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Guided by: Submittedby: Ms Mamta Daundiyal MitushiJain Senior Sales Manager MBA- 3rdSemester HDFC SLIC 6501

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ACKNOWLEDGEMENT

A project starts with an objective but it is accomplished only with enormous

efforts and tremendous support and guidance. It has been an utmost pleasure for

me to work with HDFC SLIC. The cordial environment here has always made

me feel to be a part of the organization.

The process of completion of project report involves creation of debt towards

innumerable persons. I am grateful to Ms Mamta Daundiyal (Sales

Development Manager), who gave me time from his busy schedule & under

whose guidance this project has been successfully completed.

I also express my appreciation and thanks to all employees of HDFC SLIC,

especially in the finance department for their patience, helpful nature and who

have contributed to my learning which I will cherish forever.

I express my profound gratitude to my faculty guide Prof. Harsh Purohit, who

helped me with his guidance during the project.

My deepest regards to my parents, for their encouragement that became my

strength which lead me to the path of knowledge.

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CONTENTS

INTRODUCTION THE ESSENCE OF ANALYSIS

COMPANY PROFILE OF MUTUAL FUND The structure of mutual fund

Organization of mutual fund

Types of mutual fund

Future of Mutual Funds in India.

CONCEPT OF ULIP

Design of an ULIP Choice of risk cover

Choice of investment funds

Switching

Benefits associated with ULIP

ANALYSIS OF MUTUAL FUND SCHEMESAS FROM COMPARISON TABLES OF HDFC ANDICICI MUTUAL FUNDS

Analysis from the comparison HDFC ULIP and

ICICI ULIP sheet Benefits associated with ULIPs products

Analysis from the comparison HDFC ULIP andMutual Fund

Advantages of investing in Mutual Fund

Disadvantages of investing in Mutual Fund

CONCLUSION AND FINDINGS

REFERENCES

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INTRODUCTION

The introduction into India of modern, flexible unit-linked insurance products

(ULIPs) has given access to a wide array of long-term investment choices, making

clients look at insurance products as a key part of their savings portfolios. These

ULIPs have been in most markets for decades and have been a real success story

in the liberalized insurance market. Fund options include the security of unitized

with-profits-through-balanced funds, to equity funds. Clients choose the fund thatsuits them best and can switch between funds. Security also comes from insurance

cover which guarantees that, in case

Of premature demise, the client can be certain that the objective of creating a fund

to educate his children or an income for his spouse is absolutely guaranteed from

day one; that is something a mutual fund can never promise. Compared to ULIPs,

the investment borizon of MFs is short term, which is the outcome of corporate

investing short term. But life insurers offer a long-term investment outlook with policies that last anything from 5-30 years, or more. Maximizing growth

objectives for long-term savers rise quite different issues and need a much more

stable approach to investment. The charges on ULIPs are generally seen as being

more competitive for medium-to-longer-term investments. It is certainly so in

India. MFs do have a part to play in the savings revolution in India. Corporate

have an almost globally unique tax advantage in parking short-term assets in them.

Also, some retail investors do use MFs for short-to-medium-term positioms, but

they should take care that they invest with a MF manager who guarantees to

segregate their money from corporate funds that flow in and out. With investor

protection in the form of compulsory product illustrations, and a strong and

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Company profile of ICICI prudential Mutual fund

Prudential ICICI Asset Management company, (55%:45%) a joint venture

between prudential Plc, UKs leading insurance company and ICICI Bank Ltd,

Indias premier financial institution.

The joint venture was formed with the key objective of providing the Indian

investor mutual fund products to suit a variety of investment needs. The AMC has

already launched a range of products to suit different risk and maturity profiles.

Prudential ICICI Asset Management Company Limited has a net worth of about

Rs. 80.14 crore (1crore=10million) as of Marc 31, 2004. both prudential and ICICI

Bank Ltd have a strategic long-term commitment to the rapidly expanding

financial services sector in India

About sponsors

PRUDENTIAL

Prudential plc is a leading international financial services group providing retail

financial products and services and fund management to many millions of

customers worldwide. As a group prudential plc has, as of December 31, 2004,

over GBP187 billion of funds under management, more then 16 million customers

and over 22,500 employees worldwide

ICICI Bank

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ICICI Bank is Indias second-largest bank with total assets of about Rs 146,214

crore at December 31, 2004 and profit after tax of Rs. 1,391 crore in the nine

months ended December 31, 2204 (Rs 1,637 crore in fiscal 2004) ICICI Bank has

a network of about 530 branches and extension counters and over 1,80 ATMs.ICICI Bank offers a wide range of banking products and financial services to

corporate and retail customers through a variety of delivery channels and through

its specialised subsidiaries and affiliates in the areas of investment banking, life

and non-life insurance, venture capital and asset management. ICICI Bank set up

its international banking group in fiscal 2002 to cater to the cross-border needs of

clients and leverage on its domestic banking strengths to offer products

internationally. ICICI Bank currently has subsidiaries in the united kingdom and

Canada, branches in Singapore and Bahrain and representative offices in the

united states, china united Arab emirates Bangladesh and south Africa.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an India financial

institution, and was its wholly-owned subsidiary.

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COMPANY PROFILE

HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED(HDFC)

HDFC was incorporated in 1977 as the first specialised housing finance institution

in India. HDFC provides financial assistance to individuals, corporates and

developers for the purchase or construction of residential housing. It also provides

property related services (e.g.property identification, sales services and valuation),

training and consultancy. Of these activities, housing finance remains thedominant activity. HDFC currently has a client base of over 8,00,000 borrowers,

12,00,000 depositors, 92,000 shareholders and 50,000 deposit agents. HDFC

raises funds from international agencies such as the world Bank IFC(Washington),

USAID, CDC, ADB and KFW, domestic term loans from banks and insurance

companies, bonds and deposits. HDFChas received the highest rating for its bonds

and deposits program for the ninth year in succession. HDFC standard life

insurance company limited, promoted by HDFC was the first life insurance

company in the private sector to be granted a certificate of registration (on October

23

, 2000) by the insurance regulatory and development authority to transact life

insurance business in India

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STANDARD LIFE INVESTMENTS LIMITED

The standard life assurance company was established in 1825 and has considerable

experience in global financial markets. In 1998, a standard life investment limited

became the dedicated investment management company of the standard life group

and is owned 100% by the standard life assurance company. With global assets

under management of approximately US$186.45billion as at march 31,2005,

standard life investments limited is one of the worlds major investment

companies and is responsible for investing money on behalf of five million retailand institutional clients worldwide. With its headquarters in Edinburgh, standard

life investments limited has an extensive and developing global presence with

operations in the united kingdom, Ireland Canada, USA, China, Korea Hong

Kong. In order to meet the different needs and risk profiles of its clients, standard

life investments limited manages a diverse portfolio covering all of the major

markets world-wide, which includes a range of private and public equities,

government and company property and various derivative instruments. Thecompanys current holdings in UK equities account for approximately 2% of the

market capitalization of the London stock exchange.

The data has been collected through filing up of the questionnaire from different

companys managers and financial consultants and interviewing them about their

various options of investments.

Primary data was collected from these managers and financial consultants only.This is first hand data. This data is gauged by personally conducting interviews,

observation and by means of questionnaire.

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Structure of mutual funds

Mutual fund is a trust that polls the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital

market instruments such as shares, debentures and other securities. The income

earned through these investments and the capital appreciation realized is shared by

its unit holders in proportion to the number of units owned by them. Thus a mutual

fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities

at a relatively low cost.The flow chart below describes broadly the working of a mutual fund;

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ORGANISATION OF MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund;

The Players

Every MF will comprise a sponsor, trustee, AMC, custodian and registrar, and is

regulated by sebi.

Sebi. All MFs must be registered with Sebi before they become operational. MFs

are governed by the securities and Exchange Board or India (mutual funds)

regulations, 1996.

Sponsor. The company that sets up the Mf is called the sponsor. It is typically a

financial intuition, bank, investment house or even an individual, that contributes

at least 40 per cent to the networth of the asset management company (AMC).

According to sebi regulations, a sponsor must have adequate experience, financial

worth, a good track record and have been in the financial services business for at

least five year. The sponsor initiate the funds activities by appointing the trustees,

the AMC and custodians.

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Trustee. Trustees are needed to safeguard the interests of the MF. The trustee

monitors the operations of the various schemes and safeguards investor interests.

The trustee must be experienced and ensure the funds operations are aboveboard,

in compliance with existing regulations, and benefit the unit-holders. The trusteescan also review the AMCs operations and transactions, including contracts with

various agencies such as custodians and registrars. Two-thirds of the trustees

should not be associated with the sponsors in any manner. An AMC, its offices or

employees shall not be eligible to act as trustees.

Asset Management Company. The AMC seeks to multiply the invested money

in the fund in line with the schemes investment objective. It should have a net

worth of at least rs 10 crores. The AMC is a key player in the MF game and does

everything to make the most of you investment. It launches new schemes,

manages them, and employs the fund management team, including the fund

manager. Investors are most likely to interact with the AMC. The sponsor appoints

the AMC and the trustees review its operation.

The AMC gets a fee based on a specified percentage of the assets it manages. Any

expenses over and above the maximum prescribed limits have to be borne by the

AMC.

Custodian. An MF needs to store and record transactions, for which it relies on

banks or financial institutions that designated custodians.

R&T agents. Registrars and transfer agents (R&T agents) handle all paperwork

involving investor servicing. Their services include processing initial public

offerings, dispatch of certificates, account statements, annual reports and dividend

warrants. Some MFs handle this work in-house.

TYPES OF MUTUAL FUNDS

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MFs can be classified on the basis of investment objective, nature, and load

structure

One the basis of investment objective,

1. Equity /growth fund. This is a scheme that invests only in equity. When

investing in stocks, you cannot be sure of your investment tenure or returns. As a

thumb-rule, the longer a stock is held, the higher the gains. You stand a better

chance of a substantial appreciation if you invest in stock-based funds.

Stocks are categorized by their market capitalization into small, medium or large,

and MFs are accordingly classified as large-cap, mid-cap or small-cap funds. The

NAV of an equi8ty scheme will fluctuate with the stock market.

2. Sector fund. An equity scheme that invests in shares of companies operating in

specific industries is called a sector fund. For instance, a pharma fund would

invest only in pharmaceutical companies. Sector funds are risky as they are

susceptible to cyclical influencesit is unlikely that the market will favour a

particular sector for too long.

3. Equity-linked savings schemes. The major portion of investment in ELSSschemes is in equity and offers 20 per cent tax rebates under section 88, subject to

a maximum investment of Rs 10,000 annually. Dividends are tax-free. As an

ELSS is linked to the market, it can earn substantially more than other Section 88

schemes, which offer fixed rates of return to a maximum of 11 per cent.

4. Dept funds. This fund invests in fixed income instruments such as debentures

(bonds) and various money market instruments. Here, both returns and investment

tenure are stated at the time of investing. Bonds can be issued by companies or by

the government (state or central). Bonds are rated by independent credit rating

agencies such as Crisil/CARE/ICRA, which verify the companys ability to

honour its interest commitments. The NAV of a debt fund does not fluctuate as

mush as that of an equity fund.

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5. Gilt fund. Gilts are securities issued by the central government and are said to

carry sovereign or minimal risk.

6. Money market fund. This fund invests exclusively in money market

instruments. Including commercial paper, commercial bills, treasury bills,government securities with an unexpired maturity of up to one year, call or notice

money, certificate of deposit, usance bills and other instruments specified by the

RBI. These funds have a minimum lock-in period of 15 days. Till recently, the

RBI regulated money market funds but they now come under sebi.

7. Liquid fund. A liquid fund is the same as a money market fund, but avoids a

lock-in period. Most of them lock funds in for up to three days to protect against

banking procedural inefficiencies. Used as an alternative to current account

balances, a liquid fund is ideally suited to investors who want to park their funds

for a very short timeseven to eight days. Consequently, fund houses process

redemption requests within 24 hours instead of the standard three working days.

The minimum in these funds is Rs 25,000.

8. Balanced fund. Balanced schemes invest in both equity and debt, with 50-75

per cent in equity and the rest in debt. It is important to know the stock to bonds

ratio in a fund to understand the risks and rewards structure.

Future of Mutual Funds in India

Indian mutual fund industry reached Rs. 1,50,537 crore. It is estimated that by2010 March-end, the total assets of all scheduled commercial banks should be Rs.40,90,000 crore.

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The annual composite rate of growth is expected 13.4% during the rest of the

decade. In the last 5 years we have seen annual growth rate of 9%. According to

the current growth rate, by year 2010, mutual fund assets will be double.

Let us discuss with the following table :

Aggregate deposits of Scheduled Com Banks in India (Rs. Crore)

Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec

Deposits 605410 851593 989141 113118

8

128085

3

- 156725

1

1622579

Change in %

over last yr.

15 14 13 12 - 18 3

Mutual Fund AUMs Growth

Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Sep-04 4-Dec

MF AUMs 68984 93717 83131 94017 75306 137626 151141 149300

Change in %

over last yr.

26 13 12 25 45 9 1

Prudential ICICI Mutual Fund

Incorporated 259/8/1993

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Ownership Foreign JV

Ownership Pattern Foreign 55%

Domestic 45%

Sponsor Prudential pic, ICICI Bank

Total Assets (Rs Cr) 21,477.20 as on 8/31/2005

Equity Funds (Open End) 11

Debt Funds (Open End) 12


Short-term Debt 13

(Open End)

Hybrid Funds 7

(Open End)

Closed-end Funds 11

Mutual Funds schemes available with ICICI Mutual fund and

various factors associated with them

ss

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Category Risk 1 Year Expense Front- Back- CDSC Mim. Return

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Hybrid:

E

q

ui

ty

-or

ie

nt

ed

Average 50.40 2.31 2.25 0.00 No 5000 Above

Hybrid:

E

q

ui

ty

-

orie

nt

ed

Average 50.40 2.31 2.25 0.00 No 5000 Above

Hybrid:

E

q

ui

ty

-

or

ie

nt

ed

Below 44.76 2.00 1.50 0.00 Yes 5000 Above

Hybrid:

D

eb

t-

or

ie

nt

ed

Below 14.37 1.50 1.50 0.00 Yes 5000 Below

Equity:

Di

ve

rs

ifi

ed

Not -- 1.27 2.25 0.00 No 5000 Not

Equity:Diversified

Not -- 1.27 2.25 0.00 No 5000 Not

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Debt:Specialty

Not 5.20 1.00 0.00 0.00 No 5000 Not

Debt:Specialty

Not 5.20 1.00 0.00 0.00 No 5000 Not

Debt:

Specialty

Not 5.20 1.00 0.00 0.00 No 5000 Not

Debt:FloatingRate

Below 5.31 0.75 0.00 0.00 No 100000 Not

Equity :FMCG

Not 123.67 2.05 2.25 0.00 No 5000 Not

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Debt:Specialty

Not -- 0.15 -- -- No 25000 Not

Gift :Medium &

Long-term

Above 3.48 1.15 0.00 0.00 No 25000 Above

Gift :Medium &Long-term

Above 3.48 1.15 0.00 0.00 No 25000 Above

Gift :Medium &Long-term

Average 4.71 1.10 0.00 0.00 Yes 25000 Below

Equity

Diversified

Above 65.56 2.30 2.25 0.00 No 5000 Average

EquityDiversified

Above 65.56 2.30 2.25 0.00 No 5000 Average

DebtMedium-Term

Average 4.39 1.77 0.00 0.00 Yes 5000 Average

DebtMedium-Term

Below 14.94 0.60 0.00 0.00 No 5000 High

DebtMedium-Term

Below 14.94 0.60 0.00 0.00 No 5000 High

EquityIndex

High 53.05 1.25 0.00 0.00 Yes 5000 Average

EquityDiversified

Not -- -- 2.25 0.00 Yes 5000 Not

Debt: UltraShort-term

Average 5.032 0.88 0.00 0.00 No 15000 Average

Debt: UltraShort-termInsti

Low 5.35 0.53 0.00 0.00 No 5000000

0

High

Hybridmonthlyincome

Below 12.39 1.7 0.00 0.00 Yes 5000

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HDFC MUTUAL FUND

Ownership Private

Ownership Pattern Foreign - 0%Domestic 100%

Sponsor Housing DevelopmentFinance Corporation Ltd.

Total Assets (Rs. Cr) 17,812.86 as on 8/37/2005

Equity Funds (Open End) 11


Short-term Debt (Open End) 12

Hybrid Funds (Open End) 6

Closed-end Funds None

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Mutual Funds schemes available with ICICI Mutual fund and

various factors associated with them

Category Risk Grade ReturnGrade

1 Year

Return

Expense

Ratio

Front-End

Load %

Back

End

Load

%

CDSC MimInitial Inv.

(Rs.)

Hybrid: Equity-oriented Above Average Average 37.49% 2.13 2.25 0.00 No 5000

Hybrid: Equity-oriented Above Average Average 37.49% 2.13 2.25 0.00 No 5000

Equity: Diversified Below Average Above

Average

79.00 2.21 2.25 0.00 No 5000


Average

79.00 2.21 2.25 0.00 No 5000

Debt: Ultra Short-term Above Average Below

Average

4.48 0.64 0.00 0.00 No 100000

Debt: Ultra Short-term Above Average Above

Average

5.38 0.18 0.00 0.00 Yes 5000

Hybrid: Equity-oriented Average Below

Average

46.79 2.25 2.25 0.00 Yes 5000

Hybrid: Debt-oriented Below Average Average 19.54 2.25 1.25 0.00 Yes 5000


Average

66.08 2.02 2.25 0.00 No 5000


Average

79.00 2.21 2.25 0.00 No 5000

Debt: Medium & Long-

term

Above Average Average 1.97 1.60 0.00 0.00 No 5000

Debt: Medium & Long-

term

Above Average Average 1.97 1.60 0.00 0.00 No 5000

Debt : Short-term Average Average 3.80 1.33 0.00 0.00 No 5000

Debt : Short-term Average Average 3.80 1.33 0.00 0.00 No 5000

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Equity: Diversified Below Average Average 60.29 2.34 2.25 0.00 No 5000

Equity: Diversified Below Average Average 60.29 2.34 2.25 0.00 No 5000

Debt: Medium-term Average Above

Average

4.17 1.84 0.00 0.00 Yes 5000

Debt: Medium-term Average Above

Average

4.17 1.84 0.00 0.00 Yes 5000

Equity: Index Low Below

Average

51.23 1.50 0.00 0.00 Yes 5000

Equity: Index Low Below

Average

51.23 1.50 0.00 0.00 Yes 5000

Equity: Diversified Average Below

Average

56.40 1.50 0.00 0.00 Yes 5000

Equity: Diversified Average Below

Average

56.40 1.50 0.00 0.00 Yes 5000

Debt: Ultra Short-term Average Average 5.11 0.35 0.00 0.00 No 100000

Debt: Ultra Short-term Average Average 5.11 0.35 0.00 0.00 No 100000

Debt: Ultra Short-term

Insti

Average Average 5.24 0.53 0.00 0.00 No 20000000

Debt: Ultra Short-term

Insti

Average Average 5.24 0.53 0.00 0.00 No 20000000

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HDFC Balanced-D Fund (Profile and Investment pattern view)

Current State & ProfileLatest NAV 17.393 (16/09/05)

52-Week High 18.953 (08/03/05)

52-Week Low 14.071 (20/04/05)

Fund Category

Type Open End

Launch Date

Risk Grade Above Average

Return Grade Average

Net Assets (Cr) 124.08 (31/08/05)

Benchmark

Trailing Returns Trailing Returns

As on 16 Sep 2005 Fund Category

Year to Date 21.70 24.51

1-Month 4.68 5.37

3-Month 17.59 17.48

1-Year 37.49 43.60

3-Year 34.18 38.77

5-Year -- 18.27

Return Since Launch 18.80 --

Returns upto 1 year are absolute and over 1 year are annualized.

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Top 3 Instruments % Net Asset

As on 31/08/05

Bonds/NCDs

Securities Debt

Net Current Assets

18.06

7.46

4.71

Top Holdings AS ON

31/08/05

Name of Holding % Net Assets

Reliance Industries 8.07

IRFC 5.62

E I D-Parry (I) 5.33

Grasim Industries 4.89

B H E L 4.73

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CONCEPT OF UNIT LINKED INSURANCE PLAN

Unit Linked Policies are unbundled

o Separate identification of parts

- Investments element, expense, administration

charges and benefit charges shown separately.

Unit Linked Policies make use of linked funds

o Investment housed in funds divided into units

- client has choice of funds

Unit Linked Policies are linked

o Value of policy linked to net assets

- investment risk and rewards transferred from insurer to the

client.

Unit Linked Policies have explicit charges

Consequence of unbundling

- charges may or many not be guaranteed

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BENEFITS OF UNIT LINKED PLANS

To the client

- Flexibility of premium , sum assured and

benefits

- Transparency

- Control over investment strategy

- Control over the degree of investment risk

To the insurer

Product demanded by the market

Retention of existing clients and attracting new clients

Unit Linked Policies have explicit

charges

Consequence of unbundling

- Charges may or may not be guaranteed

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BENEFITSTo the client

- Flexibility of premium, sum assured and

benefits

- Transparency

- Control over investment strategy

- Control over the degree of investment risk.

he insurer

- Product demanded by the market

- Retention of existing clients and attracting new clients

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DESIGNProduct Design

- Endowment, pension, whole life.

- Investment funds with objectives

Pricing

- Initial charges to cover marketing, distribution and

other new business costs

- Surrender charges to recover costs already incurred to

the extent that they have not been recovered prior to surrender.

- Renewal charges to cover the ongoing costs of

administering the policy and any renewal commission payable

- Fund Management Charges to cover the ongoing cost

of managing the investments of the policy.

- Switch or Redirection Charge to cover the additional

administration costs associated with switching investments and

redirecting premiums. Also used to discourage frequent

switches/redirections.

- Add-on benefit charges calculated on a current cost

method. Risk premium applied each month to the sum at risk under

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FLEXIBILITY IN PREMIUM PAYMENT- Choice of annual, half0yearly and quarterly modes.

- Regular premium increases during the term of the

contract.

- Single premium top-ups at any time.

- Minimum premium payable

Type of Premium Minimum Premium

Regular Premium Rs. 10,000 per annum

Regular Premium increases Rs. 5,000 per annum

Single Premium Top-ups Rs. 5,000

- can be paid by cash, local cheque, demand draft or

standing order

- outstation cheques and post dated cheques not allowed

- advance premium payment would be held in suspense

account till due date

- Reduction in premium allowed subject to payment of

at least three years regular premium

- Premium can also be reduced to zero in which case the

policy would be converted into a paid up status.

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Regular Premium

Increase

Premium Reduction

HDFC Standard Life Allowed Allowed

ICICI Prudential Not Allowed Not Allowed

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CHOICE OF RISK COVER

Risk Cover offered with following options

Name of the Option Risk covered

Life Option Death

Extra Life Option Death and Accidental Death

Life and Health Option Death and accelerated critical illness

Extra Life and Health Option Death, Accelerated critical illness andAccidentalDeath

In case death or accelerated critical illness cover (if opted), in the event of death or

critical illness as applicable the higher of the sum assured and the value of the

units would be paid.

In case accidental death cover is opted, then on accidental death the death benefit

(higher of the sum assured and the value of units) plus the sum assured for the

accidental death cover would be paid.

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Life Option Extra Life

Option

Life and

Health

Option

Extra Life

and Health

Option

Cover Death Death and

Accident

Death and

Critical

Illness

Death, critical

Illness and

Accident

Suitability No option Suitable for

clients who

perceive a

risk of

accident and

who do not

have adequate

accident

cover

Suitable for

clients who

perceive a

risk of critical

Illness and

who do not

have adequate

critical illness

cover

Suitable to

clients who

perceive the

risk of

accident and

critical illness

and who do

not have both

the covers

Options

during the

validity of the

policy

Can add the

accident and

critical illness

cover

Can delete the

accident

cover and add

the critical

illness cover

Can delete the

critical illness

cover and add

the accident

cover

Can delete the

critical illness

cover and the

accident

cover

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Client can choose the level of risk cover by selecting one of the pre-

determined cover levels depending on the entry age

The cover levels available are :-

Age Bands LOW MEDIUM HIGH

18-40 5 times annual

premium

10 times annual

premium

20 times annual

premium

41-50 5 times annual

premium

10 times annual

premium

Not available

51 and above 5 times annual

premium

Not available Not available

The death cover, accelerated critical illness cover and the accidental death

benefit cover would be to the to the extent of the same level chosen by the

policyholder.

The sum assured will be subject to underwriting. Once the sum assured

level is chosen the same cannot be altered during the term of the contract.

same risk charge

Age Death ACI ADB

20 0.70 0.28 0.42

30 0.80 0.60 0.47

40 1.46 1.78 0.55

50 3.71 5.76 0.74

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60 9.17 12.27 1.01

Choice of risk cover

- death benefit cannot be altered

- accelerated critical illness benefit and accidental death benefit can be

deleted at any time.

- Once the accelerated critical illness benefit and accidental death

benefit are deleted the same cannot be added back at a later date.

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CHOICE OF INVESTMENT FUNDS

Choice of five funds :-

Liquid Fund

Secure Management Fund

Defensive Managed Fund

Balanced Managed Fund

Growth Fund

36

Growth Fund

Balanced Managed Fund

Defensive ManagedFund

Secure Managed Fund

Liquid Fund

High

Low

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LIQUID FUNDThe liquid fund invests in Bank Deposits and high quality short-term money

market instruments. The fund is designed to be cash secure and has a very low

level of risk, however unit prices may occasionally go down due to the use of

short-term money market instruments.

SECURE MANAGED FUND

The Secure managed fund will invest in Government Securities and Bonds issued

by companies or other bodies with a high credit standing, however a small amount

of working capital may be invested in cash to facilitate the day-to-day running o f

the fund. The fund has a low level of risk but unit prices may still go up or down.

DEFENSIVE MANAGED FUND

15% to 30% of the Defensive Managed fund will be invested in high quality

Indian equities. The remainder will be invested in Government Securities and

Bonds issued by companies or other bodies with a high credit standing, though a

small amount of working capital may be invested in cash to facilitate the day-to-

day running of the fund. The fund has a moderate level of risk with the

opportunity to earn higher returns in the long term from some investment, unit

prices may go up or down.

BALANCED MANAGED FUND30% to 60% of the Balanced Managed fund will be invested in high quality Indian

equities. The remainder will be invested in Government Securities and Bonds

issued by companies or other bodies with a high credit standing, through a small

amount of working capital may be invested in cash to facilitate the day-to-day

running of the fund. The fund has a higher level of risk with the opportunity to

earn higher returns in the long term from the higher proportion invested in

equities, unit prices may go up or down.

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GROWTH FUND

The Growth fund invests in high quality Indian equities. In addition a small

amount of working capital may be invested in cash to facilitate the day-to-day

running of the fund. The fund has a higher level of risk with the opportunity toearn higher returns in the ling term from the investment in equities. Unit prices

may go up or down.

Investment pattern in various funds

Liquid

Fund

Secure

Managed

Fund

Defensive

Managed

Fund

Balanced

Managed

Fund

Growth

Fund

High Low Low Low Low

Low High High Medium Nil

Nil Nil Low Medium High

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Choices of funds available with HDFC SL and ICICI PRU

Type of

Fund

Liquid Fund Secure

Managed

Fund

Defensive

Managed

Fund

Balanced

Managed

Fund

Growth

Fund

Investment Bank

Deposits/Short

term money

Govt.

Securities

and Bonds

15-30% in

equities

30-50% in

equities

Equities

HDFC SL Available Available Available Available Available

ICICI Not Available Available Not

Available

Available Available

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SWITCHING

Switching of funds allowed at any time

HDFC SL currently do not charge for switching however the company

reserves the right to charge for switches in excess of two each year and

ICICI PRU Except for the 4 free switches allowed every policy year, all

other switches will be charged at Rs. 100 per switch.

Switching and premium redirection are subject to cut off rules (discussed

later)

BENEFITS ASSOCIATED WITH ULIPS On death

On diagnosis of critical illness

On accidental benefit

On maturity

On full surrender

On withdrawal

Paid up benefits

Benefits on death

The greater of the policy value and the sum assured would be paid

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Policy Value Sum Assured Death Benefit

15000 150000 150000

45000 150000 150000

75000 150000 150000105000 150000 150000

135000 150000 150000

165000 150000 165000

195000 150000 195000

225000 150000 225000

In ICIC PRU

Death Benefit : The Sum Assured under the product has 2 options, either

500% of the initial premium or 105% of the initial premium. In the event of

an unfortunate death, the beneficiary will receive higher of the value of

units or the initial death benefit, less any withdrawals.

Benefits on diagnosis of critical illness (if chosen)

- the greater of the policy value and the sum assured would be paid

- Diseases covered : cancer, coronary artery by-pass graft surgery

(CABG), Heart Attack, Kidney failure. Major organ transplant,

Stroke

Policy Value Sum Assured Critical Illness Benefit

15000 150000 150000

45000 150000 150000

75000 150000 150000

105000 150000 150000

135000 150000 150000

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165000 150000 165000

195000 150000 195000

225000 150000 225000

Benefits on accidental death (if chosen)

- additional amount equal to the sum assured in addition to the death

benefit would be paid

Policy Value Sum Assured Critical Illness Benefit

15000 150000 300000

45000 150000 300000

75000 150000 300000

105000 150000 300000135000 150000 300000

165000 150000 315000

195000 150000 3455000

225000 150000 375000

Benefits on maturity

Policy value (value of units in the policy holders account) would be

paid.

Policy Value Sum Assured Maturity Benefit

15000 150000 15000

45000 150000 45000

75000 150000 105000

105000 150000 1350000

135000 150000 105000

165000 150000 135000

195000 150000 195000

225000 150000 225000

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Benefits on surrender

- policyholder can surrender the policy at any time

- policy value less the surrender charge would be payable

- surrender charge is 25% of 3 years outstanding premium

- surrender charge calculation is shown below.

Mode Annual

Premium

No of

Premium

paid

Amount

paid till

surrender

3 years

premium

Balance

of 3 years

Surrender

Charge

Yearly 10000 1 10000 30000 20000 5000

Half

yearly

1000 3 15000 30000 15000 3750

Quarterly 12000 8 24000 36000 12000 3000

Half

yearly

16000 6 48000 48000 48000 0

Quarterly 28000 13 91000 84000 0 0

Benefits on withdrawal

- policyholder can make lumpsum withdrawal at any time subject to

withdrawal amount is greater than Rs. 10000, and

the unitized fund is not less than the sum assured after withdra

- currently no charges on withdrawal but the company reserves the

right to charge in future.

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Unitised Fund Sum Assured Amount of

Withdrawal

Comments

500000 200000 25000 Not allowed

200000 500000 10000 Not allowed

500000 500000 10000 Not allowed

600000 500000 5000 Not allowed

Paid up Benefits

- policyholder can make the policy paid up provided

three years premium have been paid, and

the policy has acquired sufficient value (Rs 15,000 at present)

- in other cases the policy will lapse and the policy value less charges

would be returned to the policyholder

- paid up policy can be reinstated at any time without collecting arrears of

premium

Unitised

Fund

Sum Assured No of years

premium paid

Comments

500000 200000 5 Allowed

200000 500000 3 Allowed

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500000 500000 2 Not Allowed

600000 500000 1 Not Allowed

10000 500000 5 Not Allowed

CHARGES

Investment Content Rate

Bid Offer Spread

Fund Management Charge

Policy Fee

Risk Charge

Surrender Charge

Partial Withdrawal Charge

Policy Alteration Charge

Investment Content Rate (ICR)

Policy year in which premium is paid Investment Content Rate (ICR)

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Year 1 73%

Year 2 73%

Year 3 and subsequent 99%Years

Regular Premium Increases Increases

99%

Single Premium Top- Up(s) 99%

Allocation Table

HDFC SL Year 1 73%

Year 2 73%

Year 3 +99%

ICICI Pru Year 1 80%

Year 2 92.5%

Year 3 + 96%

Bid Offer Spread

- There is no bid offer spread under ULEP

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Fund Management Charge

- 0.80% of the fund per year- deducted on a daily basis from the fund before arriving at the Net Asset

Value

HDFC SL 0.80% p.a.

ICICI Pru 1.5% to 2.25% p.a.

Policy fee

- Rs. 15 per month deducted by cancellation of the units

- Proportioned across funds according to the fund holding at the time of

cancellation

HDFC SL Rs. 15 per month

ICICI Pru NIL

Risk Charge

- taken by cancellation of units every month- Charges calculated as sum at risk * monthly rate (attained age, gender,

benefit)

Risk Charges

Age Death ACI ADB

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20 0.70 0.28 0.42

30 0.80 0.60 0.47

40 1.46 1.78 0.55

50 3.71 5.76 0.74

60 9.17 12.27 1.01

Surrender Charges

- surrender charge is 25% of 3 years outstanding premium

HDFC SL 3 YEARS OUTSTANDINGPREMIUM

ICICI PRU NOT SPECIFIED

Partial Withdrawal Charge

- presently HDFC SL do not charge on partial withdrawal

- HDFC SL the right to charge on multiple withdrawals in a year in

future

Policy Alteration Charge

- presently we do not charge on policy alterations

- we reserve the right to charge on policy alteration in future

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ANALYSIS OF MUTUAL FUND SCHEMES FROM

COMPARISON TABLES OF HDFC AND ICICI MUTUAL

FUNDS

Mutual

Fund

Objective Risk type Investment

portfolio

Who should

invest

Investme

nt

horizon

Market/Funds Liquidity+moderat

e income

+ preservation of

capital

Negligible

risk

Treasury bills,

certificate of

deposits,

commercial

papers, securities,

call money

Those who park

their funds in

current account or

short term bank

fixed deposit

2-days-3

weeks.

Term funds Liquidity

/Moderate Income

Little

interest rate

risk

Call money

commercial

papers. Treasury

bills. CDs. Short

Term G-secs.

Those with surplus

short term funds

3 weeks-3

months

Funds Regular Income Credit risk &

interest rate

Predominantly

debentures,

government

securities,

corporate bonds

Salaried &

conservative

investors.

More than

9-12

months

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Funds Security & Income Interest rate

risk

Government

securities

Salaried and

conservative

investor.

12 months

& more

Funds Long term capital

appreciation

High risk Stocks Aggressive

investors with long

term out look.

3 year

plus.

Funds To generate

returns which are

commensurate

with returns of

respective index

NAV, vary

with index

performance

Portfolio index like

BSE NIFTY etc

Aggressive

investors

3 years

plus

Funds Growth & regular

income

Capital

market risk

and interest

rate risk

Balance ratio of

equity and debt

funds to ensure

higher returns at

lower risk

Moderate &

Aggressive

2 year

plus

Analysis from the Comparison HDFC ULIP and ICICI ULIP Sheet

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In the analysis, two investments were being done keeping the profile of person

remaining the i.e. Age is 30, term for the investment is taken as 15 years,

Sum assured 50,00,000 and annual premium 50,000 frequency of payment is takenas monthly. The returns from the two different companies comes out to be

different,

The maturity value comes out to be 14, 94,785 from the HDFC SL ULIP whereas

in the case of ICICI PRU, the maturity value out to be 1, 309,832.

Following factor are responsible for such and different outcome for the different

compnies:-

The HDFC SL has policy of keeping the ICR low in the case of the first

consecutive 3 years, then after the ICR becomes for the 99%, this concept

keeps the return on the investment low in the first 3 years and later on the

returns on investment keeps on going up but in case of ICICI PRU. The

ICR is 80% in the first year, 925%, 96% in second year and from third year

onwards its kept constant, when the whole ICR is taken on the account the

ICR of HDFC SL comes out to be maximum when compared with ICICI

PRU.

The HDFC SL keeps its Fund .80% per annum which is among the lowest

in the industry which ultimately yields to high returns where in case of

ICICI the FMC are in range of 1.5-2-2.5 per annum, the FMC is being

deducted from the account of investor which keeps the returns low as when

compared with HDFC ULIP.

The HDFC SL keeps the policy fee Rs. 15 per month but ICICI PRU did

not charge any policy fee thats sounds very relaxing in case of ICICI PRU,

but that did not have much impact on returns.

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When HDFC ULIP compared with ICICI PRU the returns in case of HDFC

SL ULIP comes out to be lower in first five years but later on when

compared with ICICI ULIP returns is much more higher than that of ICICI,

So the long term concept must be kept in mind while investing in HDFCULIP, and in case of short run ICICI PRU gives out good results, means the

investor is benefited more when he invests in HDFC SL ULIP or any other

ULIP for long term, In case of short run ULIPS can turn into nightmare

giving you less returns in short time as the in initial years the part of

investment goes as age commission and other charges.

Following thing have to be analyzed with different alternatives by making

investment in ULIPs Products of Insurance Company .

1. Investment Content Rate.

2. Fund Management Charges.

3. Policy fees.

4. Investment Returns from the past track records.

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Benefits associated with ULPs products

Twin Benefit

ULIPs offer a twin benefit

Serve the purpose of providing life insurance

Provide savings at market-linked returns. This is more beneficial to the investor as

compared to his investment in a mutual fund which does not offer a life cover.

Capital guarantee

Any product that promises to keen the principal amount invested intact, is offering

a capital guarantee. For example, a bond issue that will pay out the principal

amount at the end of the tenure is giving a capital guarantee - it will return the

money it borrowed from the investor. Most fixed interest products give a capital

guarantee. However, such a guarantee does not exist in equity products that do not

ensure a return of principal your investment can lose value.

Traditional endowment plans are structured so that the annual premiums relate to a sum

assured. This is paid out to the nominee in case of the policy holders death. If the person

survives the term of the plan, he gets a certain pre-decided amount back. This is usually

the sum of the premiums paid plus a 3-4 per cent return. The policy holder has no control

over what assets the insurance company buys.Unit linked allow the policy holder to

choose between asset classes - debt or equity or a combination of the two and the final

amount on death or survival is linked to the market value of the corpus on the claim. The

capital guaranteed products offer to give a certain sum assured, but also allow you to put

part of the premium amount in potentially high return equities. So one can also track net

asset value of money (as in a mutual fund) in this product, like in a unit linked plan.

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Only the part that is invested in unit linked plan gets a guarantee. After taking care

of the costs like agent commission, mortality charges (that part of the premium

that goes toward the pure insurance cover), annual fees about 60-70 %of the

premium is fee for investment. This the money that will give you a return and isguaranteed. Some companies guarantee only the invested premium, other will

guarantee the returns as they accrue each year. For example, ICICI Prudentials

Invest Shield, on an annual premium of Rs 10,000 gives a some assured of Rs 2

lakh and promises to give Rs2.8 lakh after 20 years, assuming a 6 % return,

remember, is only on the invested amount (Rs 7,611 in this case). However, if

persons treating the entire premium as an investment and would like to see returns

on this, without the costs of benefits of insurance, then the return on Rs 10,000

that grows to Rs 2.8 lakh in this policy, works out to be 3.4 %.

ULIPs have multiple investment options

The individuals have an option of investing based on his market analysis and his

risk profile. Generally there three categories of ULIPs.

Aggressive ULIPs (which can typically invest 80%-100% in equities,

balance in debt)

Balanced ULIPs (can tipically invest around 40%-60% in equities)

Conservative ULIPs (can tipically invest up to 20% in equities)

ULIPs are Flexible:

The individuals are allowed to switch between the ULIP variants outlined above to

capitalize on investment opportunities across the equity and debt markets. Some

insurance companies allow a certain number of free switches. This is an

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important feature that allows the informed individual/investor to benefit from the

vagaries of stock/debt markets. For instance, when stock markets were on the

brink of 7,000 points (Sensex), the prudent investor would prefer to shift his assets

from an aggressive ULIP to a low risk conservative ULIP.

ULIPs are designed to feature Systematic Investment Plan (SIP)

As generally advocated by a mutual fund industry, ULIPs also facilitate SIP to the

investors. With a SIP, individuals invest their funds regularly over time intervals a

month/quarter and dont have to worry about timing the stock markets. An added

benefit with ULIPs is that individuals can also invest a one-time amount in the

ULIP either to benefit from opportunities in the stock markets or if they have an

investible surplus in a particular year that they wish to put aside for the future.

Flexibility

Individuals may well ask how ULIPs are any different from mutual funds. After

all, mutual funds also offer hybrid/balanced schemes that allow an individual to

select a plan according to his risk profile.

The difference lies in the flexibility that ULIPs afford the individual. Individuals

can switch between the ULIP variants outlined above to capitalize on investment

opportunities across the equity and debt markets. Some insurance companies allow

a certain number of free switches.

This is an important feature that allows the informed individuals/investor to

benefit from the vagaries of stock/debt markets. For instance, when stock markets

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were on the brink of 7,000 points (Sensex), the informed investor could have

shifted his assets from an Aggressive ULIP to a low-risk Conservative ULIP.

Switching also help individuals on another front. They can shift from anAggressive to a Balanced or a Conservative ULIP as they approach retirement.

This is a reflection of the change in their risk appetite as they grow older.

Disadvantages of investing in a ULIPs are:

Liquidity :- Money invested in ULIPS do not offer high returns in the recent

years, so it is not worthwhile to take money out from ULIPs schemes as the ICR is

low in first 3 years, if investor wishes to do so he will suffer from losses 73% is

invested in the first 3 years and rest goes to agent commission and fund charges.

So it is not beneficiary to take money out from that.

No Gains in Short term

When ULIPs products are compared with Mutual funds, they dont offer

handsome returns in short term. So money invested in them should be for long

term.

Higher Charges

Unlike a mutual fund, the charges incurred on ULIPs by insurance companies are

higher. This is primarily due to mortality charges being levied as well as the high

commissions paid by life insurance companies to their agents/advisers/consultants.

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Analysis from the Comparison HDFC ULIP and Mutual fund (MIP) Sheet

In this analysis, two investments were being done keeping the profile of person

remaining the same i.e. Age is 33, term for the investment is taken as 30 years.Sum assured 500,0000 and annual premium 100,000, frequency of payment is

taken as monthly. The returns of two different companies comes out to be

different.

The maturity value comes out to be 14,309,649 from the HDFC SL ULIP whereas

in the case of MIP FUND, the maturity value comes out to be 11,815,096.

Here is the list of factors responsible for such and different outcome for the

different companies:-

Here two are different from each other from investors point of view HDFC ULIP,

is insurance company while the another is Mutual fund company, HDFC SL

provide the twin benefit that is insurance with investments and another is purely

voluntary investment schemes.

When taken for short term the Mutual fund is gainer, as it yields more return on

investment when compared with HDFC ULIPs or any other ULIPs because in case

of Mutual fund Investment Counter Rate is higher i.e. 100% and how in case of

ULIPs. So amount invested is certainly higher which yields more returns in short

term.

The long term benefit is provided by the ULIPs only that comes after the 10 th year,

the return is higher when compared with Mutual fund Scheme that is because the

fund management charge is low in the case of HDFC ULIP which is 0.80% which

deducted from the investment earnings.

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Its beneficial for investor who invests in long term investment to take ULIPs

which provide twin benefit i.e. Insurance and investment. Rather than investing in

mutual funds, who thereby charges high fund management charge.

Advantages of investing in a Mutual Fund are as follows :-

Number of options available in mutual funds schemes

Mutual funds invest according to the underlying investment objective as specified

at the time of launching a scheme. MFs have equity funds, debt funds, gift funds

and many other that cater to the different needs of the investor. The availability of

these options makes them a good option. While equity funds can be as risky as the

stock markets themselves, debt funds offer the kind of security that is aimed for at

the time of making investment. Money market funds offer the liquidity that is

desired by big investors who wish to park surplus funds for very short-term

periods. Balance Funds actor to the investors having an appetite for risk greater

then the debt funds but less then the equity funds. The only pertinent factor here is

that the fund has to be selected keeping the risk profile of the investor in mind

because the products listed above have a different risks associated with them.

Diversification : The best mutual funds design their portfolios so individual

investment will react differently to the same economic conditions. For example

economic conditions like a rise in interest rates may cause certain securities in a

diversified portfolio to decrease in value. Other securities in the portfolio will

respond to the same economic conditions by increasing in value. When a

portfolio is balanced in this way, the value of the overall portfolio should

gradually increase overtime, even if some securities lose value.

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Professional Management: Mutual Funds employ the services of skilled

professionals who have years of experience to back them up. They use intensiveresearch techniques to analyze each investment option for the potential of

returns along with their risk levels to come up with the figures for performance

that determine the suitability of any potential investment.

Liquidity: Its easy to your money out of mutual fund. Write a check. make a

call and youve got the cash .

The investors can withdraw or redeem money at the Net asset Value related

prices in the open-end schemes. In closed-end schemes, the units can be

transacted at the prevailing market price on a stock exchange. Mutua funds also

provided the facility of direct repurchase at NAV related prices. The market

prices of these schemes a dependent on the NAVs of funds and may trade at

more than NAV (know as Premium) or less then NAV (known as discount)

depending on the expected future trend of NAV which in turn is linked to

general market conditions. Bullish market may result in schemes trading at

premium while in bearish markets the funds usually trade at Discount. This

means that the money can be withdrawn anytime , without much reduction in

yield. Some mutual funds however, charge exit lodes for withdrawal within a

period linked to

Low cost: Mutual fund expenses are often no more than 1.5 percent of your

investment. Expenses for index funds are less than that, because index funds are

not actively managed. Instead, they automatically buy stoke in companies that are

listed on a specific index.

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Transparency

Being under a regularly framework, mutual funds have to disclose their holdings,

investment pattern and all the information that can be considered as material, before all investors. This means that the investment strategy , outlooks of the

market and scheme related details are disclosed with reasonable frequency to

ensure that transparency exists in the system. This unlike any other investment

option in India where the investor knows nothing as nothing is disclosed.

Tax benefits the industry offers equity linked savings schemes as well. Equity-

based funds, they can take long-term call on stocks and market conditions

without

Having to worry about redemption pressure as the money is looked in for

three years and provide good returns. Some of the ELSS have been exceptional

performers in past and cater to equity investor with good performances. The

industry offered tax benefits under various sections of the IT Act. For e.g.

dividend income is free in the hand of the investor while capital gains are taxed

after providing for cost inflation indexation. Hitherto, the benefits under section

54EA/EB were available to take benefits of the tax provisions for capital gains but

have now been removed . The benefits listen so far have essentially been for the

small retail investor but the industry can attract investments from institutional and

big investors as well. Liquid funds offer liquidity as well as better returns than

banks and so attract investors. Many funds provide anytime withdrawal enabling a

big investor to take maximum benefits.

Well regulated Unlike the company foxed deposits, where there is little control

with the investment being considered as unsecured debt from the legal point of

view, the Mutual Fund industry is very well regulated. All investments have to be

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accounted for, decisions judiciously taken. SEBI acts as a true watchdog in this

case and can impose penalties on the AMCs at fault. The regulations, designed to

protect the investors interests are also implemented effectively.

Reduced Risk

An investor who holds just one investment is vulnerable to a high level of risk.

Mutual funds spread that risk among many different securities, limiting the

potential of one companys performance from impacting the entire portfolio. It

also reduces the emotion associated with watching individual equities rise and fall.

Convenience

With features like dematerialized account statements, easy subscription and

redemption processes, availability of NAVs and performance details through

journals, newspapers and updates and lot mire; Mutual Funds are sure a

convenient way of investing.

Disadvantages of investing in Mutual funds

Mutual funds have their drawbacks and may not be for everyone:

No Guarantees:No investment is risk free. If the entire stock market declines in

value, the value of mutual fund share will go down as well, no matter how

balanced the portfolio. Investors encounter fewer risks when they invests in

mutual funds than when they buy and sell stocks on their own. However, anyone

who invests through a mutual fund runs the risk of losing money.

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Fees and commissions: All funds charge administrative fees to cover their day-to-

day expenses. Some funds also charge sales commissions or loads to

compensate brokers, financial consultants, or financial planners. Even if you dont

use a broker or other financial adviser, you will pay a sales commission if you buyshares in a load fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere

from 20 to 70 percent of the securities in their portfolio. If your fund makes a

profit on its sales, you will pay taxes on the income you receive, even if you

reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the funds

manager to make the right decisions regarding the funds portfolio. If the manager

does not perform as well as you had hoped, you might not make as much money

on your investment as you expected. Of course, if you invest in Index Funds, you

forego management risk, because these funds do not employ managers.

Interest-rate risk

Unlike stock market where an upward movement of market leads to upward

movement in stock prices, it is a fall in the market yield that pushes up the prices

of debt securities. This happens because there exists an inverse relationship

between the yield and the price of a bond. So, if there is an upward movement of

interest rates after one has invested in a bond fund. The prices of bond will go

down leading to a corresponding fall in the NAVs of the bond funds. Let us take

an example:

Suppose a person buys a bond for Rs. 100 with a coupon rate of 10%. In other

terms the person should get Rs. 110 at the end of the year. If the RBI announces a

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hike in the bank rate and the market yield for the duration of the bond increased,

say to 11%, the prices of the bond will fall around to Rs. 90.91 in order to adjust to

the market yield. This is termed as interest rate risk in financial jargon and is

precisely what happened in 2000 when RBI had hiked the interest rates.

An investor stands to benefit in the opposite scenario, when the interest rates are

cut as then the prices go up leading to better returns from the fund. If the interest

rate in the above example falls to 9% ,a person still gets Rs. 10 in interest but in

order to align the amount received to the prevailing market yield, the price of the

bond adjusts to adjusts to Rs. 111.11. In this case, the investor is better of by

selling it at Rs. 111.11 than holding it to its maturity, as then he will only get Rs.

110.

This risk is also dependent upon the maturity and duration of the bond and

generally, the longer a funds duration or average maturity, the higher its interest-

rate risk, or the more sensitive the NAV of the fund will be to changes in interest

rates. One can reduce the interest rate risk by choosing a bond fund with a shorter

duration or average maturity.

Credit risk

Just like shares where the performance of the company has some bearing on the

stock prices, credibility of the issuer is of importance in debt instruments. The risk

of the issuer not being able to make payments on his liabilities (debt instrument) is

termed as default risk or credit risk. This is of special concern to the investor if thefund is investing into junk bonds or lower quality bonds. Bond funds offer

professional management and a range of quality ratings to help lower this risk and

so investors stand to benefit by the expertise of fund to pick good papers only.

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Delay Risk

Cash flows are estimated on the basis of the pattern of income distribution. For

example, a bond can pay interest half yearly, on fixed dates and so if there is any

delay in receiving payments from the issuer, there is bound to be a mismatch

between the cash flows. This can be termed as the delay risk. Mutual funds too can

miss out on the interest due on an investment and have to show it as accrued but

not received. This also affects the time value of the money due. A continuation of

this trend may lead to a re-rating of the paper and add to the non-performing assets

of the fund.

Balancing Risk vs. Reward

As with any investment in any category, there is always a trade off between the

risks taken and returns generated. The greater the risk of a bond fund (dependent

on the quality and duration of papers), the higher is the potential reward, or return.

With a bond fund, the risk that prices may fluctuate and the value of your

investment may increase or decrease is not eliminated and so one must choose

funds based on his risk tolerance.

Mutual funds do not offer investors the opportunity to compare the p/e ratio,

sales growth, earnings per share, etc.

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Facts for the growth of mutual funds in India

100% growth in the last 6 years. Number of foreign AMCs are in the queue to enter the Indian

markets like Fidelity Investments, US based, with over US$1 trillion

assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only canalizing

these savings in mutual funds sector is required.

We have approximately 29 mutual funds which is much less than US

having more than 800. There is a big scope for expansion.

B and C class cities are growing rapidly. Today most of the

mutual funds are concentrating on the A class cities. Soon they will

find scope in the growing cities.

Mutual fund can penetrate rural like the Indian insurance industry

with simple and limited products.

SEBI allowing the MFs to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

Introduction of Financial Planners who can provide need based

advice.

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CONCLUSION AND FINDINGS

PARTICULARS Contribution

MUTUAL

FUND

Purely Voluntary

You need not follow any discipline in investing. Generally

people do not invest regularly they invest when the market is

high and want to disinvest when the market is low.

Minimum initial contribution Rs. 5000/- and Rs. 10000/- and

thereafter in multiples of Rs. 1000/-/ Rs. 1.

If you make a Systematic Investment Plan (SIP) then the

minimum investment is generally Rs. 500- Rs. 1000

Per SIP installment.

ULIP Compulsory Saving

You save regularly and invest through the highs and lows in the

market.

The biggest risk in investing is:

a. A one time investment.

b. When the market is high ULIP overcomes this

limitation.

Premium payment may be paid quarterly/half yearly/annually

(15 days grace is given).

Minimum committed contribution Rs.10000/- p.a.

You can:

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a. Reduce contribution (provided 3 years installments have

been paid).

Increase the committed Contribution in multiples if Rs.5000/-.

Top up whenever you have spare Money Rs.5000/- andmultiples of Rs.1 thereafter.

Schemes

Mutual Fund Liquid, Income, MIP, Balanced and Share Funds are the

standard Schemes. There are a huge variety of specialized

schemes tailor made to meet every possible Requirement/need.

ULIP Liquid, Income, MIP, Balanced and Share Funds.

Option

Mutual Fund Dividend/Dividend re invest/Growth and Bonus Options are

Available.

Dividend is generally declared when the market is high thus

we bleed the fund when the market is high with the dividend

option.

There is a systematic Withdrawal Facility which is especially

useful in the Growth Option.

ULIP There is only the Growth option.

Thus the whole value goes up/down when the market goes

up/down.

We can only bleed the fund by making withdrawals provided

the value does not go below the Sum Assured i.e. Life Cover

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amount.

Switches

Mutual Fund You can switch anytime from one scheme to another .

ULIP You can switch any time from one scheme to another.

Redirection of Premium

Mutual Fund You can invest in any other scheme and may/may not use the

same folio.ULIP Every time you pay the premium you can direct as to which of

the above schemes it is to be invested.Life Insurance Cover

Mutual Fund There is no life insurance cover.ULIP You have life cover up to 5 times/10 times/20 times the

committed contribution (subject to age constraints).

For example if your contribution is Rs. 10000/- you can

choose a cover of:

5 times i.e. Rs. 50000/-

10 times i.e. Rs. 100000/-, 20 times i.e. Rs. 200000/-

Accident Death Benefit and Critical Illness riders are also

available.

How does the insurance cover work?

If he value of your units is Rs. 11000/- and if you have chosen

Rs. 50000/- life cover then you will be charged life cover for

only Rs. 39000/- (Rs. 50000/-cover Rs. 11000/- value). When

the value of units is Rs. 50000/- the life cover becomes nil.

Withdrawls & Surrender of Policy

Mutual Fund You can cash all/part of your units anytime - the money should

be with you within 4 working days. You can receive intermittent

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cash flows in the form of:

a. Dividends.

Systematic Withdrawals Plan redemptions.ULIP 1.You can surrender your policy without any surrender

charge provided you have paid the premium of 3 years. If you

wish to surrender without paying 3 years premium then the

surrender change is 25% of the 3 years outstanding premium

(i.e. your default).

2. You can withdraw money in multiples of Rs. 10000/-

provided that you do not bring down the value to below the sum

assured (sum assured in the above example Rs. 500000/-)

3. You can make the policy folly paid up (which means

that you do not have to contribute any more to the policy)

provided:

a. Three years premium has been paid.

b. The policy value is more then Rs. 15000/- (or as fixed

by HDFC SL).

Fee & Charges

Mutual Fund Share and Balanced funds generally have an entry load of 2% -

2.25%.

Debt funds generally have an exit load of 0.5% if you exit before

6 months.

The fund management charges are however high i.e. around2% -

2.5% p.a. which are charge daily to the NAV. This charged on

the entire base i.e. funds under management.ULIP With insurance companies the initial charges are

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generally high (which affects the compounding effects)

however the fund management charges are low. The charges are

finally work out to be cheaper then mutual funds.

1. The initial charges are:1st Year 27%

2nd Year 27%

3rd Year onwards 1%

2. Top ups are charged only 1%.

3. The fund management charges are however far lower

then mutual funds i.e. 0.8% p.a. (Far lower since it is charged to

the entire funds under management which gives policies above 8

years term a huge boost in profitability).

4. There is a policy fee of Rs. 15 per month charged by

deducting units.

5. Life insurance cover charges based on age and the

insurance cover is charged by deducting units.

Value/ Maturity Value

Mutual Fund Units x NAV (rate) is the amount paid to you.ULIP Units x NAV (rate) is the amount paid to you.

Tax Benefits

Mutual Fund 1. Dividends on debt funds are subject to the dividend tax.

2. Dividends on share funds are tax free.

3. Capital gains (except long term capital gains on share funds) are

subject to long term/short term capital gain tax.

Section 80C deduction from income up to Rs. 1 Lac for

investment in Templeton Pension Plan, UTI Retirement Benefit

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Plan and Equity Linked Savings Schemes approved under

Section 80C.ULIP 1.ULIP Capital gains are tax free provided the annual

contributions (including top ups) do not exceed 20% of the sum

assured (subject to the provisions of Section 10& 10D).

NOTE Please consider this provision before makings

top-ups or you may lose your tax free status.

2. Contributions are eligible to Section 80C deduction

from income up to Rs. 1 Lac (subject to Section 88 2B) i.e.

annual contribution should not exceed 20% of the policy

amount.

NOTE Please consider this provision before making

top-ups or you may lose your tax rebate.

3. Contributions to Pension Plan eligible to Section 80C

deduction up to Rs. 10000/-.

Advice

Mutual Fund Advisable to make lump sum investments in debt funds

and to enter share/balanced funds via Systematic Investment

Plan (SIP).ULIP Term of 10 years or less is advisable only when you

require insurance cover. If you are entering with a horizon of 11

years to 30 years then ULIP scores handsomely over mutual

funds.

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REFERENCES

Websites

http://www.hdfestandardlifeinsurance.com

http://www.iciciprulife.com/index.jsp

http://www.personalfn.com/

http://www.standardlife.com

http://www.hdfc.com

http://www.amfiindia.com

http://www.nse.com

http://www.sebi.com

Companies visited for information

ICICI prudential, C.P

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http://www.hdfestandardlifeinsurance.com/http://www.iciciprulife.com/index.jsphttp://www.personalfn.com/http://www.standardlife.com/http://www.hdfc.com/http://www.amfiindia.com/http://www.nse.com/http://www.sebi.com/http://www.hdfestandardlifeinsurance.com/http://www.iciciprulife.com/index.jsphttp://www.personalfn.com/http://www.standardlife.com/http://www.hdfc.com/http://www.amfiindia.com/http://www.nse.com/http://www.sebi.com/


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HDFC Mutual Fund, C.P

HDFC SLC Lajpat Nagar

Prudential ICICI Mutual Fund, Barakhamba Road,

Perfect MITUSHI

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