
most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are
being invested and how they have been managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our
interactions with leading insurers we across divergent views on this issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory,
the other believes that there is no legal obligation to do so and that insurers are required to disclose their
portfolios only on demand.
39

40. Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the
lack of transparency in ULIP investments could be a cause for concern considering that the amount
invested in insurance policies is essentially meant to provide for contingencies and for long-term needs
like retirement; regular portfolio disclosures on the other hand can enable investors to make timely
investment decisions.
4. Flexibility in altering the asset allocation
As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely
comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a
60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt
instruments (debt funds) can be found in both ULIPs and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the
same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift investments
across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are
allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP
investor's equity component has appreciated, he can book profits by simply transferring the requisite
amount to a debt-oriented plan.
40

41. 5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds
good, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual
funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes)
are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example
diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the
gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains
tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term
capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique
set of advantages to offer. As always, it is vital for investors to be aware of the nuances in both
offerings and make informed decisions.
41

42. ULIPS vs. Mutual Funds
Unit linked investment plans (ULIPS) Mutual Funds
What is Protection + investment Investment
Duration for
good returns
Long term only Medium term, long term. Risky for short term
investors.
Flexibility Limited. Correcting mistakes and
moving funds from one ULIP to another
ULIP of a different fund management is
very expensive.
Very flexible. You can correct your mistakes if
you made any wrong investment decisions. You
can easily rearrange your portfolio in MF’s.
Investment
Objective
ULIPS can be used for achieving only
long term objectives and for those who seek
insurance cover.
MF’s can be used as your vehicle for
investments to achieve mid-long term objectives.
Tax
Implementation
Provide tax benefits under section 80C. Investments in ELSS schemes qualify for 80C.
returns on equity MF’s are exempt from long term
capital gains tax.
Liquidity Limited liquidity. Should stay invested
for a minimum number of years before you
can redeem.
Very liquid. You can sell your MF units any
time (except ELSS). Reliance mutual funds even
have introduced redemptions at ATM’s.
Protection Protection + investments. Certain
ULIPS provide capital guarantee. This
protects individuals from a potential market
slide..
Only investment. Better returns than ULIPS
and lower charges than ULIPS.
ULIPS vs. Mutual Funds
42

43. ULIPs Mutual Funds
Investment amounts
Determined by the
investor and can be
modified as well
Minimum investment
amounts are determined by the
fund house
Expenses
No upper limits,
expenses determined by
the insurance company
Upper limits for expenses
chargeable to investors have
been set by the regulator
Portfolio disclosure Not mandatory*
Quarterly disclosures are
mandatory
Modifying asset
allocation
Generally permitted for
free or at a nominal cost
Entry/exit loads have to be
borne by the investor
Tax benefits
Section 80C benefits
are available on all ULIP
investments
Section 80C benefits are
available only on investments
in tax-saving funds
CHAPTER-III
43

44. INDUSTRY PROFILE
AND
COMPANY PROFILE
INDUSTRY PROFILE
INDUSTRY PROFILE
44

45. INSURANCE
A state monopoly has little incentive to innovative or offers a wide range of products. It can be seen
by a lack of certain products from LIC’s portfolio and lack of extensive risk categorization in several
GIC products such as health insurance. More competition in this business will spur firms to offer
several new products and more complex and extensive risk categorization.
It would also result in better customer services and help improve the variety and price of insurance
products. The entry of new players would speed up the spread of both life and general insurance.
Spread of insurance will be measured in terms of insurance penetration and measure of density.
With the entry of private players, it is expected that insurance business roughly 400 billion rupees
per year now, more than 20 per cent per year even leaving aside the relatively under developed sectors
of health insurance, pen More importantly, it will also ensure a great mobilization of funds that can be
utilized for purpose of infrastructure development that was a factor considered for globalization of
insurance. More importantly, it will also ensure a great mobilization of funds that can be utilized for
purpose of infrastructure development that was a factor considered for globalization of insurance.
With allowing of holding of equity shares by foreign company either itself or through its subsidiary
company or nominee not exceeding 26% of paid up capital of Indian partners will be operated resulting
into supplementing domestic savings and increasing economic progress of nation. Agreements of
various ventures have already been made to be discussed later on in this paper.
It has been estimated that insurance sector growth more than 3 times the growth of economy in
India. So business or domestic firms will attempt to invest in insurance sector. Moreover, growth of
insurance business in India is 13 times the growth insurance in developed countries. So it is natural,
45

46. that foreign companies would be fostering a very strong desire to invest something in Indian insurance
business.
Most important not the least tremendous employment opportunities will be created in the field of
insurance which is burning problem of the present day today issues.
GENERAL INSURANCE:
British rule also introduced general insurance in India. Initially, this business was conducted
through British and other foreign insurance companies. The first general insurance company in India
‘TRITAN’ general insurance company limited’ was established at Calcutta in 1950. the first such type
of company was established by Indians in Mumbai in 1907 with the name ‘Indian mercantile insurance
company limited’ at the time of independence, about 40% of the total general insurance business in
India was done buy the British and other foreign insurance companies, but after independence this
percentage continuously declined. In 1971, the government took over the management of all general
insurance companies.
General insurance business in the country was nationalized with effect from 1 January, 1973 by the
general insurance Business (Nationalization) act, 1972.
More than 100 non-life insurance companies including branches of foreign companies operating
with in the country were amalgamated and grouped into four companies, viz., the national insurance
company limited the new India assurance company limited the oriental insurance company limited and
the united India insurance company limited with head office at Kolkata, Mumbai, New Delhi and
Chennai, respectively. General insurance corporation (GIC) which was the holding company of the four
public sector general insurance companies has since been delinked from the later and has been
46

47. approved as the ‘Indian Reinsure’ since 3 November 2000.the share capital of GIC and that of the four
companies are held by the government companies registered under the companies act.
The general insurance business has grown in spread and volume after nationalization. The four
companies have 2,699 branch offices, 1,360 divisional offices and 92 regional offices spread all over
the country. GIC and its subsidiaries have representation either directly through branches or agencies in
16 countries and through associate/locally incorporated subsidiary companies in 14 other countries.
The net profit of the industry during 2001-200 amounted to 12,229 crore, as against Rs.10, 772
crore during 2000-2001 representing a growth of 1352 percent over the premium income of last year.
Before nationalization, insurance business was centralized in urban areas only. GIC with its central
office in Pune and seven zonal offices at Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Kanpur and
Bhopal operates through 100 divisional offices in important cities and 2048 branch offices. As on 31
march, 2003 GIC had 9.88 lakh agents spread over the country. GIC also entered the international
insurance market and opened its offices in England, Mauritius and Fiji.
The corporation has registered a joint venture company-life insurance corporation (Nepal) limited
in Katmandu on 26 December, 2000 in collaboration with a local industrial group. An off-shore
company GIC (Mauritius) off-shore limited has also been registered on 19 January, 2001 to tap the
African insurance market.
The total business of GIC during 2002-2003 was Rs 1, 76,088 crore a sum assured under 239.3 lakh
policies. GIC group insurance business during 2002-2003 was Rs.1645 crore providing covers to 18.32
lakh people
LIFE INSURANCE:
47

48. The Britishers introduced life insurance to India. A British firm in 1818 established the oriental life
insurance company at Calcutta. In 1823, Bombay Life Insurance Company was established at Mumbai
and in 1829 madras equitable life insurance society was established at madras (Chennai). Till 1871,
these companies collected 15-20 percent more premiums from Indian as they treated Indian’s living
standard below the normal, in 1871, Bombay mutual life assurance society was established which
started life insurance of Indians on general premium rate for the first time. Indian insurance company
act was implemented which aimed at collecting statistical information related to insurances of Indians
and foreigners. In 1938, all previous acts were integrated and insurance act 1938 came into force. After
independence, this act was amended in 1950. Till 1956, 154 Indian, 16 non-Indian insurance companies
and 75 provident committees were working in life insurance business of the country.
On January 19, 1956 central government tool over the charge of all these 245 Indian and foreign
insurance companies and on September 1, 1956 these companies were nationalized. Under an act
passed by the parliament on September 1, 1956 life insurance Corporation of India was established with
the capital of Rs. 5 crores given by the government of India. Malhotra committee, constituted off
making recommendations for insurance sector, in its report submitted in January 1994, recommended
to enhancing the capital base of Rs. 5 crore to Rs. 200 crore fro LIC, but the Government did not accept
it.
LIC was established to spread the message of life insurance savings for nation building activities.
Keeping in view the recommendations of administrative Reform commission. Indian life insurance
corporation accepted a few important objectives in 1974, which are as follows: to extend the sphere of
life insurance and to cover every person eligible for insurance under insurance umbrella. Special
attention will be provided to give life insurance cover to economically weaker section of the society on
appropriate and bearable cost secondly, to mobilize maximum savings of the people by making insured
48

49. savings more attractive thirdly, to ensure economic use of resources collected from policy holders and
finally, under changing social and economic structure of the country efforts will be made to meet the
life insurance requirements of
Various stratas of the society.
Reforms in insurance sector:
Insurance sector constitutes an important segment to financial market in India and plays a
predominant role in the formation of capital in the country. The reforms in the insurance sector started
with the enactment of insurance regulatory and development authority act 1999. The act paved the way
for the entry of private insurance companies into the insurance market and also constitution of
insurance Regulation and Development Authority (IRDA).
Insurance Regulatory and Development Authority:
The insurance regulatory and development authority was constituted on 19 April 2000 to protect the
interest of the holders of insurance policies and to regulate, promote and ensure orderly growth of the
insurance industry. The authority consists of a chairperson, four whole-time members and part-time
members.
For regulations the insurance sector, the authority has been issuing regulations covering almost the
entire segment of insurance industry namely, regulation on insurance agents, solvency margin, re-
insurance, registration of insurers, obligation of insurers to rural and social sector, accounting
procedure, etc.
Insurance (amendment) act, 2002:
49

50. The government, functioning of the opened up insurance sector, has enacted insurance act, 2002.
The act relates to introduction of brokers as intermediaries, allowing more flexile in the eligibility
qualification for corporate agents, allowing more flexible mode of payment of premium through credit
cards, smart cards, over interknit, etc. Change in the allocation of surplus between share holders and
policy holders, direct entry of co-operatives in the insurance sector and some other consequential
amendments which are of a technical nature for the smooth functioning of the opened up sector.
General Insurance Business (Nationalization) Amendment Act, 2002:
With the enactment of IRDI act, 1999 it was necessary to nominate Indian re-insurer under
insurance act, 1938. The government decided that general insurance companies should be declared as
Indian Re-insurer. Since under the act, a re-insurer cannot underwrite general insurance business.
Recommendations of Malhotra Committee for improving insurance sector:
The government of India constituted a committee for recommending improvements in insurance
sector under the chairmanship of Dr. R. N. Malhotra, Ex-Governor of RBI, in April 1993. On January
7, 1994 the committee submitted its recommendations to the finance minister. Some of the important
recommendations are as follows.
Liberalization of insurance industry:
The committee has recommended for liberalizing insurance industry:
 The private sector should also be permitted in insurance sector, but the same company
should not permitted to perform both life insurance and general insurance business.
 The minimum paid-up capital for the now company should be Rs. 100 crore included a
minimum subscription of 26% and maximum of 40% from promoters.
50

51.  No other equity holder, excluding the promoters of private insurance companies, Should be
granted equity share exceeding 1% of total equity.
 Co-operative societies at state level should be permitted to perform business with the
minimum paid-up capital of Rs.100 crore
 Foreign insurance companies should be permitted to operate in India on selective basis and
they should be granted permission only of they perform business by establishing a joint enterprise with
Indian promoters.
Restructuring of insurance industry:
The committee also put recommendations for restructuring insurance industry:
 All the four associate companies of GIC should be granted permission to perform their
business independently and GIC should work only as Reinsurance Company.
 The existing share capital of GIC should be increased from Rs. 107.5 crore to Rs.200 crore,
which should included 50% share of the government and the rest shares should be opened for the
general public (through a certain percentage of share should be reserved for the employees of the
corporation)
 The existing paid-up capital for all associate companies of GIC (which is at present Rs.40
crore for every company and fully financed by GIC) should be increased up to Rs.100 crore. The
capital of all these companies should include the government share of 50% and the remaining share
should be opened for the general public.
 The committee also recommended to increase the paid-up capital of LIC form existing level
of Rs.5 crore to Rs.200 crore (again 50% for the government and rest for the public)
Regulation of insurance business:
51

52. The committee has put following recommendations for regulation insurance business
 All old and new insurance companies should be regulating under insurance act.
 Controller of insurance should be given all the responsibilities under insurance act.
 Insurance regulatory authority (IRA) should be established in insurance sector on the lines
of SEBI and IRA should be granted complete functional autonomy.
 IRA should have a permanent source for financing its activities and for this IRA should be
permitted to charge a levy of 0.5% on annual incomes of insurance companies.
Rural insurance:
 New insurance companies entering into insurance industry should perform a minimum
predetermined insurance in rural sector and they should attain this limit compulsorily.
 Postal life insurance should be used to promote life insurance business in rural areas.
Insurance surveyors:
 License system for insurance surveyors should be abolished and insurance companies
should be granted permission to recruit the surveyors of their own
 At present, any claim of Rs.20, 000 or above comes under the enquiry of the surveyor. The
committee has recommended extending this minimum limit on Rs.1 lakh.
 Insurance companies should be permitted to settle the claims up to Rs.1 lakh on primary
survey basis.
INSURANCE TODAY:
52

53. In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N.
Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction.
The Malhotra committee was set up with the objective of complementing the reforms initiated in the
financial sector.
With the setup of Insurance Regulatory Development Authority (IRDA) the reforms started in the
Insurance sector. It has became necessary as if we compare our Insurance penetration and per capita
premium we are much behind then the rest of the world. The table above gives the statistics for the year
2000.
With the expected increase in per capita income to 6% for the next 10 year and with the
improvement in the awareness levels the demand for insurance is expected to grow. As per an
independent consultancy company, Monitor Group has estimated a growth form Rs.218 Billion to
Rs.1003 Billion by 2008. The estimations seems achievable as the performance of 13 life Insurance
players in India for the year 2002-2003 (up to October, based on the first year premium) is Rs.66.683
million being LIC the biggest contributor with Rs. 59,187 million. As of now LIC has 2050 branches in
7 zones with strong team of 5, 60,000 agents.
IMPACT OF GLOBALISATION:
The introduction of private players in the industry has added colours to the dull industry. The
initiatives taken by the private players are very competitive and have given immense competition to the
on time monopoly of the market LIC. Since the advent of the private players in the market the industry
has seen new and innovative steps taken by the players in the sector. The new players have improved
the service quality of the insurance. As a result LIC down the years have seen the declining in its
career. The market share was distributed among the private players.
53

54. Though LIC still holds 75% of the insurance sectors the upcoming nature of these private players
are enough to give more competition to LIC in the near future. LIC market share has decreased from
95% (2002-03) to 81% (2004-05). The following company holds the rest of the market share of the
insurance industry.
CHALLENGES BEFORE THE INDUSTRY:
New age companies have started their business as discussed earlier. Some of these companies have
been able to float 3 or 4 products only and some have targeted to achieve the level of 8 or 10 products.
At present, these companies are not in a position to pose any challenge to LIC and all other four
companies operating in general insurance sector, but if we see the quality and standards of the products
which they issued, they can certainly be a challenge in future. Because the challenge in the entire
environment caused by globalization and liberalization the industry is facing the following challenges.
The existing insurer, LIC and GIC, have created a large group of dissatisfied customers due to the
poor quality of service. Hence there will be shift of large number of customers from LIC and GIC to the
private insurers.
 LIC may face problem of surrender of a large number of policies, as new insurers will woo
them by offer of innovative products at lower prices.
 The corporate clients under group schemes and salary savings schemes may shift their
loyalty from LIC to the private insurers.
 There is a likelihood of exit of young dynamic managers from LIC to the private insurer, as
they will get higher package of remuneration.
 LIC has overstaffing and with the introduction of full computerization, a large number of
the employees will be surplus. However they cannot be retrenched. Hence the operating costs of LIC
54

55. will not be reduced. This will be a disadvantage in the competitive market, as the new insurers will
operate with lean office and high technology to reduce the operating costs.
 GIC and its four subsidiary companies are going to face more challenges, because their
management expenses are very high due to surplus staff. They can’t reduce their number due to service
rules.
 Management of claims will put strain on the financial resources, GIC and its subsidiaries
since it is not up the mark.
 LIC has more than to 60 products and GLC has more than 180 products in their kitty, which
are outdated in the present context as they are not suitable to the changing needs of the customers. Not
only that they are not competent enough to complete with the new products offered by foreign
companies in the market.
 Reaching the consumer expectations on par with foreign companies such as better yield and
much improved quality of service particularly in the area of settlement of claims, issue of new policies,
transfer of the policies and revival of policies in the liberalized market is very difficult to LIC and GIC.
 Intense competition from new insurers in winning the consumers by multi-distribution
channels, which will include agents, brokers, corporate intermediaries, bank branches, affinity groups
and direct marketing through telesales and interest.
 The market very soon will be flooded by a large number of products by fairly large number
of insurers operating in the Indian market. The existing level of awareness of the consumers for
insurance products is very low. It is so because only 62% of the Indian population is literate and less
than 10% educated. Even the educated consumers are ignorant about the various products of the
insurance.
55

56.  The insurers will have to face an acute problem of the redressal of the consumers,
grievances for deficiency in products and services.
 Increasing awareness will bring number of legal cases filled by the consumers against
insurers is likely to increase substantially in future.
 Major challenges in canalizing the growth of insurance sector are product innovation,
distribution network, investment management, customer service and education.
56

57. ESSENTIALS TO MEET THE CHALLENGES:
 Indian insurance industry needs the following to meet the global challenges
 Understanding the customer better will enable insurance companies to design appropriate
products, determine price correctly and increase profitability.
 Selection of right type of distribution channel mix along with prudent and efficient FOS
[Fleet on Street] management.
 An efficient CRM system, which would eventually create sustainable competitive
advantages and build a long-lasting relationship
 Insurers must follow best investment practices and must have a strong asset management
company to maximize returns.
 Insurers should increase the customer base in semi urban and rural areas, which offer a huge
potential.
 Promoting health insurance and using e-broking to increase the business.
GROUP OF COMPANIES:
The group comprises of 27 companies and was founded in the year 1926. The companies in the
group are:
Bajaj Auto Ltd. Mukand International Ltd.
Mukand Ltd. Mukand Engineers Ltd.
Bajaj Electricals Ltd. Mukand Global Finance Ltd.
Bajaj Hindustan Ltd. Bachhraj Factories Pvt. Ltd.
Maharashtra Scooters Ltd. Bajaj Consumer Care Ltd.
57

58. Bajaj Auto Finance Ltd. Bajaj Auto Holdings Ltd.
Hercules Hoists Ltd. Jamnalal Sons Pvt. Ltd.
Bajaj Sevashram Pvt Ltd. Bachhraj & Company Pvt. Ltd.
Hind Lamps Ltd. Jeevan Ltd.
Bajaj Ventures Ltd. The Hindustan Housing Co Ltd.
Bajaj International Pvt Ltd. Baroda Industries Pvt Ltd.
Hind Musafir Agency Pvt Ltd. Stainless India Ltd.
Bajaj Allianz General Insurance Company
Ltd.
Bombay Forgings Ltd.
Bajaj Allianz Life Insurance Company Ltd. -
58

59. COMPANY PROFILE
Company profile
State Bank of India (SBI) is that country's largest commercial bank. The government-controlled bank--the
Indian government maintains a stake of nearly 60 percent in SBI through the central Reserve Bank of India--also
operates the world's largest branch network, with more than 13,500 branch offices throughout India, staffed by
nearly 220,000 employees. SBI is also present worldwide, with seven international subsidiaries in the United
States, Canada, Nepal, Bhutan, Nigeria, Mauritius, and the United Kingdom, and more than 50 branch offices in 30
countries. Long an arm of the Indian government's infrastructure, agricultural, and industrial development
policies, SBI has been forced to revamp its operations since competition was introduced into the country's
commercial banking system. As part of that effort, SBI has been rolling out its own network of automated teller
machines, as well as developing anytime-anywhere banking services through Internet and other technologies. SBI
also has taken advantage of the deregulation of the Indian banking sector to enter the bancassurance, assets
management, and securities brokering sectors. In addition, SBI has been working on reigning in its branch
59

60. network, reducing its payroll, and strengthening its loan portfolio. In 2003, SBI reported revenue of $10.36 billion
and total assets of $104.81 billion.
Colonial Banking Origins in the 19th Century
The establishment of the British colonial government in India brought with it calls for the formation of a Western-
style banking system, if only to serve the needs and interests of the British imperial government and of the European
trading houses doing business there. The creation of a national banking system began at the beginning of the 19th
century.
The first component of what was later to become the State Bank of India was created in 1806, in Calcutta. Called the
Bank of Calcutta, it was also the country's first joint stock company. Originally established to serve the city's interests,
the bank was granted a charter to serve all of Bengal in 1809, becoming the Bank of Bengal. The introduction of
Western-style banking instituted deposit savings accounts and, in some cases, investment services. The Bank of Bengal
also received the right to issue its own notes, which became legal currency within the Bengali region. This right enabled
the bank to establish a solid financial foundation, building an interest-free capital base.
The spread of colonial influence also extended the scope of government and commercial financial influence. Toward
the middle of the century, the imperial government created two more regional banks. The Bank of Bombay was created
in 1840, and was soon joined by the Bank of Madras in 1843. Together with the Bank of Bengal, they became known as
the "presidency" banks.
All three banks were operated as joint stock companies, with the imperial government holding a one-fifth share of
each bank. The remaining shares were sold to private subscribers and, typically, were claimed by the Western European
trading firms. These firms were represented on each bank's board of directors, which was presided over by a nominee
from the government. While the banks performed typical banking functions, for both the Western firms and population
and members of Indian society, their main role was to act as a lever for raising loan capital, as well as help stabilize
government securities.
The charters backing the establishment of the presidency banks granted them the right to establish branch offices.
Into the second half of the century, however, the banks remained single-office concerns. It was only after the passage of
the Paper Currency Act in 1861 that the banks began their first expansion effort. That legislation had taken away the
presidency banks' authority to issue currency, instead placing the issuing of paper currency under direct control of the
British government in India, starting in 1862.
60

61. Yet that same legislation included two key features that stimulated the growth of a national banking network. On the
one hand, the presidency banks were given the responsibility for the new currency's management and circulation. On
the other, the government agreed to transfer treasury capital backing the currency to the banks--and especially to their
branch offices. This latter feature encouraged the three banks to begin building the country's first banking network. The
three banks then launched an expansion effort, establishing a system of branch offices, agencies, and sub-agencies
throughout the most populated regions of the Indian coast, and into the inland areas as well. By the end of the 1870s,
the three presidency banks operated nearly 50 branches among them.
Funding National Development in the 20th Century
The rapid growth of the presidency banks came to an abrupt halt in 1876, when a new piece of legislation, the
Presidency Banks Act, placed all three banks under a common charter--and a common set of restrictions. As part of the
legislation, the British imperial government gave up its ownership stakes in the banks, although they continued to
provide a number of services to the government, and retained some of the government's treasury capital. The majority
of that, however, was transferred to the three newly created Reserve Treasuries, located in Calcutta, Bombay, and
Madras. The Reserve Treasuries continued to lend capital to the presidency banks, but on a more restrictive basis. The
minimum balance now guaranteed under the Presidency Banks Act was applicable only to the banks' central offices.
With branch offices no longer guaranteed a minimum balance backed by government funds, the banks ended
development of their networks. Only the Bank of Madras continued to grow for some time, supplied as it was by the
influx of capital from development of trade among the region's port cities.
The loss of the government-backed balances was soon compensated by India's rapid economic development at the
end of the 19th century. The building of a national railroad network launched the country into a new era, seeing the rise
of cash-crop farming, a mining industry, and widespread industrial development. The three presidency banks took active
roles in financing this development. The banks also extended their range of services and operations, although for the
time being were excluded from the foreign exchange market.
By the beginning of the 20th century, India's banking industry boasted a host of new arrivals, and particularly foreign
banks authorized to exchange currency. The growth of the banking sector, and the development of indigenous banks, in
turn created a need for a larger "bankers' bank." At the same time, the Indian government had outgrown its colonial
background and now required a more centralized banking institution. These factors led to the decision to merge the
three presidency banks into a new, single and centralized banking institution, the Imperial Bank of India.
Created in 1921, the Imperial Bank of India appeared to inaugurate a new era in India's history--culminating in its
declaration of independence from the British Empire. The Imperial Bank took on the role of central bank for the Indian
government, while acting as a bankers' bank for the growing Indian banking sector. At the same time, the Imperial Bank,
61

62. which, despite its role in the government financial structure remained independent of the government, carried on its
own commercial banking operations.
In 1926, a government commission recommended the creation of a true central bank. While some proposed
converting the Imperial Bank into a central banking organization for the country, the commission rejected this idea and
instead recommended that the Imperial Bank be transformed into a purely commercial banking institution. The
government took up the commission's recommendations, drafting a new bill in 1927. Passage of the new legislation did
not occur until 1935, however, with the creation of the Reserve Bank of India. That bank took over all central banking
functions.
The Imperial Bank then converted to full commercial status, which accordingly allowed it to enter a number of
banking areas, such as currency exchange and trustee and estate management, from which it had previously been
restricted. Despite the loss of its role as a government banking office, the Imperial Bank continued to provide banking
services to the Reserve Bank, particularly in areas where the Reserve Bank had not yet established offices. At the same
time, the Imperial Bank retained its position as a bankers' bank.
Into the early 1950s, the Imperial Bank grew steadily, dominating the Indian commercial banking industry. The bank
continued to build up its assets and capital base, and also entered a new phase of national expansion. By the middle of
the 1950s, the Imperial Bank operated more than 170 branch offices, as well as 200 sub-offices. Yet the bank, like most
of the colonial government, focused primarily on the country's urban regions.
By then, India had achieved its independence from Britain. In 1951, the new government launched its first Five Year
Plan, targeting in particular the development of the country's rural areas. The lack of a banking infrastructure in these
regions led the government to develop a state-owned banking entity to fill the gap. As part of that process, the Imperial
Bank was nationalized and then integrated with other existing government-owned banking components. The result was
the creation of the State Bank of India, or SBI, in 1955.
The new state-owned bank now controlled more than one-fourth of India's total banking industry. That position was
expanded at the end of the decade, when new legislation was passed providing for the takeover by the State Bank of
eight regionally based, government-controlled banks. As such the Banks of Bikaner, Jaipur, Idnore, Mysore, Patiala,
Hyderabad, Saurashtra, and Travancore became subsidiaries of the State Bank. Following the 1963 merger of the Bikaner
and Jaipur banks, their seven remaining subsidiaries were converted into associate banks.
62

63. In the early 1960s, the State Bank's network already contained nearly 500 branches and sub-offices, as well as the
three original head offices inherited from the presidency bank era. Yet the State Bank now began an era of expansion,
acting as a motor for India's industrial and agricultural development, that was to transform it into one of the world's
largest financial networks. Indeed, by the early 1990s, the State Bank counted nearly 15,000 branches and offices
throughout India, giving it the world's single largest branch network.
SBI played an extremely important role in developing India's rural regions, providing the financing needed to
modernize the country's agricultural industry and develop new irrigation methods and cattle breeding techniques, and
backing the creation of dairy farming, as well as pork and poultry industries. The bank also provided backing for the
development of the country's infrastructure, particularly on a local level, where it provided credit coverage and
development assistance to villages. The nationalization of the banking sector itself, an event that occurred in 1969 under
the government led by Indira Gandhi, gave SBI new prominence as the country's leading bank.
Even as it played a primary role in the Indian government's industrial and agricultural development policies, SBI
continued to develop its commercial banking operations. In 1972, for example, the bank began offering merchant
banking services. By the mid-1980s, the bank's merchant banking operations had grown sufficiently to support the
creation of a dedicated subsidiary, SBI Capital Markets, in 1986. The following year, the company launched another
subsidiary, SBI Home Finance, in a collaboration with the Housing Development Finance Corporation. Then in the early
1990s, SBI added subsidiaries SBI Factors and Commercial Services, and then launched institutional investor services.
Competitor in the 21st Century
SBI was allowed to dominate the Indian banking sector for more than two decades. In the early 1990s, the Indian
government kicked off a series of reforms aimed at deregulating the banking and financial industries. SBI was now
forced to brace itself for the arrival of a new wave of competitors eager to enter the fast-growing Indian economy's
commercial banking sector. Yet years as a government-run institution had left SBI bloated--the civil-servant status of its
employees had encouraged its payroll to swell to more than 230,000. The bureaucratic nature of the bank's
management left little room for personal initiative, nor incentive for controlling costs.
The bank also had been encouraged to increase its branch network, with little concern for profitability. As former
Chairman Dipankar Baku told the Banker in the early 1990s: "In the aftermath of bank nationalisation everyone lost sight
of the fact that banks had to be profitable. Banking was more to do with social policy and perhaps that was relevant at
the time. For the last two decades the emphasis was on physical expansion."
Under Baku, SBI began retooling for the new competitive environment. In 1994, the bank hired consulting group
McKinsey & Co. to help it restructure its operations. McKinsey then led SBI through a massive restructuring effort that
63

64. lasted through much of the decade and into the beginning of the next, an effort that helped SBI develop a new
corporate culture focused more on profitability than on social and political policy. SBI also stepped up its international
trade operations, such as foreign exchange trading, as well as corporate finance, export credit, and international
banking.
SBI had long been present overseas, operating some 50 offices in 34 countries, including full-fledged subsidiaries in
the United Kingdom, the United States, and elsewhere. In 1995 the bank set up a new subsidiary, SBI Commercial and
International Bank Ltd., to back its corporate and international banking services. The bank also extended its international
network into new markets such as Russia, China, and South Africa.
Back home, in the meantime, SBI began addressing the technology gap that existed between it and its foreign-
backed competitors. Into the 1990s, SBI had yet to establish an automated teller network; indeed, it had not even
automated its information systems. SBI responded by launching an ambitious technology drive, rolling out its own ATM
network, then teaming up with GE Capital to issue its own credit card. In the early 2000s, the bank began cross-linking its
banking network with its ATM network and Internet and telephone access, rolling out "anytime, anywhere" banking
access. By 2002, the bank had succeeded in networking its 3,000 most profitable branches.
The implementation of new technology helped the bank achieve strong profit gains into the early years of the new
century. SBI also adopted new human resources and retirement policies, helping trim its payroll by some 20,000, almost
entirely through voluntary retirement in a country where joblessness remained a decided problem.
By the beginning of 2004, SBI appeared to be well on its way to meeting the challenges offered by the deregulated
Indian banking sector. In a twist, the bank had become an aggressor into new territories, launching its own line of
bancassurance products, and also initiating securities brokering services. In the meantime, SBI continued its technology
rollout, boosting the number of networked branches to more than 4,000 at the end of 2003. SBI promised to remain a
central figure in the Indian banking sector as it entered its third century.
Principal Subsidiaries: Bank of Bhutan (Bhutan); Indo Nigeria Merchant Bank Ltd. (Nigeria); Nepal SBI Bank Ltd.
(Nepal); SBI (U.S.A.); SBI (Canada); SBI Capital Market Ltd.; SBI Cards & Payments Services Ltd.; SBI Commercial and
International Bank Ltd.; SBI European Bank plc (U.K.); SBI Factors & Commercial Services Ltd.; SBI Funds Management
Ltd.; SBI Gilts Ltd.; SBI Home Finance Ltd.; SBI Securities Ltd.; State Bank International Ltd. (Mauritius); State Bank of
Bikaner & Jaipur; State Bank of Hyderabad; State Bank of Indore; State Bank of Mysore; State Bank of Patiala; State Bank
of Saurastra; State Bank of Travancore.
Principal Competitors: ICICI Bank; Bank of Baroda; Canara Bank; Punjab National Bank; Bank of India; Union Bank of
India; Central Bank of India; HDFC Bank; Oriental Bank of Commerce.
64

65. Chronology
Key Dates:
1806: The Bank of Calcutta is established as the first Western-type bank.
1809: The bank receives a charter from the imperial government and changes its name to Bank of Bengal.
1840: A sister bank, Bank of Bombay, is formed.
1843: Another sister bank is formed: Bank of Madras, which, together with Bank of Bengal and Bank of Bombay
become known as the presidency banks, which had the right to issue currency in their regions.
1861: The Presidency Banks Act takes away currency issuing privileges but offers incentives to begin rapid expansion,
and the three banks open nearly 50 branches among them by the mid-1870s.
1876: The creation of Central Treasuries ends the expansion phase of the presidency banks.
1921: The presidency banks are merged to form a single entity, Imperial Bank of India.
1955: The nationalization of Imperial Bank of India results in the formation of the State Bank of India, which then
becomes a primary factor behind the country's industrial, agricultural, and rural development.
1969: The Indian government establishes a monopoly over the banking sector.
1972: SBI begins offering merchant banking services.
1986: SBI Capital Markets is created.
1995: SBI Commercial and International Bank Ltd. are launched as part of SBI's stepped-up international banking
operations.
1998: SBI launches credit cards in partnership with GE Capital.
2002: SBI networks 3,000 branches in a massive technology implementation.
2004: A networking effort reaches 4,000 branches.
Additional Details
Public Company (60% Government-Owned)
Incorporated: 1921 as the Imperial Bank of India
Employees: 220,000
Total Assets: $104.81 billion (2003)
Stock Exchanges: Mumbai Kolkata Chennai Ahmedabad Delhi New York London
Ticker Symbol: SBI
65

66. NAIC: 522110 Commercial Banking
Further Reference
Chatterjee, Debojyoti, "The Great SBI Makeover," Business Today, August 4, 2002.
Chowdhury, Neel, "Privatizing in India: Bank's Thorny Path," International Herald Tribune, August 16, 1996, p. 17.
Guha, Krishna, "State Bank of India Faces a Bumpy Ride," Financial Times, January 14, 1998, p. 38.
Merchant, Khozem, "SBI Close to Finding Partner," Financial Times, February 2, 2004, p. 24.
"SBI's Technology Blueprint," India Business Insight, November 30, 2003.
"SBI to Launch 100th ATM in Kerala Today," Asia Africa Intelligence Wire, March 26, 2004.
Thaur, B.S., The Evolution of the State Bank of India, London: Sage Publications, 2003.
Verma, Virenda, "SBI Stays a Star Performer," Business Line, January 10, 2004.
66

67. CHAPTER-IV
DATA ANALYSIS
AND
INTERPRETATION
SBI ULIPS
DIFFERENT CHARGES FOR SBI ULIPS
Sum assured 500000
Annual premium 100000
Premium allocation charges
1-2 Years - 10% + service charges
3-4 Years - 5% + service charges
There after – 2% + service charges
Policy administrative charges 60 per month + service charges
Other charges 1.46%+service charges
Fund management charges (FMC) 1.5%+service charges
service charges 12.36%
Death benefit Sum assured + growth amount
Rate of return 10%
SBI ULIPS ILLUSTRATION
Yea
r
Annual
premium
premiu
m
allocation
Amount
available for
investment
policy
admini-
strative
other
charges
Amoun
t available
Growt
h
FMC Net
growth
Death
benefits
67

68. charges charges
1 100000 11236 88764 809 1456 86499 95149 1603 93546
59354
6
2 100000 11236 88764 809 1456 86499
19805
0 3337
19471
3
69471
3
3 100000 5618 94382 809 1548 92025
31541
2 5318
31009
4
81009
4
4 100000 5618 94382 809 1548 92025
44233
0 7455
43487
5
93487
5
5 100000 2247 97753 809 1603 95341
58323
8 9830
57340
8
10734
08
6 100000 2247 97753 809 1603 95341
73562
4
1239
8
72322
6
12232
26
7 100000 2247 97753 809 1603 95341
90042
4
1517
5
88524
9
13852
49
8 100000 2247 97753 809 1603 95341
10786
49
1818
0
10604
69
15604
69
9 100000 2247 97753 809 1603 95341
12713
91
2142
7
12499
64
17499
64
10 100000 2247 97753 809 1603 95341
14798
36
2494
2
14548
94
19548
94
11 100000 2247 97753 809 1603 95341
17052
59
2874
0
16765
19
21765
19
12 100000 2247 97753 809 1603 95341
19490
46
3285
0
19161
96
24161
96
13 100000 2247 97753 809 1603 95341
22126
90
3729
2
21753
98
26753
98
14 100000 2247 97753 809 1603 95341
24978
13
4209
8
24557
15
29557
15
15 100000 2247 97753 809 1603 95341
28061
62
4729
5
27588
67
32588
67
16 100000 2247 97753 809 1603 95341
31396
29
5291
5
30867
14
35867
14
17 100000 2247 97753 809 1603 95341
35002
60
5899
4
34412
66
39412
66
18 100000 2247 97753 809 1603 95341
38902
68
6556
7
38247
01
43247
01
19 100000 2247 97753 809 1603 95341
43120
46
7267
5
42393
71
47393
71
20 100000 2247 97753 809 1603 95341
47681
83
8036
3
46878
20
51878
20
68

69. INTRPRETATION: The annual premium amount for SBI ULIPS is Rs.100000. The term period
is about 20 years. The premium allocation charges different from year to year. The service charges are
around 12.36% on policy administrative charges, other charges and FMC. An additional sum of
Rs.500000 along with growth is assured in case of unexpected death. Rate of return is 10%.
SBI MUTUAL FUND (SBI tax fund)
DIFFERENT CHARGES FOR SBI prudential tax fund
Annual premium 100000
Initial charges 2.25%
Fund management charges 2.25%
Rate of return 10%
SBI TAX FUND ILLUSTRATION
Year
Annual
premium
Initial
charges
Investable
amount Growth FMC Net Growth
1 100000 2250 97750 107525 2419 105106
2 100000 2250 97750 223141 5021 218120
3 100000 2250 97750 347458 7818 339640
4 100000 2250 97750 481129 10825 470304
5 100000 2250 97750 624859 14059 610800
69

70. 6 100000 2250 97750 779404 17537 761867
7 100000 2250 97750 945580 21276 924304
8 100000 2250 97750 1124259 25296 1098963
9 100000 2250 97750 1316385 29619 1286766
10 100000 2250 97750 1522968 34267 1488701
11 100000 2250 97750 1745096 39265 1705831
12 100000 2250 97750 1983940 44639 1939301
13 100000 2250 97750 2240756 50417 2190339
14 100000 2250 97750 2516898 56630 2460268
15 100000 2250 97750 2813820 63311 2750509
16 100000 2250 97750 3133085 70494 3062591
17 100000 2250 97750 3476374 78218 3398156
18 100000 2250 97750 3845496 86524 3758972
19 100000 2250 97750 4242395 95454 4146941
20 100000 2250 97750 4669160 105056 4564104
INTRPRETATION: The annual premium amount for SBI tax fund is Rs. 100000. The term period
is about 20 years. The Initial charges are 2.25%. The FMC charges are on the policy amount. Rate of
return is 10%
HDFC ULIPS
DIFFERENT CHARGES FOR HDFC ULIPS
Sum assured 500000
Annual premium 100000
Premium allocation charges
1-2 Years - 10% + service charges
3-4 Years - 5% + service charges
There after – 2% + service charges
Policy administrative charges 53 per month + service charges
Other charges 1.33%+service charges
Fund management charges (FMC) 1.32%+service charges
service charges 15%
Death benefit Sum assured + growth amount
Rate of return 10%
HDFC ULIPS ILLUSTRATION
year
annual
premium
Amount
available to
investment
Policy
charges
other
charges
Amoun
t available
Growt
h
Growt
h FMC
Net
growth
Death
Benefits
70

71. 1 100000 11500 88500 731 1354 86415 95057 1443 93614 593614
2 100000 11500 88500 731 1354 86415
19803
2 3006
19502
6 695026
3 100000 5750 94250 731 1442 92077
31581
3 4794
31101
9 811019
4 100000 5750 94250 731 1442 92077
44340
6 6730
43667
6 936676
5 100000 2300 97700 731 1494 95475
58536
6 8886
57648
0
107648
0
6 100000 2300 97700 731 1494 95475
73915
0
1122
0
72793
0
122793
0
7 100000 2300 97700 731 1494 95475
90574
6
1374
9
89199
7
139199
7
8 100000 2300 97700 731 1494 95475
10862
19
1648
9
10697
30
156973
0
9 100000 2300 97700 731 1494 95475
12817
26
1945
7
12622
69
176226
9
10 100000 2300 97700 731 1494 95475
14935
18
2267
1
14708
47
197084
7
11 100000 2300 97700 731 1494 95475
17229
54
2615
4
16968
00
219680
0
12 100000 2300 97700 731 1494 95475
19715
03
2992
8
19415
75
244157
5
13 100000 2300 97700 731 1494 95475
22407
55
3401
5
22067
40
270674
0
14 100000 2300 97700 731 1494 95475
25324
37
3844
2
24939
95
299399
5
15 100000 2300 97700 731 1494 95475
28484
17
4323
9
28051
78
330517
8
16 100000 2300 97700 731 1494 95475
31907
18
4843
5
31422
83
364228
3
17 100000 2300 97700 731 1494 95475
35615
34
5406
4
35074
70
400747
0
18 100000 2300 97700 731 1494 95475
39632
40
6016
2
39030
78
440307
8
19 100000 2300 97700 731 1494 95475
43984
08
6676
8
43316
40
483164
0
20 100000 2300 97700 731 1494 95475
48698
27
7392
4
47959
03
529590
3
INTRPRETATION: The annual premium amount for SBI ULIPS is Rs.100000. The term period
is about 20 years. The premium allocation charges different from year to year. The service charges are
71

72. around 15% on policy administrative charges, other charges and FMC. An additional sum of Rs.500000
along with growth is assured in case of unexpected death. Rate of return is 10%.
HDFC MUTUAL FUND (HDFC TAX SAVER FUND)
DIFFERENT CHARGES FOR SBI tax fund
Annual premium 100000
Initial charges 2.25%
Fund management charges 2.25%
Rate of return 10%
HDFC TAX SAVER FUND ILLUSTRATION
Year
Annual
premium
Initial
charges
Investabl
e amount Growth FMC Net Growth
1 100000 2250 97750 107525 2419 105106
2 100000 2250 97750 223141 5021 218120
3 100000 2250 97750 347458 7818 339640
4 100000 2250 97750 481129 10825 470304
5 100000 2250 97750 624859 14059 610800
6 100000 2250 97750 779404 17537 761867
72

73. 7 100000 2250 97750 945580 21276 924304
8 100000 2250 97750
112425
9 25296 1098963
9 100000 2250 97750
131638
5 29619 1286766
10 100000 2250 97750
152296
8 34267 1488701
11 100000 2250 97750
174509
6 39265 1705831
12 100000 2250 97750
198394
0 44639 1939301
13 100000 2250 97750
224075
6 50417 2190339
14 100000 2250 97750
251689
8 56630 2460268
15 100000 2250 97750
281382
0 63311 2750509
16 100000 2250 97750
313308
5 70494 3062591
17 100000 2250 97750
347637
4 78218 3398156
18 100000 2250 97750
384549
6 86524 3758972
19 100000 2250 97750
424239
5 95454 4146941
20 100000 2250 97750
466916
0 105056 4564104
INTRPRETATION: The annual premium amount for SBI tax fund is Rs. 100000. The term period
is about 20 years. The Initial charges are 2.25%. The FMC charges are on the policy amount. Rate of
return is 10%
SBI ULIPS VS SBI MUTUAL FUND
YEAR
Net Growth Of
SBI ULIPS
Net Growth Of
SBI Mutual fund Difference
1 93546 105106 -11560
2 194713 218120 -23407
3 310094 339640 -29546
4 434875 470304 -35429
73

74. 5 573408 610800 -37392
6 723226 761867 -38641
7 885249 924304 -39055
8 1060469 1098963 -38494
9 1249964 1286766 -36802
10 1454894 1488701 -33807
11 1676519 1705831 -29312
12 1916196 1939301 -23105
13 2175398 2190339 -14941
14 2455715 2460268 -4553
15 2758867 2750509 8358
16 3086714 3062591 24123
17 3441266 3398156 43110
18 3824701 3758972 65729
19 4239371 4146941 92430
20 4687820 4564104 123716
INTERPRETATION: The above table shows the comparative returns of SBI ULIPS and SBI
MUTUAL FUNDS. Up to 14th
year, Mutual funds are giving maximum returns. From 15th
year
onwards, the returns from ULIPS are more.
-500000
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
1 3 5 7 9 11 13 15 17 19
YEAR
Net Growth Of SBI
ULIPS
Net Growth Of SBI
Mutualfund
Difference
74

75. HDFC ULIPS VS HDFC MUTUAL FUNDS
Year
Net Growth Of
HDFC ULIPS
Net Growth Of
HDFC Mutual Fund
Differen
ce
1 93614 105106 -11492
2 195026 218120 -23094
3 311019 339640 -28621
4 436676 470304 -33628
5 576480 610800 -34320
6 727930 761867 -33937
7 891997 924304 -32307
8 1069730 1098963 -29233
9 1262269 1286766 -24497
10 1470847 1488701 -17854
11 1696800 1705831 -9031
12 1941575 1939301 2274
13 2206740 2190339 16401
14 2493995 2460268 33727
15 2805178 2750509 54669
16 3142283 3062591 79692
17 3507470 3398156 109314
18 3903078 3758972 144106
19 4331640 4146941 184699
20 4795903 4564104 231799
-500000
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
1 3 5 7 9 11 13 15 17 19
YEAR
Net Growth Of HDFC ULIPS
Net Growth Of HDFC Mutual
Fund
Difference
75

76. INTERPRETATION: The above table shows the comparative returns of SBI ULIPS and SBI
MUTUAL FUNDS. Up to 14th
year, Mutual funds are giving maximum returns. From 15th
year
onwards, the returns from ULIPS are more.
76

77. SBI ULIPS VS SBI MUTUAL FUNDS
ULIPS VS MUTUAL
FUND 5 Years 10 Years 15 Years 20 Years
Total investment 500000 1000000 1500000 2000000
Return in ULIPS 573408 1454894 2758867 4687820
Return in mutual fund 610800 1488701 2750509 4564104
Difference -37392 -33807 8358 123716
-500000
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
5 Years 10 Years 15 Years 20 Years
Total investment
Return in ULIPS
Return in mutual fund
Difference
INTERPRETATION: If we observe the above table, at 5 & 10 years, the return from Mutual fund
is higher than ULIPS, the difference is around 37392 & 33807. At 15 & 20 years the return from
ULIPS is higher than Mutual fund, the difference is around 8358 & 123716.
77