Project on Global Insurance Industry

Description
This is the current scenario of the Global Insurance Industry and now let us looks at the basic function of insurance. While conceding that insurance is a risk-transfer tool, corporate should be made to understand that it does not suffice merely to transfer the risk but they have to participate in the effort of loss prevention

CONTENTS
Chapter – I

Introduction of the Study 3
Purpose of the Study 4
Scope of the study 5
Research Methodology 6
Limitations 7
Chapter – II
Industry Profile 9 !7
"ompany Profile !# $4
Product Profile $5 % $9
Chapter – III
"onceptual &rame'or( 3$ % 4!
)or(ing Mechanism 4$ % 4#
Chapter – IV
*ata analysis and Interpretation 5+ % 65
,LIPs -s. Mutual &unds 66 % 7$
,LIPs -s. /raditional Policies 73 % 76
Similarities 01' ,LIPs -s. M& 2
,LIPs -s. /raditional Policies 77
Chapter – V
&indings from the study 79
"onclusions #+
3i0liography #!
4ppendices #$
!
CHAPTER - I
$
INTRODUCTION
Life Insurance or life assurance is a contract between the policy owner and
the insurer, where the insurer agrees to pay a sum of money upon the
occurrence of the insured’s death. In return, the policy owner (or policy
payer) agrees to pay a stipulated amount called a premium at regular
intervals. Life Insurance is a contract for payment of money to the person
assured (or to the person entitled to receive the same) on the occurrence of
the event insured against.
Usually the contract provides for:
1. Payment of an amount on the date of maturity or at specied periodic
intervals or at death if it occurs earlier.
!. Periodical payment of insurance premium by the assured, to the
corporation who provides the insurance.
Who can take Life insurance policy?
1. "ny person above 1# years of age, who is eligible to enter into valid
contract,
!. $ub%ect to certain conditions a policy can be ta&en on the life of a
spouse or children.
'ow life insurance policies are available in two types(
1. )raditional policies(
!. *nit lin&ed insurance plans(*LIP+)(
No ULI!s are food in "arket:
*LlP stands for *nit Lin&ed Insurance Plan. It provides for life insurance where
the policy value at any time varies according to the value of the underlying
assets at the time. *LIP is life insurance solution that provides for the
benets of protection and ,e-ibility in investment. )he investment is d#noted
as units and is represented by the value that it has attained called as 'et
"sset .alue ('".).
*LIP came into play in the 1/01s and became very popular in 2estern
3urope and "mericas. )he reason that is attributed to the wide spread
popularity of *LIP is because of the transparency and the ,e-ibility which it
o4ers.
3
"s times progressed the plans were also successfully mapped along
with life insurance need to retirement planning. In today’s times, *LIP
provides solutions for insurance planning, nancial needs, nancial planning
for children’s future and retirement planning. )hese are provided by the
insurance companies or even ban&s. )hese investments can also be used for
ta- benet under section #15.
!UR!O#$ O% #TUD&:
? )o study the concept and wor&ing mechanism of *LIPs
? 6easons why *LIPs get thumps up
? 6easons for investing systematically
? )o study in detail about two *LIP product of 7a%a% "llian8 Life Insurance 5o
Ltd
? )o ma&e a comparison between 9utual :unds ; *LIPs
? )o study the comparison between )raditional Policies ; *LIPs
? )o understand the relationship between 9utual :unds ; *LIPs and
)raditional Policies ; *LIPs
? )o have an awareness of I6<" =uidelines with respect to *LIPs
4
#CO!$ O% #TUD&:
)he pro%ect entitled >*LIP as an Investment "venue? is a detailed study
about the inception of the concept of *nit lin&ed insurance policies and
its wor&ing mechanism. )he study is conned only to the analysis
about the *LIP$ and its e4ectiveness in comparison with the traditional
policies and the 9utual funds. )he $cope is limited only to the detailed
understanding of the two products of the 7a%a% "llian8.
5
R$#$'RC( )$T(ODOLO*&
#ources of data
<ata collection is of two types as follows(
!ri"ary data:
)he primary data refers to the data collected from direct @uestioning and
which has not been collected or gathered earlier by any other research study.
)he data for this study was collected by interactin+ ith insurance
trainers and sales "ana+ers.
#econdary data:
)his type of data refers to the gathering of information from the sources that
have >readymade data? already in possession. )his data has already been
collected and complied. )his data has been collected from the e-isting
surveys in the company.
Information has been gathered from the company brouchers,
periodicals, websites and other boo&s. "fter gathering the data from the
$ources, the data was analy8ed, tabulated, interpreted and nally
conclusions were made regarding the entire pro%ect.
6
!ri"ary Data #econdary Data
Data Collection
LI)IT'TION# O% T($ #TUD&:
? )he study is limited only to 7a%a% "llian8.
? )he study does not include any comparison with product of other
companies.
? 9ore focused on *LIPs only.
7
C('!T$R , II
#
INDU#TR& !RO%IL$
9
Insurance Overvie
)his is the current scenario of the =lobal Insurance Industry and now
let us loo&s at the basic function of insurance. 2hile conceding that insurance
is a ris&Atransfer tool, corporate should be made to understand that it does
not suBce merely to transfer the ris& but they have to participate in the e4ort
of loss prevention. 'ew techni@ues and technology have to be adapted from
them to time in order to improve performance and this has special
signicance to the order to improve performance and this has special
signicance to the Indian insurance Industry. )he Indian insurance industry
has always su4ered from drawbac&s li&e lac& of proper understanding of the
purpose of insurance, lopsided growth etc., with the opening up of the
industry, it is hoped that the row entrants with their better channels would
spread to the real message of insurance, leading to a dynamic growth.
3mphasis should be on nding new technological avenues, although it has
been observed world over that for selling insurance, an eye to eye contact is
essential. Internet can be used for better servicing which would eventually,
lead to business development. 2ith the entry of foreign companies into the
insurance arena, a fresh life has been inducted and there is a great deal of
optimism in the air that the mar&et would automatically create a vibrant
competition leading to the customer being the ultimate winner.
Insurance in India:
Insurance in India started without any regulation in the nineteenth century. It
was a typical story of a colonial era( a few 7ritish Insurance companies
dominating the mar&et sewing mostly large urban centers. "fter the
independence, it too& a dramatic turn. Insurance was nationali8ed. :irst, the
!+
life insurance companies were nationali8ed in 1/+0, and then the general
business was nationali8ed in 1/C!. Dnly in 1/// private insurance companies
have been allowed bac& into the business of insurance with a ma-imum of
!0E of foreign holding.
2e describe how and why of regulation and deregulation. )he entry of
the $tate 7an& of India with its proposal of ban& assurance brings a new
dynamic in the game. 2e study the collective e-perience of other countries in
"sia already deregulated their mar&et and have allowed foreign companies to
participate. If the e-perience of other countries is any guide, the dominance
of Life Insurance 5orporation is not going to disappear any time soon.
)he Indian insurance mar&et, with a population of over one million,
o4ers tremendous opportunities and can easily sustain 111 insurers. )his
article analyses the development of the insurance sector, which will result in
higher domestic savings and investments, signicant e-pansion of ,ue
capital mar&et, enhanced insurance infrastructure nancing and increased
foreign capital in,ow and employment.
)he opening up of the Indian insurance sector has been hailed tie a
groundbrea&ing move towards further liberali8ation of the Indian economy.
)he si8e of the e-isting insurance mar&et is growing at a rate of ten percent
per year. )he estimated potential of the Indian insurance mar&et in terms of
premium was around 6s. FGG111 crores (*$H00 billion) in 1///. )he Indian
players have tapped only tent per cent of the mar&et share and the
remaining /1 per cent of the mar&et remain untapped.
)he Indian =overnment has recently enacted the insurance 6egulatory
<evelopment "uthority "ct 1///, which amends e-isting Insurance laws
dating from 1/F0. )he act establishes an authority called the Insurance
6egulatory <evelopment "uthority, designed to regulate the Insurance
sector. )his article e-amines the provisions of the new "ct from the point of
view of a company with diverse business interests wishing to establish a %oint
venture with an Indian company.
Insurance under the -ritish Ra.:
Life insurance in modern form was rst set up in India through a 7ritish
company called the Driental Life Insurance 5ompany in 1#1# followed by the
7ombay "ssurance 5ompany in 10!F and 9adras 3@uitable Life Insurance
!!
$ociety in 1#!/. "ll of these companies operated in India but did not insure
the lives of Indians. )hey were there insuring the lives of 3uropeans living in
India. $ome of the companies that started later did provide insurance for
Indians. 7ut they were treated as >substandard and therefore had to pay an
e-tra premium of !1E or more. )he rst company that had F policies that
could be bought by Indians with Ifair value’ was the 7ombay 9utual Life
"ssurance $ociety starting in 1#C1.
7y 1/F#, the insurance mar&et in India was bu88ing with 1C0
companies (both life and nonAlife). Jowever, the industry was plagued by
fraud. Jence a comprehensive set of regulations was put in place to stem this
problem. 7y 1/+0, there were 1+G Indian companies, 10 nonAIndian insurance
companies and C+ provident societies that were issuing life insurance
policies. 9ost of these policies were entered in the cities (especially around
big cities li&e 7ombay, 5alcutta, <elhi and 9adras). In 1/+0, the nance
minister $ri $ <. <eshmu&h announced nationali8ation of the life insurance
business.
)ilestones of Insurance Re+ulations in the /0
th
Century
&ear #i+ni1cant Re+ulatory $vent
1/1! )he Indian Life Insurance 5ompany "ct enacted.
1/!# )he Indian Insurance 5ompanies "ct enhanced to enable the
government to collect statistical information about both life and
nonAlife insurance business.
1/F# )he Insurance "ct( 5omprehensive "ct to regulate insurance
business in India
1/+0 )he Indian and foreign insurers and provident societies ta&en over
by the 5entral government and nationali8ed. LI5 formed by an act
of parliament. .IK. LI5 "ct, 1/+0, with a capital contribution of
6s.+ crore from the government of India.
1/C! 'ationali8ation of general insurance business in India.
1//F $etting up of 9alhotra 5ommittee.
1//G 6ecommendations of 9alhotra 5ommittee.
!$
1//+ $etting up of 9u&her%ee 5ommittee
1//0 )he government gives greater autonomy to LI5, =I5 and its
subsidiaries with regard to the restructuring of boards and
,e-ibility in investment norms aimed at channeling funds to the
infrastructure sector.
1//# )he cabinet decides to allow G1E foreign e@uity in private
insurance companresA!0E to foreign companies and 1GE to '6Is
and :IIs.
1/// )he standing committee headed by 9urali <eora decides that
foreign e@uity in Private insurance should be limited to !0E. )he
I6" bill is renamed the Insurance 6egulatory and <evelopment
"uthority (I6<") 7ill. "lso, 5abinet clears I6<" 7ill
!111 President gives assent to the I6<" 7ill.
Re+ulations:
In India insurance is a federal sub%ect. )he primary legislation that deals with
insurance business in India is(
Insurance Re+ulatory 'uthority:
Dn the recommendation of 9alhotra committee an Insurance 6egulatory
<evelopment "ct (I6<") passed by Indian Parliament in 1//F. Its main aim
was to activate an insurance regulatory apparatus essential for proper
monitoring and control of the insurance Industry. <ue to this "ct $everal
Indian private companies have entered into the insurance mar&et, and some
companies have %oined with foreign partners.
In economic reform process, the insurance 5ompanies have given
boost to the socio A economic development process. )he huge amount of
funds that are disposal of insurance are directed as desired avenues li&e
housing safe drin&ing water, electricity primary education and infrastructure.
!3
"bove all the policyholders gets better pricing of products from competitive
insurance companies.
Li2erali3ation:
)he opening up of insurance $ector was a part of the ongoing liberali8ation in
the nancial sector of India. )he domain of stateArun insurance companies
was thrown open to private enterprise on <ecember C, 1///, with the
introduction of the Insurance 6egulatory "uthority (I6<") 7ill. )he opening up
of the sector gave way to the world &nown names in the industry to enter the
Indian mar&et through tieAups with the eminent business houses. 2hat was
once a @uiet business is becoming one of the hottest businesses todayL
!ost Li2erali3ation:
)he changing face of nancial sector and the entry of several companies in
the eld of life insurance segment are one of the &ey results of these
liberali8ation e4orts. Insurance business by way of generating premium
income adds signicantly to the =<P. 3stimates show that a meager F+AG1
million, out of a population of /+1 million, have come so far under the
Insurance industry. )he potential mar&et is so huge that it can grow by 1+ to
1C per annum. 2ith the entry of private players the Indian insurance mar&et
may nally be able to ma&e deeper penetration in to newer segments and
e-pand the mar&et si8e manifold. )he @uality of service will also improve and
there will be wide range of product catering to the needs of di4erent
customers. )he pace for claims settlements is also e-pected to improve due
to increased competition. )he life insurance mar&et in India is li&ely to be
ris&y in the initial stages, but this will improve in the ne-t three to ve years.
)herefore it may be advantageous to be a second round entrant. In the life
insurance mar&et the need to build trust over time becomes important
because the ris& assessment systems and data that are a &ey to success in
the insurance mar&et are signicantly underdeveloped in India even today.
Refor"s and I"plications:
)he liberali8ation of the Indian insurance sector has been the sub%ect of much
heated debate for some years. )he sector is nally set to open up to private
competition. )he Insurance 6egulatory and <evelopment "uthority bill
cleared the way for private entry into insurance, as the government was &een
to invite private sector participation into insurance. )o address those
!4
concerns, the bill re@uires direct insurers to have a minimum paidAup capital
of 6s. 1 billionM to invest policy holder’s funds only in IndiaM and to restrict
international companies to a minority e@uity holding of !0 percent in any new
company. Indian promoters will also have to dilute their e@uity holding to !0
percent over a 11Ayear period.
Dver the past three years, around F1 companies have e-pressed
interest in entering the sector and many foreign and Indian companies have
arranged alliances. 2hether the insurer is old or new, private or public,
e-panding the mar&et will present challenges. " number of foreign insurance
companies have set up representative oBces in India and have also tied up
various asset management companies. )hey have either signed 9D*’s with
Indian companies or are trying to do the same. $ome have carried out
e-tensive research on the Indian insurance sector. Dthers have set up liaison
oBces.
)a.or !layers In Indian Insurance

Life Insurance(
!u2lic:
? Life Insurance 5orporation of India
!rivate:
!5
? J<:5 $tandard Life Insurance
? 9a- 'ew Nor& Life Insurance
? I5I5I Prudential Life Insurance
? Oota& 9ahindra Life Insurance
? 7irla $unALife Insurance
? )")" "I= Life Insurance $7I Life Insurance
? I'= .ysya Life Insurance
? 7a%a% "llian8 Life Insurance
? 9etLife Insurance
? "9P $anmar Life insurance
? "viva Life Insurance
? $ahara India Life Insurance
? $hriram Life Insurance
? 7harathi"P" Life Insurance
*eneral Insurers
!u2lic:
? 'ational Insurance
? 'ew India "ssurance
? Driental Insurance
? *nited India Insurance
!rivate:
? 7a%a% "llian8 =eneral Insurance
? I5I5I Lombard =eneral Insurance
? I::5DA)o&yo =eneral Insurance
? 6eliance =eneral Insurance
? 6oyal $undaram "lliance Insurance
? )")" "I= =eneral Insurance
? 5holamandalam =eneral Insurance
? 3-port 5redit =uarantee 5orporation
? J<:5 5hubb =eneral Insurance
Re,insurer
? =eneral Insurance 5orporation of India
!6
Types of Life Insurance !olicies
Nour family counts on you every day for nancial support( food, shelter
transportation, education, and much more. Insurance provides you with that
uni@ue sense of security that no other form of investment provides. It gives
you a sense of nancial support especially during that time of crisis
!7
irrespective of the ,uctuations in the stoc& mar&et. Insurance provides for
your career goals right from your childhood years.
Insurance is all about ma&ing sure your family has ade@uate nancial
to ma&e those plans and dreams come true. It provides nancial protection to
help your family or business to manage after your death.
%e of the Life insurance policies are:
Life policies , 5over the insured for life. )he insured does not receive money
while he is aliveM the nominee receives the sum assured plus bonus upon
death of the insured.
Endowment policies , 5over the insured for a specic period. )he insured
receives money on survival of the term and is not covered thereafter.
Money back policies , )he nominee receives money immediately on death
of the insured. Dn survival the insured receives money at regular intervals
during the term. )hese policies cost more than endowment with prot
policies.
Annuities / Children’s policies , )he nominee receives a guaranteed
amount of money at a preAdetermined time and not immediately on death of
the Insured. Dn survival the insured receives money at the same preA
determined time. )hese policies are best suited for planning children’s future,
education and marriage costs.
Unit Linked Insurance Plan , *LIP provides for life insurance and at the
same time provides suitable Investment avenues. )he policy value is the sum
assured plus the appreciation of the underlying assetsM it is life insurance
solution that provides for the benets of protection and capital appreciation
at the same time. )he product is @uite similar to a mutual fund in the sense
that the investment is denoted as units and is represented by the value that
it has attained called as 'et "sset .alue ('".), and apart from the insurance
benet the structure and functioning of *LIP is e-actly li&e a mutual fund.
!#
CO)!'N& !RO%IL$
!9
-'4'4 'LLI'N5 LI%$ IN#UR'NC$
!ro1les
7a%a% "llian8 Life Insurance 5o. Ltd. is a %oint venture between two leading
companiesA "llian8 "=, one of the world’s largest insurance companies, and
7a%a% "uto, one of the biggest ! and F wheeler manufacturers in the world.
7a%a% "llian8 Life Insurance is the fastest growing private life.
Insurance 5ompany in India 5urrently has over GG1,111 satised
customers. 2e have a presence in more than ++1 locations with 01,111
Insurance 5onsultant providing the nest customer service. Dne of India’s
leading private life insurance companies
Indian perations!
=rowing at a brea&nec& pace with a strong pan Indian presence 7a%a% "llian8
has emerged as a strong player in India. 7a%a% "llian8 Life Insurance 5ompany
Limited is a %oint venture between two leading conglomerates "llian8 "= and
7a%a% "uto Limited.
5haracteri8ed by global presence with a local focus and driven by
customer orientation to establish high earnings potential and nancial
strength, 7a%a% "llian8 Life Insurance 5o. Ltd. was incorporated on 1!th 9arch
!111. )he company received the Insurance 6egulatory and <evelopment
"uthority (I6<") certicate of 6egistrahon (6F) 'o 110 on Frd "ugust !111 to
conduct Life Insurance business in India.
$+
"hared #ision!
7a%a% "uto Ltd. the :lagship 5ompany of the 6s. #111crore 7a%a% group is the
largest manufacturer of twoAwheelers and threeA 2heelers in India and one of
the largest in the world.
" household name in India, 7a%a% "uto has a strong brand image ;
brand loyalty synonymous with @uality ; customer focus. 2ith over 1 +.111
employees, the company is a 6s. G111 croreAauto giant, is the largest !QFA
wheeler manufacturer in India and the Gth largest in the world. """ rated by
56I$IL, 7a%a% "uto has been in operation for over ++ years. It has %oined hands
with "llian8 to provide the Indian consumers with a distinct spoon in terms of
life insurance products.
"s a promoter of 7a%a% "llian8 Life Insurance 5o. Ltd. 7a%a% "uto has the
following to o4er(
? :inancial strength and stability to support the Insurance 7usiness.
? $trong brandAe@uity.
? Jas good mar&et reputation, as a worldAclass organi8ation.
? Jas an e-tensive distribution networ&.
? Jave ade@uate e-perience of running a large organi8ation.
? " 11 million strong base of retail customers using 7a%a% products.
? 3-tensive use of advanced Information )echnology.
? 3-perience in the nancial services industry through 7a%a% "uto
:inance Ltd.
'llian3 *roup
"llian8 =roup is one of the worlds leading insurers and nancial services
providers. unded in 1#/1 in 7erlin, "llian8 is now present in over C1
countries with almost 1CG,111 employees. "t the top of the international
group is the holding company, "llian8 "=, with its head oBce in 9unich.
"llian8 =roup provides its more than 01 million customers worldwide with a
comprehensive range of services in the areas of(
? Property and 5asualty Insurance
? Life and Jealth Insurance
? "sset 9anagement and 7an&ing.
$!
'llian3 '*, ' *lo2al %inancial !oerhouse
? 2orldwide !nd by =ross 2ritten Premiums A 6s.G, G00+G 5r.
? Frd largest "ssets under 9anagement ("*9) ; largest amongst
insuranceA"*9 of 6s.+1, /0,/+/cr.
? 1!
th
largest corporation in the world
? G/.# E of global business from Life Insurance
? 3stablished in 1#/1, 111 yrs of insurance e-pertise
? C1 countries, 1CF,C+1 employees worldwide
-a.a. 'uto:
7a%a% "uto Ltd., the :lagship 5ompany of the 6s. #111 crore 7a%a% group is the
largest manufacturer of twoAwheelers and threeAwheelers in India and one of
the largest in the world. " household name in India, 7a%a% "uto has a strong
brand image ; brand loyalty synonymous with @uality ; customer focus.
' stron+ Indian 2rand, (a"ara -a.a.:
? Dne of the largest ! ; F wheeler manufacturers in the world
? !1 millionR vehicles on the roads across the globe
? 9anaging funds of over 6s. G111 5r.
? 7a%a% "uto nance one of the largest auto nance cos. in India
? 6s. G,CGG 5r. )urnover ; Prots of +F# 5r. in !11!A1F
? It has %oined hands with "llian8 to provide the Indian consumers
with a distinct option in terms of life insurance products.
? "s a promoter of 7a%a% "llian8 Life Insurance 5o. Ltd., 7a%a% "uto
has the following to o4er A2orldwide nancial strength and stability to
support the insurance business.
? " strong brandAe@uity.
? " good mar&et reputation as a world class organi8ation.
? "n e-tensive distribution networ&.
$hy %a&a& Allian'(
It provides an impeccable trac& record across the globe in providing security
and cover for you and your family. 2e, at 7a%a% "llian8, reali8e that you see&
an insurer who you can trust your hardAearned money with.
$$
"llian8 "= with over 111 years of e-perience in over C1 countries and
7a%a) auto, trusted for over ++ years in the Indian mar&et, together are
committed to o4ering you nancial solutions that provide all the security you
need for your tGmily and yourself. 7a%a% "llian8 brings to you several
innovative products, the details of which you can browse in this section.
)ey Achie*ements!
? 6aces past =2P of over 6e. 1 1115r, with growth of over F+CE
over previous years =2P of 6s. !1/ 5rores
? :NP of 6s #01cr a F#1E growth over last years :NP of 6s 1C/ or.
? 6oc&eted to 'o. ! position as against 'o 0 at the end of last
nancial year amongst Pvt. Life Insurance cos., with a clear lead of 6s
!G1 5r.
? :astest growing insurance company with F#1E growth
? 9ar&et share %umps almost G times from 1./+ E to F.F/ E
amongst all life Insurance cos.
? Increased its product portfolio from C to 1/ simple and ,e-ible
products
? Launched complete suite of employee benet solutions (=roup
products for 5orporate)
? 'o.1 Pvt. Life Insurer :N !1110. Leading by 6$. C#5r.
? 'o.1 Pvt. Life Insurer in 6etail 7usiness Leading by 6$ FF/ 5r.
? 2hopping growth of !10E for the :N !11+A10
? Jave sold over 1F,11,111 policies to satiated customers
? Is bac&ed by a networ& of ++1 oBces spanning the country
? "ccelerated =rowth
? "ssets under management 6s F,F!G 5r.
? $hareholder capital base of 6s +11 5r.
'o of Policies 'o of policies sold in :N =2P in :N
!111A!11!(0monts) !1,FC0 6s. C 5r.
!11!A!11F 1,1+,/0+ 6s. 0/ 5r.
!11FA!11G 1,#0,GGF 6s. !!1 5r.
!11GA!11+ !,##,1#/ 6s. 111! 5r.
!11+A!110 C,#1,0#+ 6s. F1FG 5r.
!110A!11C /,F!,+G+ 6s. G!+1 5r.
$3
-a.a. 'llian3 ,The !resent
? Product tailored to suit your needs
? <ecentrali8ed organi8ation structure for faster response
? 2ide reach to serve you better S a nationwide networ& of C11 R
branches $peciali8ed departments for 7anc assurance, 5orporate "gency
and =roup 7usiness
? 2ell networ&ed 5ustomer 5are 5enter’s (555+) with state of art
I) systems
? Jighest standard of customer service ; simplied claims
process in the Industry
? 2ebsite to provide all assistance and information on products
and services, online buying and online renewals.
? )ollAfree number to answer all your @ueries, accessible from
anywhere in the country.
? $wift and easy claim settlement process e-perience of running a
large organi8ation.
$4
%ocused #ales Netork:
Tie Ups ith -anks
!ioneers of -anc assurance in India:
Javing pioneered the phenomenon, 7an& assurance is one our core
business strategies. )wo of our strong 7anc assurance tieAups are(
? $tandard 5hartered 7an&
? $yndicate 7an&
$5
2e have developed a range of life insurance products e-clusively for
our 7an& assurance partners. "lso, our products are customi8ed to suit
specic needs of ban&s.
!RODUCT !RO%IL$
$6
!RDUCT# O% -'4'4 'LLI'N5
Individual !lans
? Unit *ain !lus *old
" uni@ue *nit Lin&ed Plan
? Ne %a"ily *ain
" *nit Lin&ed :le-ible Investment Plan
? Ne Unit *ain !lus #!
$ingle Premium Plan
? !ension *uarantee
"n "nnuity Pension Plan
? Ter" Care
)erm Plan with 6eturnAofAPremium
? Invest *ain
"n 3ndowment Plan
? Lifeti"e Care
2hole Life Plan
? Child *ain
5hildren’s Policy
? Loan !rotector
" 9ortgage 6educing )erm Insurance Plan
$7
? Cash *ain
9oney 7ac& Plan
? #arna 6ishranti
6etirement Plan
? Ne Unit *ain !lus
*nit Lin& plan with higher allocation
? %uture Inco"e *enerator
6etirement Pension Plan
? Ne Unit *ain $asy !ension !lus #!
*ni@ue *nit Lin&ed pension
? 'lp Nivesh &o.ana
"n endowment plan with Life cover and 9aturity benet
? #aral #uraksha &o.ana
9ost economical term insurance policy
*roup !lans
? *roup Credit #hield
"vailable for 3mployer A 3mployee =roups and 'on 3mployerA
3mployee =roups
? *roup Ter" Life
"vailable for 3mployer A 3mployee =roups and 'on 3mployerA
3mployee =roups
? Ne *roup *ratuity Care
3mployer A 3mployee =roup plan
? Ne *roup #uperannuation Care
3mployer A 3mployee =roup plan o4ering stable and independent
post retirement life
? *roup Ter" Life #che"e
$#
In lieu of 3<LI (3mployees <eposit Lin&ed Insurance)
)hese are the insurance plans that o4er ,e-ibility with ta- benets(
Unit +ain Plus +old! A Unit Linked Plan
7a%a% "llian8 *nit =ain Plus =old is a *ni@ue plan with the combination of
protection and prospects of earning attractive returns with investments in
various mi-es of securities that ma&es a perfect plan to last you a lifetime of
prosperity and happiness. *nder this plan there is a high allocation up to
#+E. "lso, it guaranteed Life 5over with a choice of 0 Investment :unds.
Unit +ain Plus "P! A "in,le Premium Unit Linked Plan!
)his plan enables one to protect hisQher loved ones, while ma&ing the money
grow faster with the advantage of low charges. It provides one the option of
allocating /#E of the single premium to purchase units in anyQall of the 0
funds available with 7a%a% "llian8.
Customer!
7a%a% "llian8 has products suitable for all income groups. 5ompany is a legal
entity and has legal e-istence, but actually comes into life when it obtains
customer. 5ustomers are rst and last real asset of the company. In the
mar&eting era customer is whole ; sole. In our life insurance all the
categories of human being comes and covers that varies from FDdays of birth
to 01yrs, and our company targeting lower, middle and higher incomes of
group and our policies economical and access able to all income groups.
Competitors!
)he main competitors for 7a%a% "llian8 Life Insurance 5o Ltd are(
? Life Insurance 5orporation of India
? I5I5I Prudential Life Insurance 5o. Ltd
$9
? 7irla $un Life Insurance 5o. Ltd
? J<:5 $tandard Life Insurance 5o. Ltd
? I'5 .ysya Life Insurance 5ompany Pvt. Ltd
? 9a- 'ew Nor& Life Insurance 5o. Ltd
? 9et Life India Insurance 5ompany Put. Ltd.
? Oota& 9ahindra Dld 9utual Life Insurance Limited
? $7I Life Insurance 5o. Ltd
? )ata "I= Life Insurance 5ompany Limited
? 6eliance Life Insurance 5ompany Limit
? "viva Life Insurance 5o. India Pvt. Ltd
? $ahara India Life Insurance 5o, Ltd
? $hriram Life Insurance 5u, Ltd
? 7harathi"-a Life Insurance 5o Ltd
3+
Chapter , III
3!
CONC$!TU'L %R')$WOR7
3$
Unit Linked Insurance !lans
ULI! is a mar&et lin&ed investment where the premium paid is invested in
funds. <i4erent options are available, li&e 111E 3@uity, 7alanced, <ebt,
Li@uid etc and according to the fund selected, the ris&s and returns vary.
)he costs are upfront and are transparent, the investment made is
&nown to the investor ("s he is the one who decides where his money should
be invested). )here is a greater ,e-ibility in terms of premium payments i.e.
" premium holiday is possible. Nou can also invest surplus money by way of
top ups which will increase your investment in the fund and thereby provide a
push to returns as well.
)here is no assured $um on survival, the higher of the $um "ssured or
:und .alue is paid at the maturity or incase of death.
:ew reasons why we thin& *LIPs are better(
1. :ree insurance cover( "s seen in the above e-ample, the insurance
cover is freeM the policy even provides better returns
!. 7est solution for children’s educationQfuture needs *LIPs not only help
save money systematically for a particular goal, but also helps protect
that goal
F. $witches without capital gains and entry loads( *nli&e e@uity and
mutual fund investments which are sub%ect to capital gains when sale
is madeM *LIPs have the convenience of switching among the funds
without any entry loads or capital gains
G. )he 9ortality charges are lower than traditional policies.
33
Unit-linked insurance plans (*LIPs) are the ,avor of the season. Launched
a couple of years ago, these plans have contributed over +1 percent of the
new business of insurance companies such as I5I5I Prudential, 7irla $un Life
and 7a%a% "llian8 Life Insurance 5o Ltd.
3ncouraged by the response, other players, too, are launching variants
of savings and endowment plans in the unitAlin&ed format, a recent addition
to the range of insurance products.
)he introduction of unitAlin&ed insurance plans (*LIPs) has been,
possibly, the singleAlargest innovation in the eld of life insurance in the past
several decades. In a swoop, it has addressed and overcome several
concerns that customers had about life insurance AA li@uidity, ,e-ibility and
transparency and the lac& thereof. )hese benets are possible because *LIPs
are di4erently structured products and leave many choices to the
policyholder. Jence, as a customer, you must carefully consider whether you
can ma&e such a product wor& well for you. 7roadly spea&ing, I believe that
*LIPs are best suited for those who have a conceptual understanding of
nancial mar&ets and are genuinely loo&ing for a ,e-ible, longAterm savingsA
cumAinsurance solution.
Put simply, *LIPs are structured such that the protection (insurance)
element and the savings element can be distinguished and hence managed
according to oneTs specic needs. )raditionally, the savings element of
insurance has been opa@ue, giving policyholders no control over asset
allocation, no transparency, no ,e-ibility to match oneTs lifestyle, ine-plicable
returns and an e-pensive, complicated e-it.
*LIPs, by separating the two parts within the same product, and
managing them independently, o4er insurance buyers what no traditional
policy had AA continuous information about how their policy is wor&ing for
them. Dften, people wonder whether itTs better to purchase separate nancial
products for their protection and savings needs. 5ertainly, this is a viable
option for those who have the time and s&ill to manage several products
separately. Jowever, for those who want a convenient, economical, oneAstop
solution, *LIPs are the best bet.
34
)o understand how a *LIP meets the multiple needs of protection of
both health and lifeM and savings in the same policy, let us ta&e the e-ample
of a F+AyearAold man with ! young children.
2ith a premium of, say, 6s F1,111 p.a. he could begin with a sum
assured of 6s + la&h, for which the life insurer would set aside a nominal
amount of the premium to cover this ris&. )he balance could be invested in a
fund of his choice, possibly a balanced or growth option.
"s the children grow, he might want to increase the level of protection,
which could be done by li@uidating some of the units to pay for a ris&
premium. Dn the other hand, if he gets a signicant raise, he could increase
the savings element in the policy by topping it up.
)he &ey to good nancial planning is to understand oneTs current and
future nancial goals, ris& appetite and portfolio mi-. )his done, the ne-t step
is to allocate assets across di4erent categories and systematically adhere to
an investment pattern, so that they wor& in tandem to meet oneTs
re@uirements over the ne-t month, year or decade. 7ecause of their ,e-ibility
to ad%ust to di4erent lifestage needs, *LIPs t in very well with nancial
planning e4orts. 9oreover, as a systematic investment plan, *LIPs greatly
diminish the ha8ards of investing in a volatile mar&et, and using the concept
of T6upee 5ost "veragingT, allow the policyholder to earn real returns over the
long term.
2hen youTre buying a *LIP, ma&e sure you select one that wor&s well for you.
)he important thing is to loo& for and understand the nuances, which can
considerably alter the way the product wor&s for you. )a&e the following into
consideration.
? Char,es! *nderstand all the charges levied on the product over its
tenure, not %ust the initial charges. " complete charge structure would
include the initial charges, the -ed administrative charges, the fund
management charges, mortality charges and spreads, and that too, not
only in the rst year but also through the term of the policy. It might
seem confusing at rst, but a company provided benet illustration
should help ma&e this clearer. $ome companies levy a spread between
the buy and sell rates of the units, which can signicantly reduce the
value of the investment over the longAterm. 5lose e-amination and
35
@uestioning of such aspects will reveal the growing power of your
investment.
? .und ptions and Mana,ement! *nderstand the various fund options
available to you and the fund management philosophy and ob%ectives of
each of them. 3-amine the trac& record of the funds thus far and how
they are performing in comparison to benchmar&s. 2ho manages the
funds and what e-perience do they haveL "re there ade@uate controlsL
Importantly, loo& at how easily you can access information about your
fundTs performance when you need it AA are their daily '".sL Is the
portfolio disclosed regularlyL
? .eatures! 9ost *LIPs are rich in features such as allowing one to topAup
or switch between funds, increase or decrease the protection level, or
premium holidays. 5arefully understand the conditions and charges
associated with each of these. r instance, is there a minimum amount
that must be switchedL Is there a charge on the sameL 9ust you go
through medical underwriting if you want to increase the sum assuredL
? Company! Last but not least, insure with a brand you can trust to honor
its commitment and service you according to your re@uirements.
Javing bought a *LIP, it’s important that you monitor it on a regular basis,
though not as fre@uently as you would a stoc& or mutual fund. Nour *LIP is a
longAterm investment and daily ,uctuations in the '". should not impact
you. 5hec& once a @uarter to see how your fund is performing, and consider a
switch if there is a change in the level of ris& you are willing to ta&e or in your
personal mar&et view. 9onitor your fundM value it in the few wee&s or months
before a planned withdrawal or topAup, or a change in your life stage or
lifestyle. r those who are still nding their feet with their *LIP and its
multitude of options, the best thing to do is to consult your advisor.
Life insurance as a form of protection is the singleAmost important
nancial product any earning member of a family must have. Javing said
this, a wellAdiversied portfolio is one of the rst rules of nancial planning,
and as such one should consider di4erent instruments as the ability to save
increases. 5ertainly *LIPs successfully combine the rst and most important
need of protection, with savings, and hence are an e-cellent addition to your
portfolio. )hese can be combined with various other products, after ta&ing
36
into account your ris& appetite, nancial goals and need for portfolio
diversication.
Possible investment options range from ban& deposits and government
small saving schemes to mutual funds, stoc&s and property.
7uying a *LIP is @uite di4erent from buying a traditional insurance
productM and sometimes there are cases of people who believe they have
been misAsold a *LIP, the complaint most often being that they were not
aware of the ris&s or the charges.
"ll nancial products have a certain amount of ris& and charges, be it a
mutual fund, property, or even a ban& deposit. It would be unrealistic to
assume that the features and benets of a *LIP come at no cost, though the
charges are considerably lower than that of a traditional product.
In fact, the very reason the product is transparent is because the
customer &nows the charges and ris&s. :urther, unli&e other nancial
products, all life insurance plans come with a 1+Aday free loo&, which allows
you to return the policy if you believe it does not meet your needs or
e-pectations.
O2.ectives of ULI!#:
1. )o give customer ,e-ibility 11 5hoose
? $um "ssured
? Premium
? payment term
? Increase sum assured
? "dd riders and,
37
? 5ustomi8e the policy according to needs.
!. )o give customer a decent in,ation beating returns, in accordance with
mar&et returns.
F. )o protect the purchasing power of customers money in future times
and to protect them against in,ation and constant erosion in moneys
value there of.
G. )o give a broader fund choices to customers according to their ris&
appetite
+. )o give customers a transparency and &eep them fully informed about
fund, management and e-penses involved.
0. "bility to increase Q decrease sum assured according to changing life
situations (such as loans) and increasing Juman Life value.
C. )o provide li@uidity to the customers in cases of emergency
#. )o enable customers to actively manage their own funds according to
their perceptions and changing mar&et situations.
Disadvanta+es of ULI!s:
1. 2ide choice of fund options.
!. "bility to withdraw money after some time, to avoid long loc&, 7ird in
hand is worth ! in the bush.
F. )o get in,ation beating returns on investment
3#
G. 7rea&ing up of premium into insurance and investments.
+. "bility to ma&e the *LIP as mainly insurance oriented (low premium
and high sum assured) or predominantly Investment oriented (reverse)
0. 3nables customers Q policy holders to understand the company’s
Investment style, through investment reports.
C. Premium holidays A accommodating ,uctuating and unpredictable
incomes.
#. Policy never lapses, thus , ma&ing the optimum usage of insurance
benet
/. :le-ibility.
11. $uitable to business classes with unsure incomes.
11. 7lending of safety, attractive returns and li@uidity.
The folloin+ points 2efore +oin+ in for a ULI!:
39
1. It is prudent to ma&e e@uityAoriented investments based on an
established trac& record of at least three years over di4erent mar&et
cycles. *LIPs do not fulll this criterion now.
!. Insurance and savings are two di4erent goals and it is better to
address them separately rather than bundle them into a single product.
" combination of a term plan and a mutual fund could give better results
over the long term
F. If investment returns are your priority, you should compare alternative
investment products before loc&ing in your money.
G. )a- advantages do wor& in favor of *LIPs for debtAoriented funds. r
e@uityAoriented funds, e@uityAlin&ed savings products, which en%oy ta-
advantages and provide mar&etAlin&ed returns, are comparable.
+. )he e-pense structure of insurance products does signicantly dent
returns.
8 Reasons hy ULI!s +et the thu"2s up:
"s& any individual who has purchased a life insurance policy in the past year
or so and chances are high that the policy will be a unit lin&ed insurance plan
(*LIP). *LIPs have been selling li&e proverbial Ihot ca&es’ in the recent past
and they are li&ely to continue to outsell their plain vanilla counterparts going
ahead. $o what is it that ma&es *LIPs so attractive to the individualL Jere, we
have e-plored some reasons, which have made *LIPs so irresistible.
9: Insurance co*er plus sa*in,s! )o begin with, *LIPs serve the
purpose of providing life insurance combined with savings at mar&etA
lin&ed returns. )o that e-tent, *LIPs can be termed as a twoAinAone plan in
terms of giving an individual the twin benets of life Insurance plus
savings. )his is unli&e comparable instruments li&e a mutual fund for
instance, which does not o4er a life cover.
/: Multiple in*estment options! *LIPs o4er a lot more variety than
traditional life insurance plans. $o there are multiple options at the
individual’s disposal *LIPs generally come in three broad variants(
? "ggressive *LIPs (which can typically invest #1EA111E in
e@uities, balance in debt)
? 7alanced *LIPs (can typically invest around G1EA01E in e@uities)
? 5onservative *LIPs (can typically invest up to !1E in e@uities)
4+
"lthough this is how the *LIP options are generally designed, the e-act
debtQe@uity allocations may vary across insurance companies. Individuals
can opt for a variant based on their ris& prole. r e-ample, a F1ANr old
individual loo&ing at buying a life insurance plan that also helps him build
a corpus for retirement can consider investing in the 7alanced or even the
"ggressive *LIP. Li&ewise, a ris&Aaverse individual who is not comfortable
with a high e@uity allocation can opt for the 5onservative *LIP.
;: .le/ibility! Individuals may well as& how *LIPs are any di4erent from
mutual funds. "fter all, mutual funds also o4er hybridQbalanced schemes
that allow an individual to select a plan according to his ris& prole. )he
di4erence lies in the ,e-ibility that *LIPs a4ord the individualM Individuals
can switch between the *LIP variants outlined above to capitali8e on
investment opportunities across the e@uity and debt mar&ets. $ome
insurance companies allow a certain number of Ifree’ switches. )his is an
important feature that allows the informed individualQinvestor to benet
from the vagaries of stoc&Qdebt mar&ets. r instance, when stoc& mar&ets
were on the brin& of C,111 points ($ense-), the informed investor could
have shifted his assets from an "ggressive *LIP to a lowAris& 5onservative
*LIP. $witching also helps individuals on another front. )hey can shift from
an "ggressive to a 7alanced or a 5onservative *LIP as they approach
retirement. )his is a re,ection of the change in their ris& appetite as they
grow older.
8: $orks like an "IP! 6upee costAaveraging is another important benet
associated with *LIPs. Individuals have probably already heard of the
$ystematic Investment Plan ($IP) which is increasingly being advocated by
the mutual fund industry, 2ith an $IP, individuals invest their monies
regularly over time intervals of a 9onthQ@uarter and don’t have to worry
about Itiming’ the stoc& mar&ets. )hese are not benets peculiar to
mutual funds. 'ot many reali8e that *LIPs also tend to do the same, albeit
on a @uarterlyQhalfAyearly basis. "s a matter of fact, even the annual
premium in a *LIP wor&s on the rupee costAaveraging principle. "n added
benet with *LIPs is that individuals can also invest a oneAtime amount in
the *LIP either to benet from opportunities in the stoc& mar&ets or if they
have an investible surplus in a particular year that they wish to put aside
for the future.
4!
%ive Reasons for Investin+ #yste"atically
Dver the last 1! months investors in e@uity mar&ets have seen it all,
from all time high level of 0!11 levels to dismal low level of G!11. " lot of
investors who entered at 0,!11 e-pecting the mar&et to go even higher are
very upset. 9ost investors cannot really stomach the &ind of volatility that is
inherent in e@uity mar&ets. "t the end of the day, investors who can ta&e
some ris& are actually shunning e@uities only because they entered e@uity
mar&ets at the Iwrong time’ $ystematic investment plans ($IPs) ta&e care of
this problem. 7ut mar&et timing is not the only reason for you to plump for
$IPs, there are other advantages.
9: Li,ht on the wallet! =iven that average per capital income of an
Indian is appro-imately only 6s. !+,111 (i.e. monthly income of 6s !,1#F),
a 6s +,111 oneAtime entry in a mutual hind is still as&ing for a lot (!.G
times the monthly income). "nd mutual funds were never meant to be
elitistM far from it, the retail investor is as much a part of the mutual fund
target audience as the ne-t high networth investor (J'I). $o if you cannot
shell out 6s +,111, that’s not a huge stumbling bloc&, ta&e the $IP route
and trigger your mutual fund Investment with as low as 6s. +11 (in most
cases).
/: Makes market timin, irrele*ant! If mar&et lows give you the %itters
and ma&e you wish you had never invested in e@uity mar&ets, then $IPs
can help you blunt that depression. 9ost retail investors are not e-perts
on stoc&s and are even more outAofAsorts with stoc& mar&et oscillations.
7ut that does not necessarily ma&e stoc&s a lossAma&ing investment
proposition. $tudies have repeatedly highlighted the ability of stoc&s to
outperform other asset classes (debt, gold, property) over the longAterm
(at least + years) as also to e4ectively counter in,ation. $o if stoc&s are
such a great thing, why are so many investors complainingL It’s because
4$
they either got the stoc& wrong or the timing wrong. 7oth these problems
can be solved through an $IP in a mutual fund with a study trac& record.
;: 0elps you build for the future! 9ost of us have needs that involve
signicant amounts of money, li&e child’s education, daughter’s marriage,
buying a house or a car. If you had to save for these milestones overnight
or even a couple of years in advance, you are unli&ely to meet your
ob%ective (wedding, education, house, etc). 7ut if you start saving a small
amount every monthQ@uarter through $IPs that is treated as sacred and
that is set aside for some purpose, you have a far better chance of ma&ing
that down payment on your house or getting your daughter married
without drawing on your P: (provident fund).
8: Compounds returns! )he early bird gets the worm, is not %ust a part
of the %ungle fol&loreM even the early investor gets a lion’s share of the
investment booty viaAaAvia the investor who comes in later. )his is mainly
due to a thumb rule of nance called compounding. "ccording to a study
by Principal 9utual :und if Investor 3arly and Investor Late begin investing
6s 1,111 monthly in a balanced fund (+1(+1 S e@uity( debt) at !+ years
and F1 years of age respectively, Investor early will build a corpus of 6s #
m (6s #1 la&hs) at 01 years, which is twice the corpus of 6s G m that
Investor Late will accumulate. " gap of + only years results in a doubling
of the investment corpusU )hat is why $IPs should become an investment
habit. $IPs run over a period of time (decided by you) and help you avail
of compounding.
<: Lowers the a*era,e cost! $IPs wor& better as opposed to oneAtime
investing. )his is because of rupeeAcost averaging. *nder rupeeAcost
averaging an investor typically buys more of a mutual fund unit when
prices are low. Dn the other hand, he will buy fewer mutual fund units
when prices are high. )his is a good discipline since it forces the investor
to commit cash at mar&et lows, when other investors around him are wary
and e-iting the mar&et. Inventors may even be pleased when prices fall
because the -ed rupee investment mould now fetches more units.
43
Workin+ )echanis"
2or&ing 9echanism of *LIPs includes the following steps(
"ales! "gents and other channel sales people collect premium from
customers.
Allocation! Dnce sales people collect premium from customers, all that
money is not invested at once. Part of it is deducted towards administration
e-penses, insurance e-penses (9ortality 5harges as they are usually called),
and management e-penses.
"fter deducting money for the "I9 (admin, insurance, management
e-penses), the rest of the money is invested into the fund choice chosen by
the customer.
Administration E/penses: is the e-pense for ma&ing the policy document Q
bond ma&ing $tamp duty (insurance is a legal document sub%ect to Indian
stamp act), agent commission and other -ed over heads spread. "dmin
charges are deducted I993<I")3LN after premium is paid. 'ot at the end of
the year.
Insurance E/penses or mortality char,es: )hese are nothing but the
)erm Insurance 5harges chosen by the customer (for e-ample, let us say,
6s.11 la&h), for a given premium (for e-ample, let us say, 6s.C1, 111QA).
44
9ortality charges (and any rider benet premium) are deducted ") )J3
73=I''I'= of the policy year and not at the end.
.und Mana,ement char,es! 2hen company invests money into e@uity
mar&ets, they incur bro&erage etc e-penses. 2hen they invest into debt
based Qgilt scurrilities and other interest yielding instruments, they have to
spend of bond trading charges.
"ll these e-penses are passed on to the policy holders by the way of
:und 9anagement 5harges. )his is done ") )J3 3'< of policy year. "fter
money is deducted for "I9, the rest is invested into di4erent funds, (9etLife
has 0, and 7ata (has G or + customer’s choice and agent’s discretion.
)his fund is uniti8ed and a face value of 6s.11QA is given to each unit
during the 'ew :und D4er. Let us for instance say, company invests 6s.11
la&hs into e@uity Q debt based fund. It has allocated 1 lac& units to all policy
holders, depending on the premium each customer paid.
'ow, 'et "sset .alue ('".) is calculated by the following formula(
Total fund value = no of units
M 2here, the denominator (units) does not change. Dnly the numerator
changes (total fund value) depending on the mar&et variations.
If the fund, after one year of investment management, has attained a value
of, say, 6s.1F lac&s, then, the 'et "sset .alue ('".) of each unit would be
Rs:9; lacks = 9 lack units > Rs:9; = per unit:
)his '". is published every day in nancial news papers. 9echanisms are
same for a debt based fund or e@uity based fund. In case company feels
necessary, they ta&e investment advice from 3@uity 6esearch "nalysts (in
case of e@uity based funds) and 5redit 6ating 5ompanies (such as 56I$IL,
I56", 5"63 etc) for due diligence and for minimi8ing the ris&.
3ach Life Insurance 5ompany has software installed into their system
(many companies use 5isco $ystems $2). "t the end of the trading session,
that is after G.F1 P9 every evening, that software calculates the total value of
each investment fund and divides the same by number of units (less
withdrawals Q death benets given if any) and by G ".9 early morning, '".
computation would be over.
45
)hat '". is published in newspapers and published in the respective
company’s website. In most Life Insurance companies, customer has the
option to choose the fund, switch the fund when heQshe wants, reAdirect the
new premiums, withdraw etc.
Net asset value:
)he Net 'sset 6alue or N'6 is a term used to describe the value of an
entity’s assets less the value of its liabilities. )he term is commonly used in
relation to collective investment schemes. It may also be used as a synonym
for the boo& value of a rm.
Contents:
#ariations! 2hile the above denition is simple, there are many di4erent
types of entities, and di4erent ways of measuring the value of assets and
liabilities. In the conte-t of collective investments (mutual funds, net asset
value is the total value of the fund’s portfolio less liabilities. )he '". is
usually calculated on a daily basis. In terms of corporate valuations, net asset
value is the value of assets less liabilities.
"nd, to give an indication of what we could mean by the value of
assets considers some of these variations each one achieves something
slightly di4erent, and is applied in di4erent ways(
? 7oo& value
? 5arrying value
? Jistorical cost
? "morti8ed cost
? 9ar&et value
Usa,e! Investors might want to &now if a company is cheap or e-pensive to
invest in. Dne possibility is to compare its current mar&et capitali8ation with
its net asset value since, all things being e@ualM one might e-pect them to be
the same. )here are reasons why this might not be true.
? '". covers the company’s
current asset and liability position. Investors might e-pect the
company to have large growth prospects, in which case they would
be prepared to pay more for the company than the '". suggests.
46
? )he '". is usually below the
mar&et price because the current values of the funds assets are
higher than the historical nancial statements used in the '".
calculation. 7ut in the case of, for e-ample, Liberty 9edia
5orporation, analysts and management have estimated that it is
actually trading for F1A+1E below its net asset value (or >core asset
value?).
)he '". of an openAend fund will always e@ual its price. 7ut the price of a
closedAend fund may not e@ual its '". as closedAend funds are traded in the
secondary mar&et and the above reasons cause price to vary from '".
(premium or discount applied)
'et assets are sometimes the same as net worth, or shareholders’
e@uity A assets minus liabilities. In >6eturn on 'et "ssets? (6D'") it’s often
-ed assets plus net wor&ing capital (current assets minus current liabilities)
which may be slightly less than total assets.
)he '". is usually below the mar&et price because the current values
of the funds assets are higher than the historical nancial statements used in
the '". calculation.
Calculatin+ Net 'sset 6alue ?N'6@
)he investor may have heard the term 'et "sset .alue ('".) used when
referring to *LIPs. 'ow it is important to learn how to calculate a *LIPs '".
and understand what it really means.
Calculatin+ N'6s: 5alculating *LIP net asset values is easy. $imply ta&e the
current mar&et value of the fund’s net assets (securities held by the fund
minus any liabilities) and divide by the number of shares outstanding. $o ifs
fund had net assets of H+1 million and there are one million shares of the
fund, then the price per share (or '".) is H+1.11.
)he most important thing to &eep in mind is that '". change daily and is not
a good indicator on how your portfolio is doing because things li&e
distributions mess with the '". (it also ma&es mutual funds hard to trac&.
ULI! *uidelines: IRD' "akes a start:
)his article was written by Personalfn for 7usiness India, and was carried in its
$eptember !G, !110 issue with the title, I6<" ma&es a start. )he original
draft, in its entirety, has been retained here.
47
"fter being witness to rampant misrepresentation of *LIP+ (unit lin&ed
insurance plans) the regulatorS Insurance 6egulatory and <evelopment
"uthority (I6<") nally introduced some muchAneeded guidelines to lend an
element of insurance to an otherwise investment product. Jowever, we
maintain that there is still more to be done to ma&e *LIP+ more transparent
and ma&e it even more insurance oriented.
:irst some bac&ground S *LIPs made an entry at a rather opportune
time for insurance companies. )he mood in e@uity mar&ets was very
pessimistic, however, at those levels) 7$3 $ense- less than F,111 points)
mar&ets could go in only one direction A up. "nd ta&e o4 they did in an
unprecedented manner. :rom F,111 points, the 7$3 $ense- surged furiously
to over 1!,111 points leaving investors breathless.
2hy are we tal&ing of stoc& mar&ets in an insurance article where we
propose to discuss the latest *LIP guidelinesL 7ecause unfortunately, not %ust
fund managers, but also insurance companies were rather e-cited by the
sharp rise in stoc& mar&ets. 2hen you come to thin& of it, insurance
companies should be more concerned about insuring lives than the vagaries
of stoc& mar&ets. Jowever, in *LIPs, they had a product that was more
geared towards Io4ering a return’ than insuring lives.
"nd this anomaly was put to good use by insurance agents. *LIP+ were
spo&en of in the same breath as mutual funds. In fact, many agents even
went as far as pro%ecting *LIPs superior to mutual funds because they attract
ta- benets (under $ection #15) on all options, unli&e mutual funds where
you get a ta- benet only on the 3L$$ (e@uityAlin&ed savings scheme)
category. 9oreover, *LIP+ were shown to be a shortAcut investmentQinsurance
avenue Sfor instance, investors were encouraged to pay premiums only for
the rst F years and not necessarily over the entire tenure of the policy. )he
reason is because the e-penses in the initial F years’ premium are so high
that insurance companies recover the entire cost of the policy (including life
cover charges) and can Ido without’ the remaining premiums.
2hile these mar&eting gimmic&s were glaring, the I6<", to their credit,
did intervene at regular intervals to infuse some muchAneeded sanity. 7ut as
we, at Personalfn, have seen on the mutual fund side, at times the regulator
4#
must come down heavily as nancial service providers can ta&e @uite awhile
to get the hint.
Dn Vuly I, !110, the I6<" introduced revised *LIP guidelines to correct
Isome? of these anomalies, we say some because much is yet to be achieved,
but more on that later.
r one I6<" has given the new *LIP a Iface’, in insurance a face can
be ta&en as the sum assured and the tenure. )he old *LIP lac&ed both and
individuals did not have in&ling about either even after ta&ing the *LIP. )he
latest guidelines dictate that(
Ter"=Tenure:
? )he *LIP client must have the option to choose a termQtenure.
? If no term is dened, then the term will be dened as IC1 minus the age
of the client’. r e-ample if the client is opting for *LIP at the age of F1
then the policy term would be G1 years.
? )he *LIP must have a minimum tenure of + years.
"um Assured! Dn the same lines, now there is a sum assured that clients
can associate with. )he minimum sum assured is calculated as(
?Ter"=/ A 'nnual !re"iu"@ or ?< A 'nnual !re"iu"@ whichever is
higher.
)here is no clarity with regards to the ma-imum sum assured. )he sum
assured is treated as sacred under the new guidelinesM it cannot be reduced
at any point during the term of the policy e-cept under certain conditions S
li&e a partial withdrawal within two years of death or all partial withdrawals
after 01 years of age. )his way the client is at ease with regards to the sum
assured at his disposal.
Premium payments! If less than rst F years premiums are paid, the life
cover will lapse and policy will be terminated by paying the surrender value.
Jowever, if at least rst F years premiums have been paid, then the life cover
would have to continue at the option of the client.
"urrender *alue! )he surrender value would be payable only after
completion of F policy years.
Top,ups: Insurance companies can accept topAup only if the client has paid
regular premiums till date, If the topAup amount e-ceeds !+E of total basic
49
regular premiums paid till date, then the client has to be given a certain
percentage of sum assured on the e-cess amount. )opAups have a loc&Ain of F
years (unless the topAup is made in the last F years of the policy).
Partial withdrawals! )he client can ma&e partial withdrawals only after F
policy years.
"ettlement! )he client has the option to claim the amount accumulated in
his account after maturity of the term of the policy up to a ma-imum of +
years. r instance, if the *LIP matures on Vanuary 1, !11C, the client has the
option to claim the *LIP monies till as late as <ecember F1, !11!. Jowever,
life cover will not be available during the e-tended period.
Loans! 'o loans will be granted under the new *LIP.
Char,es! )he insurance company must state the *LIP charges e-plicitly.
)hey must also give the method of deduction of charges.
%ene1t Illustrations! )he client must necessarily sign on the sales benet
illustrations. )hese illustrations are shown to the client by the agent to give
him an idea about the returns on his policy. "gents are bound by guidelines to
show illustrations based on an optimistic estimate of 11E and a conservative
estimate of 0E. 'ow clients will have to sign on these illustrations, because
agents were violating these guidelines and pro%ecting higher returns. 2hile
what the I6<" has done is commendable, slot more needs to be done. "t
Personalfn, we have our own wish list with regards to *LIP portfolios(
a. 6egular disclosure of detailed *LIP portfolios. )his is a problem with the
industryM for all their tal& on being %ust li&e (Dr even better than)
mutual funds, *LIP portfolios are nowhere near their mutual fund
counterparts in fre@uency as well as in transparency.
b. Dn the same lines, other data points li&e portfolio turnover ratios need
to be mentioned clearly so clients have an idea on whether the fund
manager is investing or punting.
c. *LIPs (especially the aggressive options) need to mention their
investment mandate, is it going to aim for aggressive capital
appreciation or steady growth. In other words will it be managed
aggressively or conservativelyL 2ill it invest in large caps, mid caps or
across both segmentsL 2ill it be managed with the growth style or the
value styleL
5+
3-posure to a stoc&Qsector in a *LIP portfolio must be dened. <iversied
e@uity funds have a limit to how much they can invest in a stoc&Qsector.
Investment guidelines for *LIPs must also be crystalli8ed. Dur interaction with
insurance companies indicates that there is little clarity on this frontM we
believe that since *LIPs invest so heavily in stoc& mar&ets they must have
very clearAcut investment guidelines.
5!
C('!T$R I6
5$
To #tudy in detail a2outB to ULI! products of -a.a.
'llian3 Life Insurance Co Ltd:
The -a.a. 'llian3 Unit *ain !lus C*oldD
2ith 7a%a% "llian8 *nit =ain Plus I=old’ we have formulated a uni@ue
combination of protection and prospects of attractive returns with investment
in various mi-es of securities to ma&e a perfect plan to last you a lifetime of
prosperity and happiness.
#o"e of the key features of this plan are:
? =uaranteed life cover, with a ,e-ibility to choose insurance cover
according to your changing needs.
? Presenting a uni@ue investment I"sset "llocation :und’ wherein you have
not to worry to switch funds in case mar&et condition changes rather our
e-perienced :und 9anagers will monitor the mi- of assets in the fund and
will manage the mi- in such situations to ma-imi8e your returns.
? If you want to manage the mi- of assets for your policy on your own, you
have the choice of + other investment funds with complete ,e-ibility to
switch money from one fund to other to manage your investments better.
? Nour policy continues to participate in investment performance of the
fund(s) even if you are not able to pay F full years’ premium.
? :le-ibility of partial withdrawals at any time after three years from
commencement of the policy provided three full years’ premiums are
paid.
? =et maturity value e@ual to the :und .alue at maturity date or in periodic
installments spread over a ma-imum period of ve years.
? " host of optional additional rider benets which includes assurance to
your family with family income benet and waiver of premium benet.
(o does the plan ork?
Premiums paid by you, net of premium allocation charge, are invested in
fund(s) of your choice and units are allocated depending on the unit price of
the fund(s). )he value of your policy is the total value of units that you hold in
53
the fund(s). )he insurance cover charges, policy administration charges and
the additional rider benet charges (if any) are deducted through monthly
cancellation of units. :und 9anagement 5harge is priced in the unit value.
E-a.a. 'llian3 Unit *ain !lus C*oldD oFers you the folloin+
cover choices:
9inimum $um "ssured W + times "nnuali8ed premium, D6 half of the Policy
)erm times "nnuali8ed Premium, whichever is higher.
9a-imum $um "ssured W >y? times the annual premium, where y will be as
per the following table(
"ge =roup 1XF1 F1XF+ F0XG1 G1XG+ G0A++ +0X01
>y? for base cover or
base
cover with *L "<7 ;Qor
*L "P)P<7 rider
111 # + C 1 +1 F 1 ! 1
>y? for base cover or
base
cover with *L 5I andQor
*L J57 rider
1.+ times Policy )erm
>N? for base cover with
*L :I7, provided *L 5I
;Qor *L J57 rider has
not been opted for.
If age of :I7 life assured
R policy term is less
than or e@ual to 01
+1 or base cover
multiplier, which ever
is lower.
If age of :I7 life assured
R policy term is greater
than 01
1.+ times policy term
-ene1ts availa2le under the plan:
? Dn death occurring before the age of C years( )he death benet will be
the fund value as on date of receipt of intimation of death at the oBce.
? Dn death after the age of C years and before the age of 01 years( )he
benet payable would be the sum assured less value of partial
withdrawals made in the last !G months prior to the date of death or the
fund value as on date of receipt of intimation of death at the 5ompany’s
oBce, whichever is higher. )he death benet payable would be calculated
separately for regular premiums and top up premiums.
? Dn death of the life assured on or after attaining the age of 01 years( )he
benet payable would be the sum assured less value of partial
withdrawals made, within !G months before attaining age 01 years and
all partial withdrawals made after attaining age 01 years or the fund
54
value as on the date of receipt of intimation of death at the oBce,
whichever is higher. )he death benet would be calculated separately for
regular premiums and top up premiums
? Dn 9aturity, the :und .alue in respect of regular premium and top up
premium will be paid.
? )he surrender value of the policy will be e@ual to the fund value less
surrender charge, if any. "nytime after three years from the date of
commencement of the policy, provided due premiums for rst three
policy years have been paid, the policyholder will have the option to avail
of surrender benet by complete surrender of units. :urther if rst three
years regular premiums have not been paid and the policy is lapsed for
insurance cover, the $urrender .alue, if any, would be payable at the
e-piry of the revival period or at the end of third policy year, whichever is
later.
Unit Price! )he unit price of each fund is arrived at by dividing the 'et "sset
.alue ('".) of the fund by the number of units e-isting in the fund at the
valuation date (before any new unit is allocated or cancelled)
#aluation 2ate! )he 5ompany aims to value the :unds on each day the
nancial mar&ets are open. Jowever, the 5ompany reserves the right to
value less fre@uently in e-treme circumstances, where the value of the assets
may be too uncertain. In such circumstances, the 5ompany may defer
valuation of assets until a certainty on the value of assets is resumed. )he
deferment of valuation of assets will be sub%ect to prior consultation with
I6<".
5urrently, the cutAo4 time is F.11 p.m. for applicability of *nit Price of a
particular day for switches, redemptions and publication of *nit Price.
Co"putation of N'6:
$hen Appropriation price is applied! )he '". of a fund shall be
computed as 9ar&et value of investment held by the fund plus the e-penses
incurred in the purchase of the assets plus the value of any current assets
plus any accrued income net of fund management charges less the value of
any current liabilities less provision, if any. )his gives the net asset value of
the fund.
<ividing by the number of units e-isting at the valuation date (before any
55
new units are allocated), gives the unit price of the fund under consideration.
)his is applicable when the company is re@uired to purchase assets to
allocate units at the valuation date.
$hen E/propriation price is applied: )he '". of a fund shall be
computed as 9ar&et value of investment held by the fund less the e-penses
incurred in the sale of the assets plus the value of any current assets plus any
accrued income net of fund management charges less the value of any
current liabilities less provision, if any. )his gives the net asset value of the
fund. <ividing by the number of units e-isting at the valuation date (before
any units are redeemed), gives the unit price of the fund under consideration.
)his is applicable when the company is re@uired to sell assets to redeem units
at the valuation date.
Invest"ent Options:
7a%a% "llian8 o4ers you a choice of si- (0) investment funds as given below(
Asset Allocation .und3 4isk Pro1le 3 0i,h! )he investment ob%ective of
this fund will be to reali8e a level of total income, including current income
and capital appreciation, which is consistent with reasonable investment ris&.
)he investment strategy will involve a ,e-ible policy for allocating assets
among e@uities, bonds and cash. )he fund strategy will be to ad%ust the mi-
between these asset classes to capitali8e on the changing nancial mar&ets
and economic conditions. )he fund will ad%ust its weights in e@uity, debt and
cash depending on the relative attractiveness of each asset class.
%ond .und - 4isk pro1le - Moderate! )he investment ob%ective of this
fund is to provide accumulation of income through investment in high @uality
-ed income securities.
E5uity +rowth .und - 4isk pro1le - #ery 0i,h! )he investment ob%ective
of this fund is to provide capital appreciation through investment in selected
e@uity stoc&s that have the potential for capital appreciation.
E5uity Inde/ .und II - 4isk pro1le - 0i,h! )he investment ob%ective of
this fund is to provide capital appreciation through investment in e@uities
forming part of '$3 'IN.
Accelerator Mid-Cap .und - 4isk pro1le - #ery 0i,h: )he investment
ob%ective of this fund is to achieve capital appreciation by investing in a
56
diversied bas&et of mid cap stoc&s and large cap stoc&s. 9inimum +1E of
3@uity Investments would be in 9id 5ap stoc&s.
)hese funds are professionally managed by asset managers of 7a%a% "llian8,
bac&ed with the rich e-perience of "llian8 "=, one of the largest asset
managers in the world today, managing assets worth over a )rillion 3uros
(over 6s. ++,11,111 5rores)
I"portant Details of the C-a.a. 'llian3 Unit *ain !lus C*oldD
!lan:
Parameter <etails
9inimum "ge at
3ntry
1 years, ris& commences at age C.
9inimum age at entry for all riders is 1# years
9a-imum "ge at
3ntry
01 years (+1 years in case of all "dditional
6ider 7enets e-cept *L 2DP. 0+ years for *L
2DP)
9inimum 9aturity
"ge
1# years
9a-imum
9aturity "ge
C1 years
"dditional 6ider
7enet
5easing "ge
0+ years for all riders e-cept *L 2DP.
C1 years for *L 2DP
9inimum )erm
11 years. In case of minor life minimum policy
term is 1# less age at entry of the minor life.
9a-imum )erm
5ustomer selectable term sub%ect to ma-
maturity age
9inimum
Premium
6s 1!,111 per yearly installment, 6s 0,111 per
halfAyearly installment, 6s. F,111 per @uarterly
installment 6s 1,111 per monthly mode
(9onthly mode is available through 35$ and
$alary $aving $cheme only). 9inimum )op *p
Premium is 6s. +,111.
YNou can change the premium payment mode on any policy anniversary.
"ettlement ption!
Plan your maturity proceeds by e-ercising the $ettlement Dption with us. )his
facilitates you to receive your maturity proceeds in e@ual installments
(payable yearly, half yearly, @uarterly or monthly, at your option) spread over
a ma-imum period of + years. )he amount paid out in each installment will
be the outstanding fund value at that date divided by the number of
outstanding installments.
'o ris& cover will be available during the settlement period. )he company
57
however will deduct all the charges (e-cept the mortality charge and rider
premium charge, if any). 'o partial withdrawals or switches are allowed
during the settlement period.
.ree Look Period!
2ithin 1+ days from the date of receipt of the policy, you have the option to
review the terms and conditions and return the policy, if you disagree to any
of the terms ; conditions, stating the reasons for your ob%ections. Nou will be
entitled to a refund of the premium paid, sub%ect only to a deduction of a
proportionate ris& premium for the period on cover and the e-penses incurred
on medical e-amination and stamp duty charges. )he refund paid to Nou will
also be reduced Q increased by the amount of any reduction Q increase in the
:und .alue, if any, due to a fall Q rise in the unit price between the date of
allocation and redemption of units (without reference to any premium
allocation rate or charges).
2ays of +race!
" grace period of F1 days for the yearly, half yearly and @uarterly modes and
of 1+ days for the monthly mode is allowed under the policy. Nour policy
remains in force for all insurance covers, if any, even if the due premiums are
not paid during this period.
4e*i*al of the Policy!
It is possible to revive a policy that has lapsed due to nonApayment of
premiums within ! years from such date of lapse. Nou have to give a written
application to the company to revive the policy with all due unpaid regular
premiums. )he revival will e4ected sub%ect to underwriting.
6ermination Conditions!
)his Policy shall automatically terminate on the earlier occurrence of either of
the following events(
? )he units in the policy are fully surrenderedM
? )he :und .alue in respect of regular premium less surrender charge falls
to be an amount e@uivalent to one annual premium provided regular
premiums have been paid for F full yearsM
? *pon death of the life assuredM
? *pon the policy remaining lapsed for two years or the policy remaining
5#
lapsed up to third policy anniversary whichever is later.
? *pon maturity, unless Nou have opted for the settlement option or,
? )he e-piry of the period for the settlement option
6a/ %ene1ts!
Premiums paid and benets received will be eligible for ta- benets as per
applicable ta- laws.
As per the current ta/ laws! Premiums payable are eligible for ta-
benets as per $ection #15 of the Income )a- "ct after deducting
Premium paid towards *L 5ritical Illness 7enet and *L Jospital 5ash
7enet, if selected.
? Partial 2ithdrawals, $urrender .alue, <eath 7enet and 9aturity
7enet are eligible for ta- benets as per $ection 11(11<) of the
Income )a- "ct. )he charges paid for *L 5ritical Illness and *L Jospital
5ash 7enet are eligible for ta- benets as per $ection #1(<) of the
Income )a- "ct. In case of change in any ta- laws relevant to the
policyholder or the fund performance, the same will be applied as per
regulations prevailing at that point of time.
+eneral E/clusion! In case the life assured commits suicide within
one year of the date of commencementQrevival of the policyM the
amount payable would be the value of the units in your account.
Char,es under the Plan!
Policy Administration Char,e: 6s. 011 per annum in,ating at +E
every 1st of "pril will be deducted at each monthly anniversary by
cancellation of units. :und )ana+e"ent Char,e: 1.C+E p. a. of the '".
for 3@uity =rowth :und and "ccelerator 9idA5ap :und, 1.!+E p.a. of the '".
for 3@uity Inde- :und II and "sset "llocation :und, 1./+E p.a. of the '". for
7ond :und and Li@uid :und. )he :und 9anagement 5harge is charged on a
daily basis and ad%usted in the unit price. "ll )op up premiums has a
premium allocation charge of !E.
.und "witchin, Char,es! )hree free switches would be allowed every year.
$ubse@uent switches would be charged Z +E of switch amount or 6s. 111,
whichever is lower, on each such occasion.
59
Miscellaneous Char,e! )he miscellaneous charge would be 6s.111QA per
transaction in respect of reinstatement, alteration of premium mode, increase
Q decrease in regular premium or issuance of copy of policy document.
"urrender Char,e! If any due regular premium is not paid within the grace
period in the rst three policy years, the surrender charge would be 01E of
the rst years’ "nnuali8ed Premium. If rst three years regular premiums
have been paid in full, the surrender charge would be as follows( [1 X (1Q1.11)
\'] Y :irst Nears’ "nnuali8ed Premium.
M 2here ' is 11 years less the elapsed policy duration in years and fraction
thereof.
'o $urrender 5harge will be applied on units in respect of )op up Premium.
Mortality Char,es! )he mortality charge would vary according to the
attained age of the life assured at the time of deduction of the charge. )his
charge would be recovered through cancellation of units on a monthly basis
and would be applied on $um at 6is& which is e@ual to sum assured less fund
value. .
4ider Premium Char,es! )he charges for additional rider benets selected
shall be recovered through cancellation units on a monthly basis.
4e*ision of char,es! "fter ta&ing due approval from the Insurance
6egulatory and <evelopment "uthority, the 5ompany reserves the right to
change the following charges(
? :und 9anagement 5harge up to a ma-imum of !.C+E p.a. of the '". for
the 3@uity =rowth :und and "ccelerator 9idA5ap :und, !.!+E p.a. for the
3@uity Inde- :und II and "sset "llocation :und, 1.C+E p.a. for the 7ond
:und and Li@uid :und.
? $witching charge up to a ma-imum of 6s.!11 per switch or +E of the
switching amount, whichever is lower.
? 9iscellaneous charge up to a ma-imum of 6s.!11QA per transaction
? 6ider Premium 5harges as per led to I6<".
? If the PolicyholderQLife "ssured does not agree with the charges, heQshe
will be allowed to e-it the plan at the prevailing price of units after
applying surrender charge, if any.
?
Risks of Invest"ent in the Units of the !lan:
)he ProposerQLife "ssured should be aware that the investment in the *nits is
6+
sub%ect to the following, amongst other ris&s and should fully understand the
same before entering into any unit lin&ed insurance contract with the
5ompany.
? *nit Lin&ed Life Insurance products are di4erent from the traditional
insurance products and are sub%ect to the ris& factors.
? )he premium paid in unit lin&ed life insurance policies are sub%ect to
investment ris&s associated with capital mar&ets and the *nit Price of the
units may go up or down based on the performance of the fund and
factors in,uencing the capital mar&et and the insuredQpolicyholder is
responsible for hisQher decisions.
? 7a%a% "llian8 Life Insurance is only the name of the insurance company
and 7a%a% "llian8 *nit =ain Plus I=old’ is only the name of the policy and
does not in any way indicate the @uality of the policy, its future prospects
or returns.
? Please &now the associated ris&s and the applicable charges from your
policy document or by consulting the 5ompany, your Insurance agent or
your Insurance intermediary.
? 3@uity Inde- :und II, "ccelerator 9idA5ap :und, 3@uity =rowth :und, "sset
"llocation :und, 7ond :und and Li@uid :und are the names of the funds
o4ered currently with 7a%a% "llian8 *nit =ain Plus I=old’, and in any
manner do not indicate the @uality of the respective funds, their future
prospects or returns.
? )he investments in the *nits are sub%ect to mar&et and other ris&s and
there can be no assurance that the ob%ectivities of any of the funds will be
achieved.
? )he 3@uity =rowth :und, 3@uity Inde- :und II, "ccelerator 9idA5ap :und,
"sset "llocation :und, 7ond :und and Li@uid fund do not o4er a
guaranteed or assured return.
? "ll benets payable under the Policy are sub%ect to the ta- laws and other
nancial enactments, as they e-ist from time to time.
? )he past performance of the funds of the company is not necessarily an
indication of the future performance of any of these funds.
6!
Ne Unit *ain !lus #!
)he thumb rule for buying an investment product is that it should
6$
provide good returns, low charges, complete ,e-ibility and transparency in
investment. 2e at 7a%a% "llian8 Life Insurance have considered all these
parameters and present to you 'ew *nit =ain plus $P. )his $ingle Premium
plan o4ers attractive investment in securities, complete ,e-ibility and
transparency and additional protection of a valuable life cover.
2ith a high allocation of /#E and G investment funds to choose from, this
plan o4ers participation in nancial mar&ets, a valuable life cover and
attractive ta- advantage. 2ith fund switching options and partial or full
withdrawal facility this plan provides complete ,e-ibility to our customers.
-a.a. 'llian3 Ne Unit *ain !lus #!
7a%a% "llian8 'ew *nit =ain plus $P comes with a host of features to allow you
to have the best of all worlds X Protection and Investment with ,e-ibility li&e
never before.
7ey features of -a.a. 'llian3 Ne Unit *ain !lus #! plan are:
? It is a single premium unit lin&ed plan with ma-imum maturity age C1.
? /#E of the single premium is allocated towards *nits.
? 9inimum =uaranteed death benet( $um "ssured.
? 5hoice of G investment funds with ,e-ible investment management( you
can switch between funds at any time.
? "ttractive investment alternative to -edAinterest securities.
? Provision for surrender or partial withdrawals any time after three years
from commencement.
? *nmatched ,e-ibility Xto meet your changing needs.
0ow does the plan work(
In this plan /#E of the single premium is invested in a fund(s) of your choice
; units are allocated depending on the price of units for the fund(s). )he fund
value of your policy is the total value of units that you hold in the fund(s). )he
mortality charges and policy administration charges are deducted through
cancellation of units. )he :und 9anagement 5harge is ad%usted in the *nit
Price.
"um Assured: Nou can choose a $um "ssured (Level of Protection) that you
want in the 'ew *nit =ain Plus $P Plan.
9inimum $um "ssured W 1!+E of the $ingle premium
63
9a-imum $um "ssured W N times the $ingle Premium where N will be as per
the following table(
"ge =roup
1X1C 1#XF+ F0XG+ G0X+1 +1X++ +0X0+
N 11 11 C + F !Y
Y 9ultiplier may be increased to + in special cases on a caseAtoAcase
basis.
-ene1ts availa2le under this plan:
? Dn death before the age of C years( :und .alue as on date of receipt of
intimation of death at the oBce.
? Dn death on or after the age of C years and before the age of 01 years(
sum assured less the value of partial withdrawals made in the last !G
months prior to the date of death or the fund value as on date of receipt
of intimation of death at the oBce, whichever is higher.
? Dn death of the life assured on or after the age of 01 years( sum assured
less the value of partial withdrawals made within two years before
attaining age 01 years and all partial withdrawals made after attaining
age 01 years or the fund value as on the date of intimation of death at
the oBce, whichever is higher.
? Dn maturity, the fund value is payable to the policyholder.
.und #alue! )he fund value is e@ual to the number of units under this policy
multiplied by the respective unit price on the relevant valuation date.
Unit Price! )he unit price of each fund is arrived at by dividing the 'et "sset
.alue ('".) of the fund by the number of units e-isting in the fund at the
valuation date (before any new unit is allocated or cancelled)
#aluation 2ate! )he 5ompany aims to value the funds on each day the
nancial mar&ets are open. Jowever, the 5ompany reserves the right to
value less fre@uently in e-treme circumstances, where the value of the assets
may be too uncertain. In such circumstances, the 5ompany may defer
valuation of assets until a certainty on the value of assets is resumed. )he
deferment of valuation of assets will be sub%ect to prior consultation with
I6<".
5urrently, the cutAo4 time is F p.m. for applicability of unit price of a
particular day for switches, redemptions and publication of unit price.
64
Co"putation of N'6:
$hen Appropriation Price is applied! )he '". of a *nit Lin&ed Life
Insurance Product shall be computed as mar&et value of investment held by
the fund plus the e-penses incurred in the purchase of the assets plus the
value of any current assets plus any accrued income net of fund
management charges less the value of any current liabilities less provision, if
any. )his gives the net asset value of the fund. <ividing by the number of
units e-isting at the valuation date (before any new units are allocated),
gives the unit price of the fund under consideration. )his is applicable when
the company is re@uired to purchase assets to allocate units at the valuation
date.
$hen E/propriation Price is applied! )he '". of a *nit Lin&ed Life
Insurance Product shall be computed as mar&et value of investment held by
the fund less the e-penses incurred in the sale of the assets plus the value of
any current assets plus any accrued income net of fund management charges
less the value of any current liabilities less provision, if any. )his gives the net
asset value of the fund. <ividing by the number of units e-isting at the
valuation date (before any units are redeemed), gives the unit price of the
fund under consideration. )his is applicable when the company is re@uired to
sell assets to redeem units at the valuation date.
In*estment ptions!
7a%a% "llian8 'ew *nit =ain Plus $P o4ers you a choice of G funds. Nou can
choose to invest fully in any one fund or allocate your single premium into
the various funds in a proportion that suits your investment needs. )he four
funds o4ered are as under(
E5uity Inde/ .und II- 4isk Pro1le 30i,h! )he investment ob%ective of this
fund is to provide capital appreciation through investment in e@uities forming
part of '$3 'IN.
E5uity +rowth .und- 4isk Pro1le 3 #ery 0i,h ! )he investment ob%ective
of this fund is to provide capital appreciation through investment in selected
e@uity stoc&s that have the potential for capital appreciation.
%ond .und- 4isk Pro1le 3 Moderate! )he investment ob%ective of this fund
is to provide accumulation of income through investment in high @uality -ed
65
income securities.
?
Li5uid .und- 4isk Pro1le 3 Low! )he investment ob%ective of this fund is to
have a fund that protects the invested capital through investments in li@uid
money mar&et and shortAterm instruments.
)hese funds are professionally managed by asset managers of 7a%a%
"llian8, bac&ed with the rich e-perience of "llian8 $3, one of the largest asset
managers in the world today, managing assets worth over a )rillion 3uros
(over 6s. ++,11,111 5rores).
Apportionment of "in,le Premium! Nou can apportion your $ingle
Premium between various funds available. )he apportionment to any chosen
fund must be at least +E of the $ingle Premium.
.le/ibility to mana,e your in*estments! Initially, you can allocate the
$ingle Premium into the G funds that are available in a proportion of your
choice. <epending on the performance of funds, you can switch between
funds with three free switches every policy year, sub%ect to a minimum
switching amount of 6s. +,111 or the value of the total units held in the fund
to be >switched?, whichever is lower. $witching should not lead to more than
!+E of total fund value in Li@uid :und.
Cash withdrawal option! "fter three years from the commencement of the
policy, withdrawals through partial or complete surrender of units are
allowed. In case of partial withdrawals, a minimum balance of 6s.1+, 111 or
1Q11
the
of the $ingle Premium, whichever is higher, across all funds should be
maintained after withdrawal and the minimum withdrawal amount should be
6s. +,111. In case the policy is ta&en on the life of a minor, the partial
withdrawals shall not be allowed until the minor (life insured) attains ma%ority
(i.e. on or after attainment of age 1#).
I"portant Details of the -a.a. 'llian3 Ne Unit *ain !lus #!
!lan:
9inimum 9a-imum
"ge at 3ntry
1 Nrs (6is& 5ommences
at age C) 0+ Nrs
)erm + Nrs
"ge at 9aturity 1# Nrs C1 Nrs
9inimum $ingle Premium 6s. !+111
66
"ettlement ption!
Plan your maturity proceeds by e-ercising the $ettlement Dption. )his
facilitates you to receive your maturity proceeds in installments (payable
yearly, half yearly, @uarterly or monthly, at your option) spread over a
ma-imum period of + years. )he amount paid out in each installment will be
the outstanding fund value at that date divided by the number of outstanding
installments.
'o ris& cover will be available during the settlement period. )he company
however will deduct all the charges (e-cept the mortality charges).
.ree Look Period!
2ithin 1+ days of the receipt of this Policy, the Policyholder may, if
dissatised with it for any reason, give the 5ompany a written notice of
cancellation along with reasons for the same, and return the Policy <ocument
to the 5ompany, sub%ect to which the 5ompany shall send the Policyholder a
refund comprising the $ingle Premium paid less the proportionate ris&
premium for the period the Life "ssured that was on cover, and the e-penses
incurred on medical e-amination and stamp duty charges. )he refund paid to
the Policyholder will also be reduced by the amount of any reduction in the
:und .alue due to fall in the *nit Price between the date of allocation and
redemption of units (without reference to any premium allocation rate or
5harges).
6ermination of the Policy!
)he Policy shall automatically terminate on the occurrence of any of the
following events(
? )he units in the policy are fully surrendered and full surrender value is
paid to the Policyholder.
? )he :und .alue becomes e@ual to one tenth of the $ingle Premium paidM
? )he death of the Life "ssured.
? Dn maturity, unless the policyholder has opted for $ettlement Dption.
? )he e-piry of the period for settlement option.
6a/ %ene1ts!
Premiums paid will be eligible for ta- deduction as per $ection #15 of the
Income )a- "ct and partial withdrawals, full surrender and maturity benets
67
are eligible for ta- benets as per $ection 11(11)< of the Income )a- "ct.
7omination! 'omination can be made for receiving policy proceeds in
case of death. Nou can nominate your beneciaries under this policy. In
case of death, the policy proceeds will be given to the nominee. Nou
can also change the nominee during the lifetime of the policy.
+eneral E/clusion! In case the life assured commits suicide within
one year of the date of commencement of the ris& cover (Policy
"nniversary following "ge C in the case of a minor)M the amount
payable would be the :und .alue.
Char,es under the Plan!
=iven below are the details of the various charges that will be recovered from
the plan to meet e-penses.
Policy Administration Char,e! 6s 011 per annum deductible monthly
through cancellation of units, in,ating at the rate of +E per annum.
.und Mana,ement Char,e! )he fund management charge would be levied
on '". and the rate is as follows( 3@uity =rowth :und 1.C+E p.a., 3@uity
Inde- :und II 1.!+E p.a., Li@uid :und 1./+ E p.a., and 7ond :und 1./+E p.a.
"witchin, Char,es! )hree free switches would be allowed every Policy year.
$ubse@uent switches would be charged a -ed amount of 6s. 111 or +E of
the switch amount, whichever is lower, on each such occasion.
Mortality Char,es! )he mortality charge would vary according to the
attained age of the life assured at the time of deduction of the charge and
would be recovered through cancellation of units on a monthly basis. $ample
standard mortality charge per annum per thousand of sum at ris& is given in
the table below. )he sum at ris& is sum assured less fund value.
4e*ision of char,es!
"ge 9ortality 5harge
!1 1.+C
F1 1.CG
G1 !.#!
+1 0.+F
01 1+.+0
6#
"fter ta&ing due approval from the Insurance 6egulatory and <evelopment
"uthority, the company reserves the right to change the following charges(
? :und 9anagement 5harge up to a ma-imum of !.C+E p.a. for
3@uity =rowth :und, !.!+E p.a. for 3@uity Inde- :und II and 1.C+E p.a. for
7ond :und ; Li@uid :und.
? $witching charge up to a ma-imum of 6s. !11 per switch or +E
of the switching amount, whichever is lower.
Risks of Invest"ent in the Units of the !lan:
)he ProposerQLife "ssured should be aware that the investment in the
*nits is sub%ect to the following, amongst other ris&s and should fully
understand the same before entering into any unit lin&ed insurance
contract with the 5ompany.
? *nit Lin&ed Life Insurance products are di4erent from the
traditional insurance products and are sub%ect to the mar&et ris&
factors.
? )he premium paid in unit lin&ed life insurance policies are sub%ect
to investment ris&s associated with capital mar&ets and *nit Price
of the units may go up or down based on the performance of the
fund and factors in,uencing the capital mar&et and the
insuredQpolicyholder is responsible for hisQher decisions.
? 7a%a% "llian8 Life Insurance is only the name of the insurance
company and 7a%a% "llian8 'ew *nit =ain Plus $P is only the name
of the product and does not in any way indicate the @uality of the
policy, its future prospects or returns.
? Please &now the associated ris&s and the applicable charges from
your policy document or by consulting the 5ompany, your
Insurance agent or your Insurance intermediary.
? 3@uity Inde- :und II, 3@uity =rowth :und, Li@uid :und and 7ond
:und are the names of the funds o4ered currently with 7a%a% "llian8
'ew *nit =ain Plus $P, and do not in any way indicate the @uality of
the respective funds, their future prospects or returns.
? )he investments in the *nits are sub%ect to mar&et and other ris&s
and there can be no assurance that the ob%ectives of any of the
funds will be achieved.
? 3@uity Inde- :und II, 3@uity =rowth :und, Li@uid :und and 7ond
69
:und do not o4er a guaranteed or assured return.
? "ll benets payable under the Policy are sub%ect to the ta- laws and
other nancial enactments, as they e-ist from time to time.
? )he past performance of the funds of the company is not
necessarily indicative of the future performance of any of these
funds.
To )ake a Co"parison 2eteen )utual %unds vs: ULI!s:
*nit Lin&ed Insurance Policies (*LIPs) as an investment avenue are
closest to mutual funds in terms of their structure arid functioning. "s is the
case with mutual funds, investors in *LIPs is allotted units by the insurance
company and a net asset value ('".) is declared for the same on a daily
basis.
$imilarly *LIP investors have the option of investing across various
schemes similar to the ones found in the mutual funds domain, i.e. diversied
e@uity funds, balanced funds and debt funds to name a few. =enerally
spea&ing, *LIP$ can be termed as mutual fund schemes with an insurance
component. Jowever it should not be construed that barring the insurance
element there is nothing di4erentiating mutual funds from *LIPs.
7+
(o ULI!s can "ake so"eone rich?
<espite the seemingly comparable structures there are various factors
wherein the two di4er.
In this article we evaluate the two avenues on certain common
parameters and nd out how they measure up.
ULI!s 6s )utual %unds:
ULI!s )utual %unds
Investment amounts
<etermined by the investor and
can be modied as well.
9inimum investment
amounts are determined
by the fund house.
3-penses
'o upper limits e-penses
determined by the Insurance
5ompany.
*pper limits for e-penses
5hargeable to investors
have been set by the
regulator.
Portfolio <isclosure 'ot mandatory
^uarterly disclosures are
mandatory
9odifying asset
allocation
generally permitted for free or
at a nominal cost
3ntryQe-it loads have to be
borne by the investor
)a- benet $ec #15 benets are available
on all *LIP investments
$ection #15 benets are
available only on
investments in ta- saving
funds
Mode of in*estment / in*estment amounts!
9utual fund investors have the option of either ma&ing lump sum
investments or investing using the systematic investment plan ($IP) route
which entails commitments over longer time hori8ons. )he minimum
investment amounts are laid out by the fund house.
*LIP investors also have the choice of investing in a lump sum (single
premium) or using the conventional route, i.e. ma&ing premium payments on
an annual, halfAyearly, @uarterly or monthly basis. In *LIPs, determining the
premium paid is often the starting point for the investment activity. )his is in
7!
star& contrast to conventional insurance plans where the sum assured is the
starting point and premiums to be paid are determined thereafter.
*LIP investors also have the ,e-ibility to alter the premium amounts
during the policy’s tenure. r e-ample an individual with access to surplus
funds can enhance the contribution thereby ensuring that his surplus funds
are gainfully investedM conversely an individual faced with a li@uidity crunch
has the option of paying a lower amount (the di4erence being ad%usted in the
accumulated value of his IVLIP). )he freedom to modify premium payments at
one’s convenience clearly gives *LIP investors an edge over their mutual
fund counterparts.
E/penses!
In mutual fund investments, e-penses charged for various activities li&e fund
management, sales and mar&eting, administration among others are sub%ect
to preAdetermined upper limits as prescribed by the $ecurities arid 3-change
7oard of India.
r e-ample e@uityAoriented funds can charge their investors a ma-imum of
!.+E per annum on a recurring basis for all their e-pensesM any e-pense
above the prescribed limit is borne by the fund house and not the investors.
$imilarly funds also charge their investors entry and e-it loads (in most
cases, either is applicable). 3ntry loads are charged at the timing of ma&ing
an investment while the e-it load is charged at the time of sale.
Insurance companies have a free hand in levying e-penses on their
*LIP products with no upper limits being prescribed by the regulator, i.e. the
Insurance 6egulatory and <evelopment "uthority. )his e-plains the comple-
and at times Iunwieldy’ e-pense structures on *LIP o4erings. )he only
restraint placed is that insurers are re@uired to notify the regulator of all the
e-penses that will be charged on their *LIP o4erings.
3-penses can have farAreaching conse@uences on investors since
higher e-penses translate into lower amounts being invested and a smaller
corpus being accumulated. *LIPArelated e-penses have been dealt with in
detail in the article >*nderstanding *LIP e-penses?.
Portfolio disclosure!
7$
9utual fund houses are re@uired to statutorily declare their portfolios on a
@uarterly basis, albeit most fund houses do so on a monthly basis. Investors
get the opportunity to see where their monies are being invested and how
they have been managed by studying the portfolio.
)here is lac& of consensus on whether *LIP+ are re@uired to disclose
their portfolios. <uring our interactions with leading insurers we came across
divergent views on this issue.
2hile one school of thought believes that disclosing portfolios on a
@uarterly basis is mandatory, the other believes that there is no legal
obligation to do so and that insurers are re@uired to disclose their portfolios
only on demand.
$ome insurance companies do declare their portfolios on a
monthlyQ@uarterly basis. Jowever the lac& of transparency in *LIP
investments could be a cause for concern considering that the amount
invested in insurance policies is essentially meant to provide for
contingencies and for longAterm needs li&e retirementM regular portfolio
disclosures on the other hand can enable investors to ma&e timely
investment decisions.
)here is lac& of consensus on whether *LIPs are re@uired to disclose
their portfolios. 2hile some insurers claim that disclosing portfolios on a
@uarterly basis is mandatory, others state that there is no legal obligation to
do so.
.le/ibility in alterin, the asset allocation!
"s was stated earlier, o4erings in both the mutual funds segment and *LIPs
segment are largely comparable. r e-ample plans that invest their entire
corpus in e@uities (diversied e@uity funds), a 01(G1 allotment in e@uity and
debt instruments (balanced funds) and those investing only in debt
instruments (debt funds) can be found in both *LIPs and mutual funds. If a
mutual fund investor in a diversied e@uity fund wishes to shift his corpus
into a debt from the same fund house, he could have to bear an e-it load
andQor entry load.
Dn the other hand most insurance companies permit their *LIP
inventors to shift investments across various plansQasset classes either at a
73
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).
34ectively the *LIP investor is given the option to invest across asset classes
as per his convenience in a costAa4ective manner. )his can prove to be very
useful for investors, for e-ample in a bull mar&et when the *LIP investor’s
e@uity component has appreciated, he can boo& prots by simply transferring
the re@uisite amount to a debtAoriented plan.
6a/ bene1ts!
*LIP investments @ualify for deductions under $ection #15 of the Income )a-
"ct. )his holds well, irrespective of the nature of the plan chosen by the
investor. Dn the other hand in the mutual funds domain, only investments in
ta-Asaving funds (also referred to as e@uityAlin&ed savings schemes) are
eligible for $ection #15 benets. 9aturity proceeds from *LIP+ are ta- free. In
case of e@uityAoriented funds (for e-ample diversied e@uity funds, balanced
funds), if the investments are held for a period over 1! months, the gains are
ta- freeM conversely investments sold within a 1!Amonth period attract shortA
term capital gains ta- Z11E.
$imilarly, debtAoriented funds attract a longAterm capital gains ta-
Z11E, while a shortAterm capital gain is ta-ed at the investor’s marginal ta-
rate. <espite the seemingly similar structures evidently both mutual funds
and *LtP+ have their uni@ue set of advantages to o4er. "s always, it is vital
for investors to be aware of the nuances in both o4erings and ma&e informed
decisions.
74
Relatively speakin+: ULI!s and )utual %unds:
"lthough both 9utual :unds (9:s) and unit lin&ed insurance plans (*LIP+)
have been popular for some time now, due to certain similarities between the
two, there are still some grey areas in the minds of investors with respect to
these investment vehicles. Jere’s a loo& at how they stac& up against each
other to give you an idea about which could be more suitable for you.
b&ecti*e!
)%: 9utual :unds are &nown for their good returns and variety of investment
choices, including ta- saving schemes called 3L$$.
ULI!: Popular for its triple benets, this o4ers life cover, capital appreciation
and income ta- benets.
"tructure!
)%: " 9: collects money from the public and invests in e@uity, debt or a
combination of both, as per a pre specied investment ob%ective. Investments
are o4ered units depending on the value of their investment, on a pro rata
basis. 3@uity funds invest predominantly in the stoc& mar&et to generate
growth by way of capital appreciation for investors, where as debt funds
invest in -ed funds invest in -ed income securities such as bonds,
debentures, government securities, reverse repo’s, etc. " balanced fund
invests partly in both e@uity and debt. " mutual fund scheme can be open S
ended (no dened time period)or close S ended (three or ve years),
ULI!: "lthough the investment proportion of a *LIP is structured li&e mutual
funds, the prime ob%ective of this product is insurance and capital
appreciation. "ccordingly, a part of the premium paid to the company is
allocated towards life insurance cover, administrative charges and
management fees. )he rest is invested in mar&etAlin&ed instruments li&e
stoc&s, corporate bonds government securities, depending on the asset
allocation plan. 9ost LVLIP+ o4ers policy folders a choice of plans, namely
e@uity oriented, debt oriented and balanced, too. Nou can switch from one
plan to another, a specied number of times.
75
)he value of units of both *LIP+ and 9:+ are calculated and declared
on a daily basis at their mar&et worth and called the 'et "sset .alue ('".) of
the investment fund Investors can gauge whether their investment has
appreciated according or depreciated to '". movement.
6enure!
)%: )here no minimum holding period for most mutual fund schemes, e-cept
in the case of ta- saving schemes (3L$$), which have a three year loc& Sin
period. 5lose ended funds, which have a three year loc& in period, are either
listed on the stoc& e-change or provide li@uidity by accepting redemptions at
periodic time intervals (e.g. every three months or si- months)
ULI!: these usually have a minimum tenure of + years and the ma-imum
term defends of the age of the investor. )hese are also sub%ect to a loc&Ain
period of three years before which an investor has no access to the
investment amount.
E/penses!
MF: 3-penses such as fund management, sales and mar&eting,
administration, etc., are charged sub%ect to predetermined upper limits as
prescribed by the $ecurities and 3-change 7oard of India. r e-ample e@uity
oriented funds can charge their investors a ma-imum of !.+ per cent per
annum on a recurring basis. "ny e-pense above the prescribed limit is borne
by the fund house and not passed on to the investor entry and_or e-it loads
are charged at the time of ma&ing an investment while e-it load is charged at
the time of scale.
ULI!: )here are no ma-imum limits prescribed by the Insurance 6egulatory
and <evelopment authority, as regards levy of e-penses on *LIP products.
Jowever, the insurance company is re@uired to get the e-pense limit pre S
approved from the insurance regulator. )he e-penses charged by *LIPs are
rather high and could range between + to 0+ per cent for the rst year and
then fall to F to !1 per cent in subse@uent years.
4eturns!
)%: 9utual funds usually give better returns on investment than *LIPs since
a large contribution is invested in securities. )he returns vary with the
investment pattern. r e-ample debt scheme are presently o4ering, on
76
average basis, annuali8ed returns of F to # per cent, where as e@uity oriented
schemes are presently o4ering returns in the range of F1 to 01 per cent per
annum.
ULI!: *LIP charge higher e-penses as a percentage of your investment than
9:$ S the amount available for investment to that e-tent. Life insurance
cover charges and other e-penses are factored in to the *LIP premium. $ince
the base for investment is lower, the returns o4ered by *LIP will mostly lower
than those on mutual funds schemes.
ptions for recei*in, returns!
)%: 6eturns are available to investors in the form of dividends if the dividend
option is chosen by investor. In the case of the growth option, these are in the
form of capital appreciation.
ULI!: )he returns is in the form of capital appreciation and insurance cover in
case of premature death
4edemption Procedure!
)%: )he redemption amount is calculated by multiplying the '". (minus e-it
load, if any) on the date of redemption with the number of units redeemed.
9utual fund investments are highly li@uid (the redemption amount is received
within 1 to F wor&ing days based on scheme type).
ULI!: In the case of *LIP, you can redeem units under any of the following
situation( 9aturity( this is on the e-piryQmaturity date of the *LIP, $urrender,
if you surrender your policy, you receive the surrender value as stated in the
policy, only after the loc&ing period of three years. <eath( in the event of
unfortunate demise of the investor, his nominee receives the sum assured or
the value of the units, which ever is higher. Partial withdrawals( some funds
allow partial withdrawal at periodic time intervals. Nour units will stand
reduced to that e-tent.
"uitability!
" )% o4ers certain advantages in terms of cost various types and sub types
plan and li@uidity. ULI!s in other hand, give you the ,e-ibility to shift
between various plans with in the insurance company, with Dut high load
cost and capital gains implications, further, if you plan to invest for the long
term (more than 11 years), o could consider *LIPs as this vehicle would
77
ensure that your insurance needs are ta&en care of and you en%oy capital
appreciation as well.
To "ake a co"parison 2eteen Traditional policies 6s ULI!s:
'ot too long bac&, the good old endowment plan was the preferred
way to meeting the dual ob%ective of insuring oneself against an eventuality
and setting aside savings to meet ones nancial ob%ectives. )hen the
insurance sector was thrown open to the private sector. )he result was the
launch of a wide variety of insurance plansM including *LIPs (unitAlin&ed
insurance plans).
)wo factors were responsible for the advent of *LIP+ on the domestic
insurance hori8on. :irst was the arrival of private insurance companies. *LIPs
were one of the most signicant innovations introduced by private insurers.
)he other factor that saw investors ta&e to *LIPs was the decline of assured
returns in endowment plans.
2hile these were the two factors most instrumental in mar&ing the
arrival of *LIPs, another factor that has helped their cause is the impressive
economic performance over the past few years that have translated into
e@ually impressive returns on the stoc& mar&ets. 2hile this now appears as
one of the primary reasons for their popularity, we believe *LIP+ have some
fundamental positives li&e enhanced ,e-ibility and merging of investment
and insurance in a single entity that have really endeared them to
individuals.
=iven that *LIPs are relatively new and remain an enigma for a large
section of insuranceAsee&ers, in this note we compare them to the traditional
endowment plans to give you a perspective.
7#
ULI!s Traditional
$ndo"ent !olicy
$um assured
Jigher of ()enure of
policyQ!Y"nnual premium) or
(+Y"nnual premium)
Investments
"llocation to e@uities, bonds,
money
9ar&et depending on the option.
Larger allocation to bonds,
gsecs, money mar&et,
smaller e@uity allocation.
3-penses
Lower agent commissions, higher
fund management charges.
Jigher agent commissions.
:le-ibility Jigh Low
)ransparency Jigh Low
Li@uidity Jigh Low
)a- 7enets "vailable "vailable
"um assured!
Perhaps the most fundamental di4erence between *LIPs and traditional
endowment plans is in the concept of premium and sum assured. 2hen you
want to ta&e a traditional endowment plan, the @uestion your agent will as&
you is A how much insurance cover do you needL Dr in other words, what is
the sum assured you are loo&ing forL )he premium is calculated based on the
number you give your agent.
In*estments!
)raditionally, endowment plans have invested in government securities,
corporate bonds and money mar&et instruments. )hey generally shir&ed from
investing in the stoc& mar&ets, although there was a provision for the same.
Jowever, for some time now, endowment plans have discarded their
traditional outloo& on investing and allocate about 1DEA1+E of monies to
stoc&s. )his percentage varies across life insurance companies.
*LIPs have no such constraints on investments. )hey invest across the board
in stoc&s, government securities, corporate bonds and money mar&et
instruments. Df course, within a *LIP there are options wherein there are
caps on each investment avenue (stoc&s, bonds).
E/penses!
79
*LIPs are considered to be e-pensive when compared to traditional
endowment plans. )his notion is rooted more in perception than reality. Let us
ta&e agent commissions to understand this better. $ale of a traditional
endowment plan could fetch a commission as high as F1E (of premium) in
the rst year and 01E (of premium) over the rst ve years. )hen there is
ongoing commission in the region of +E.
$ale of a *LIP fetches a relatively lower commission ranging from as
low as +E to F1E of premium (depending on the insurance company) over 1A
F years. "fter the initial years, it stabili8es at 1EAFE (again depending on the
insurer). *nli&e endowment plans, there are no I6<" regulations on *LIP
commissions.
9ortality e-penses for *LIPs and traditional endowment plans remain the
same. )here is also little di4erence ii, the administration charges.
Dne area where *LIPs prove to be more e-pensive than traditional
endowment is in fund management $ince *LIPs have an e@uity component
that needs to be managed actively, they incur fund management charges.
)hese charges ,uctuate in the 1.#1EAi .+1E (of premium) range. 2e could
not get a - on the fund management charges of traditional endowment
plans despite having spo&en to several insurance companies.
.le/ibility!
"s we mentioned at the very beginning of this article, one aspect that gives
*LIPs an edge over traditional endowment is ,e-ibility. *LIPs o4er a host of
options to the individual based on his ris& prole. )here are insurance
companies that o4er as many as si- options within a *LIP with the e@uity
component varying from 8ero to a ma-imum of 111E (of corpus). Nou can
select an option that best ts your ob%ectives and ris&Ata&ing capacity. Javing
selected an option, you still have the ,e-ibility to switch to another option.
9ost insurance companies allow a number of free switches’ in a year. "nother
innovative feature with *LIPs is the ItopAup’ facility. " topAup is a one time
additional investment in the *LIP over and above the annual premium. )his
feature wor&s well when you have a surplus that you are loo&ing to invest in a
mar&etAlin&ed avenue, rather than &eep in a savings account or a -ed
deposit. 2ith traditional endowment, there are no investment options. Nou
select the only option you have and must remain with it till maturity. )here is
#+
also no concept of a topAup facility. Nour premium amount cannot be
enhanced on a oneA time basis and s&ipped premiums will result in your
policy lapsing.
6ransparency!
*LIPs are also more transparent than traditional endowment plans. $ince they
are mar&etAlin&ed, there is a price per unit. )his is the net asset value ('".),
which is declared on a daily basis. " simple calculation can tell you the value
of your *LIP investments. Dver time you &now e-actly how your *LIP has
performed.
9ost *LIPs also disclose their portfolios regularly. )his gives you an
idea of how your money is being managed. It also tells you whether or not
your mutual fund andQor stoc& investments coincide with your *LIP
investments. If they are, then you have the opportunity to do a rethin& on
your investment strategy across the board so as to ensure you are wellA
diversied across investment avenues at all times.
2ith traditional endowment, there is no concept of a '".. Jowever,
insurers do send you an annual statement of bonus declared during the year,
which gives you an idea of how your insurance plan is performing. )raditional
endowment also does not have the practice of disclosing portfolios. 7ut given
that there are provisions that ensure a large chun& of the endowment
portfolio is in high @uality ("""Qsovereign rating` debt paper, disclosure of
portfolios is li&ely to evo&e little investor interest.
Li5uidity!
"nother ,e-ibility that *LIPs o4er the individual is li@uidity. $ince *LIP
investments are '".Abased it is possible to withdraw a portion of your
investments before maturity. Df course, there is an initial loc&Ain period (F
years) after which the withdrawal is possible provided the minimum fund
value is to be maintained.
)raditional endowment has no provision for preAmature withdrawal. Nou
can surrender your policy, but you won’t get everything you have earned on
your policy in terms of premiums paid and bonuses earned. If you are clear
that you will need money at regular intervals then it is recommended that
you opt for moneyAbac& endowment
#!
TaG 2ene1ts:
)a-ation is one area where there is common ground between *LIPs and
traditional endowment. Premiums in *LIPs as well as traditional endowment
plans are eligible for ta- benets under $ection #15 sub%ect to a ma-imum
limit of 6s 111,111. Dn the same lines, money received on maturity on *LIPs
and traditional endowments are ta-Afree under $ection 11.
#i"ilarities 2eteen )utual %und 6s ULI!s:
1. 9:s and *LIPs are &nown for their good returns.
!. 9:s and *LIPs are Li@uidity and :le-ible
F. 9:s and *LIPs are collect money from the public and invest in e@uity
debt or a combination of both.
G. )he value of both *LIPs and 9:s are calculated and declared on a daily
basis at their mar&et worth and called 'et "sset .alue ('".) of
investment fund.
+. In 9:s 3@uity lin&ed savings scheme (3L$$) have minimum lac&ing
period is F years "ll *LIPs have minimum F years loc&ing period.
#$
0. In 9:s 3L$$ and "ll *LIPs are eligible for ta- benet under $ec #1c.
#i"ilarities 2eteen Traditional !olicies vs: ULI!s:
1. )raditional Policies and *LIPs are available insurance coverage.
!. 7oth are future ob%ective
F. 7oth are available ta- benet under sec #5c and ta- free returns under
$ec 1D(1D<)
#3
C('!T$R 6
%INDIN*#
? *LIP is gaining importance
as it could suBce the needs of the small investor while o4ering the
dual options of insurance and the investment.
? *nit Lin&ed Insurance Plans
are purely sub%ect to mar&et ris&. "ny person having the perfect
&nowledge of the mar&ets can poc&et huge returns.
#4
? If the investor invests in
e@uity no minimum guarantee is o4ered to the investor amount.
? If the investor invest in 7ond
fund, there is minimum guarantee to the investor amount
? Popular for its triple benets,
this o4ers life cover, capital appreciation and income ta- benets
? *LIPs are better when
compare with )raditional policies and 9utual :unds
? *LIPs are li@uid and o4er
,e-ibility to the investor after some period
CONCLU#ION#
In conclusion, the *LIPs there by collects money or funds from the
investors with similar investment goals. It is one of the ways of
#5
mobili8ing the funds and channeli8ing them properly. .ery small
percentage of the population is well aware of the *LIPs. )he
advertisement has become an e4ective tool to create public
awareness, thus educating them about the various avenues available
to them. )he switching o4 from the *LIPs are very low. )he investment
manager has to guide the investor to choose the correct available
funds which they prefer.
In rural areas, people have no idea about the *LIPs, while they totally
depend on the agents who often cheat them. )herefore, it is the duty
of the fund managers to guide investors properly. In :inal, *LIPs are
better than 9utual :unds and )raditional policies
-i2lio+raphy:
#6
I5:"I Vournal
Dutloo& 9oney 9aga8ine
We2sites:
http(QQpersonalfn.comQ
http(QQwww.moneycontrol.comQ
http(QQndpar&ing.comQmutualfunds.comQ
http(QQba%a%allian8life.co.inQ
#7
'!!$NDIC$#
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