Introduction To Mutual Fund:

Mutual Fund is professionally managed fund where that pools money from different
investors.

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The
history of mutual funds in India can be broadly divided into four distinct phases

First Phase - 1964-1987:

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and
administrative control in place of RBI. The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets under
management.

Second Phase - 1987-1993 (Entry of Public Sector Funds):

1987 marked the entry of non-UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund
established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun
90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June
1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.
47,004 crores.

Third Phase - 1993-2003 (Entry of Private Sector Funds):

1
With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under which
all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets
of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under
management was way ahead of other mutual funds.

Fourth Phase - since February 2003:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs. 29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain
other schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores
of assets under management and with the setting up of a UTI Mutual Fund, conforming
to the SEBI Mutual Fund Regulations, and with recent mergers taking place among

2
different private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth.

Introduction to ULIP’s:

Unit Trust of India (UTI) launched the first ULIP in India in 1971. Second ULIP came
from LIC Mutual Fund in 1989, ie after the MF industry was opened for PSU entities.
Both were well managed schemes

ULIP or Unit Linked Insurance Plan is a mix of insurance along with investment. From
a ULIP, the goal is to provide wealth creation along with life cover where the insurance
company puts a portion of investment towards life insurance and rest into a fund that is
based on equity or debt or both and matches with your long term goal. These goals
could be retirement planning, children’s education etc..

investment in ULIP, the insurance company invests part of the premium in

shares/bonds etc and the balance amount is utilized in providing an insurance cover.
There are fund managers in the insurance companies who manage the investments and
therefore the investor is spared from tracking the investment

Scope Of Study:

 Investors behavior in investing, Mutual fund and ULIP’s

 Analyzing the Risk and Return in Mutual fund and ULIP’s

3
 To analyze which Financial product is better in Mutual Fund and ULIP’s

 Introduction of LTCG for Equity Fund.

Literature Review:

A STUDY ON PERFORMANCE OF UNIT-LINKED INSURANCE

PLANS (ULIP) OFFERED BY INDIAN PRIVATE INSURANCE
COMPANIES Dr. G Nagarajan * Mr. A. Asif Ali ** Mr. N.
Sathyanarayana**
In this research paper author used descriptive study on Unit-Linked Insurance Plans
(ULIP) by selecting top five Private Insurance Companies in India. The performances
of all the products were tested for their dependency on the performance of stock market
by setting hypothesis here author says that ROR and Annualized ROR were used as
tools for Data Analysis and Correlation with t-Test was used for testing the Hypothesis.
From the study author concluded that, Reliance Life has good returns for the Investors,
and can be further improved. At the same time, company has to understand the product
of its competitor (PNB Met Smart), which is performing better.

Keywords: Unit Linked Insurance Plan, NAV, ROR, Insurance Company,

Risk-Returns, Investors.

The Study of Trends in Life Insurance Sector and Growth of ULIPs

in India
- Mrunal Chetan Joshi
Here the author says, Indian Stock market has also achieved stable growth in last more
than six months, investment avenues based on it are also performing well afterwards.
ULIPs have also shown its increased market-share, in the total insurance business.
ULIPs are also well managed by IRDA well, even in terms of ceiling of total charges
charged by Insurance companies. IRDA has established detailed guidelines with
explanation of the terms used in it. Finally Author says ULIPs performance can be

4
identified by its NAV and its growth, which could be the important variable for the
investors for their investment decision.

Keywords: Performance, NAV, Growth, Investment decision.

Mutual Fund VIS-a-VIS Ulips Kumar K. Raj, Lecturer, Commerce,

Government Degree College, Jammikunta, Dist: Karimnagar,
Andhra Pradesh
Here The Author says that ULIPs are largely investment Among all retail Investors, and
also the author perception is like the money enters the market through ULIPs than
through pure investment products like Mutual Fund. ULIP distinguishes itself through
multiple benefits to the consumer, their is quite similar in terms of their Structure and
functioning when compare to Mutual Fund but they are different in terms of investment,
Expense Ratio, Risk and Return and the study was conducted to evaluate the
performance of both selected schemes of Mutual Fund and ULIPs in India. The study
was based on secondary data covers a 5 years for evaluating the schemes . and it
concluded that Mutual Funds are given Better opportunity to small investors in terms of
return and Mutual Fund Become best alternative investment as per author Research.

Keywards: Expense Ratio, Risk and Return, ULIPs, Mutual Fund.

Prasath.R.H “A study on Analysis of the performance of mutual fund

with reference to HDFC” Anna University, Chennai.
The author emphasizes the core values of mutual fund investment, benefits of mutual
funds and types of mutual funds and before choosing the mutual fund scheme, the
investor should undergo fact sheet thoroughly and he has to choose the best one by
calculating Sharpe Ratio, Treynor’s Ratio, Jensen Ratio, IR Ratio and NAV calculation.
If the investor finds difficulty of getting Rp, Rf, Standard deviation, and Beta
parameters, NAV calculations are the best alternative to assess the performance.

Siddiqui “ Indian Life Insurance Sector: An Overview”

5
The author has observed the status of Indian life insurance sector and also studied
various economic indicators related to life insurance companies. This report has been
based on the secondary data available. From the research report, the author says that
life insurance sector in India has enlarged by more than twice after the formation of
IRDA. It is also observed that LIC is losing its market share in favors of new entrants
or private companies. While analyzing the data of various countries, a clear picture
has emerged that developed countries have higher rate of insurance penetration
whereas developing and under developed nations have relatively lesser rate of it.
Being the largest insurance company in India, It is obvious that LIC has the largest
strength of insurance agents. It is further seen that LIC is well ahead of private
insurers in terms of premium collected. It is worth noticing that all private companies
suffered huge losses, but again, only LIC earned profits.The author also gives few
suggestions to improve the life insurance sector in India. These include improvement
of insurance density and penetration in India, consumer awareness campaigns,
requirement of more extensive market research, awareness amongst policy holders
regarding their rights and obligations, grievance redressal etc. duly supported by
statistics and data in his report.

Krishnamurthy “The ULIP Puzzle”

The author talks about a common debate if it is better to have one product that does
many things or have many products that do one thing each. For long, people
considered life insurance a multi-function product: it covered your life, it worked as a
taxsaving scheme, and it was a savings instrument, but it isn’t. There is a debate if
ULIPs are mutual funds or insurance products. Because ULIPs are offered by life
insurance companies, they are treated largely as insurance plans. However, there are
calls for ULIPs to be treated at par with mutual funds, and regulatory changes seem to
be levelling the playing field. For instance, after a recent move by the Insurance
Regulatory and Development Authority (IRDA), the premium on pure risk term plans
has come down by 40%. Lower insurance premiums mean more money for
investment. That's definitely good news for investors, because an insurance agent gets
a higher commission than a fund distributor, his commission will reduce due to this.
Lack of knowledge among investors is a big problem in case of ULIPs. To check

6
mis-selling, IRDA has insisted upon 15 days free look up period and also providing
the investors a policy illustration with a 6% and 10% return, standardising all charges
across insurers, and a sales guideline that every agent had to follow. One of the great
advantages ULIPs have over traditional insurance is the flexibility of switching within
plans. The author tells about four common mistakes by ULIP investors: they treat it as
investment, not insurance, for short term planning, by ignoring charges and partial
withdrawal.

Research Problem Statement:

In view of above scope, The Research Problem is defined below:

Factors impacting investor behaviour towards Mutual Fund vs ULIP

Objective of the Study:

The Research Objective is below:

Decision making of the investor towards purchasing of Mutual fund vs ULIP.

Need Of the study:

 To Know Diversification Of Mutual Funds to ULIP’s (LTCG)

 To identify the investor perception towards ULIP’s and Mutual Fund

 To know which Alternative form of investment best.

Methodology of study:

Study and Sample:

7
The study was empirical in nature, survey method was used to collect the data, The
population was those who are above 23 age and who is working in corporate is
considered for collection of data and sample size is 50 including Male and Female.

Tools Used For Data Collection:

-Questionnaire{Google Form}

Limitation of the study:

 Data which we have collected through survey is not adequate for the research.

 The analysis is done through primary data, the result out come is not that
accurate.

 The research is conducted in Shorter span of time.

8
 PROFILE AND COMPANY PROFILE:

Right Horizons was founded by Mr. Anil Rego in 2003 as a Wealth Management firm.
The company has over 13 years of market presence for wealth advisory & Financial
Planning services, It caters to the needs of more than 900 customers & proud to retain
90% of the first year customers even till date.Over Rs 800 Cr. Assets under
management , 6 branches, 75+ employees, Expertise in Financial Planning and
specialized service to HNIs, Extensive Media coverage.

Regular contributors to Finance Magazines /news papers on investor educative

topics.Highly Technology driven with own CRM and IT systems since inception &
currently heading towards paperless office RH Research services has a global reach
with the entities like Bloomberg, Capital IQ , Researchbytes.com and FactSet using
the research reports.

Our Vision & Mission:

To become one of the top 5 Wealth Management Companies in India

and to achieve this by:

Guiding our customers in achieving their dreams by planning for each of their needs
& goals

Helping customers achieve the best risk adjusted return

Providing delightful customer service and with integrity

By working with Vendors as partners

By creating an environment of learning and growth for our employees

9
And, Contributing our might to society

Right Horizons Organizational Structure

Our quality policy:

Achieving financial goals of customers with TRUST

 Transparency and Integrity:

 Unbiased advice

 Service

10
 Timely delivery

Service offering of Right Horizons to families:

 Business planning Corporate Advisory Services : Right Horizons approach to

business planning covers a range of advisory and investigative services. Most of
the deals we handle involve a business plan to support a company's strategy
whether this involves expansion, acquisition or even recovery from difficult
situations.

 Portfolio advisory : Right Horizons help with retirement, managing taxes on

investments, comprehensive wealth management, or other goals, they help.
Through Wealth Services.

Consulting:

 Advise on model portfolio Monitoring & tracking Diversification Tax Position

 Real Estate

 Individual Real estate Consulting & Advisory to Real Estate Funds

 Individual’s Financial Planning

 Corpus fund Planning

 Fund management Investment planning Tax planning

 Need based planning Planning based on investor life cycle & Comprehensive
planning

 Fund management Investment planning Tax planning

Financial Planning(End To End):

 Customized financial planning : Right Horizons process always begins with an

extensive analysis of current financial circumstances in light of goals, concerns,

11
 priorities and risk profile. The resulting financial plan then forms the basis for all
financial and investment decisions and establishes the key benchmarks for
measuring progress towards the goals. A comprehensive, fully-integrated
financial plan provides the essential blueprint for allocating resources effectively
and efficiently through coordinated strategies.

 Cash Flow Analysis : An examination of a cash inflows and outflows during a

specific period. The analysis begins with a starting balance and generates an
ending balance after accounting for all cash receipts and paid expenses during the
period

 Need Based Planning : Goal-based financial planning is a process to link what

you want out of life and the framework for financial decisions to help you reach
these dreams. Our process of comprehensively considering the various aspects of
your financial life leads to peace of mind for you and your family.

 Analysis of existing to proposed investments:

The Company will analyse the Existing investments Depending upon the Market
Condition and they will be changing the investment alternatives.

 Monitoring of the investments Thru Analyst Team:

To provide risk oversight of the teams hedge fund investments through the monitoring
and reporting of relevant risk analytics, funds’ metrics and qualitative analysis.
Alongside monitoring, the role requires the development and maintenance of the
investment risk systems framework

 Online Access:

The company provides online access to their clients For better Communication and to
clear the quires of their customer and also to give various suggestion

 Regular update on investments, Markets etc:

12
Right Horizons provides investors to look for the 'best' investment option, they want
which will earn them the maximum return with the least amount of risk

 Unbiased suggestion on products:

Right Horizons provide unbiased suggestions for investors to diversify their funds

 Assistance thru Auditor on Tax Filing , giving Capital Gain report:

Right Horizon perform auditing tasks under the guidance of senior auditor. They
identify and evaluate procedures and operating policies in tax-reporting processes and
verify that such procedures are in accordance with tax laws and regulatory guidelines.

 Profit booking and Product update as per risk level:

The company allocate the fund according to risk taking level of customer and they do
Profit Booking and financial Planning.

Financial Planning Process:

1. Tracking

 Tracking by Analyst

 Profit Booking/Exits

 New Opportunities

 Taxation/Capital Gains

2. Quarterly Meeting

 Update on Market

 Portfolio Review

13
 Action Item

3. Reports

 Customer Portal

 Weekly Report

 Monthly Report

4. Execution of Plan

 KYC norms

 Form Submission / Account setup

 Online access

5. Financial Planning Request

 By Email

 Social media

 Help desk/Phone/Reference

6. Explain Services

 Services detailing

 Explain Process

 Explain Fee Structure

7. Analysis

14
 Need Mapping

 Cash Flows

 Detailed Report

8. Data Gathering

 Filling of Questionnaire

Theoretical Frame work of the study:

MUTUAL FUND:

Genesis Of Mutual Funds:

It is said that Egyptians and Phoenicians sold their shares in vessels and caravans with
a view to spreading risk attached with risky ventures. Thus, the origin of the concept
of mutual funds dates back to the very dawn of commercial history. However, the real
credit of introducing the modem concept of mutual fund goes to the foreign colonial
government trust of London established in 1868. Therefore, a large number of
close-ended mutual funds were formed in the U.S.A in 1930’s followed by many
countries in Europe, the Far East and Latin America. In most of the countries, both
open and close-ended types of mutual funds were popular.

Investment trust companies set up on the West European model following

recommendations of central banking enquiry committee in the 1930’s were the
forerunners of Indian mutual funds.

15
In 1954, the committee on finance for the private sector, recommended mobilization
of savings of middle class investors through unit trusts. Stock markets in India
suffered a major set back in 1962 following Chinese aggression. To augment
resources for industrial growth, and to stabilize the stock markets, Unit Trust of India
(UTI) act was passed in 1963 and UTI became functional as the first mutual fond in
India in July 1964.

Mutual Fund Formation Process

To set up a Mutual fund, the following procedure is followed:

1. Approval of RBI/Central Government.

Banks seeking to sponsor Mutual funds require the approval of RBI under Indian
Banking Regulation Act. 1944. Public financial institutions or investment
organizations have to obtain clearance from central government for setting up a
mutual fond. Similarly state financial institutions seeking to sponsor mutual funds
require approval of the concerned state government.

2. Communication of Intention to SEBI

After obtaining the clearance from RBI/Central/State Government as the case may be,
a letter should be sent to SEBI conveying the sponsor’s intention to set up a Mutual
fond. The letter should be supported by details about the sponsor such as principal
line of business, the operational performance for the last five years, gross profit, net

16
profit, net wroth, net and gross block and its financial capacity to contribute to the
corpus of the trust and the paid up capital of the proposed asset Management
Company (AMC), the background of promoters of the sponsor (where the sponsor is a
company) and management pattern on the strength of the information furnished. If
SEBI is satisfied prima facie about the financial ability of the sponsor to set up a
mutual fond, an application form is issued.

3. Submission of application to SEBI

The application form has four parts where the applicant is required to famish
information about sponsor, trustees, AMC and the custodian. The sponsor(s) may be a
registered company, an all India financial Institution a state level financial institution
or a scheduled bank.

The sponsor should have a positive net worth and consistent track record of
profitability supported by audited balance sheet and profit and loss account for the last
five years and good reputation with banks and financial institutions.

The trusteeship function may be performed by a board of trustees, an existing

debenture trustee, bank or financial institution or by a trust company. The eligibility
of the trustees is examined with reference to the composition of board of trustees, 50
per cent of the members of the board should be independent outside members with no
affiliation with the sponsors or any of its subsidiaries. Further, a trustee should not be
a director/trustee in any other trust/company or a director of the AMC. The draft of
the trust deed and the names of trustees should be submitted to SEBI.

The AMC should be a registered Company with a minimum worth of Rs. 5 Crores,
with a sound track record of general reputation and fairness in business transactions.
The sponsors should hold at least 40 per cent of the equity capital of AMC. The AMC
may be a new company or existing company. The directors of AMC should be people
with at least 10 years of professional experience in the field of portfolio Management,

17
Investment Analysis, financial administration etc. At least 50 per cent of the directors
of AMC should be outside directors not connected with sponsoring Institution. The
custodian should be an Independent organization registered with SEBI and totally
delinked with sponsors, trustees and AMC. A custodian can function as custodian for
more than one organization. A sponsor cannot provide custodian service to any
Mutual fund sponsored by it but can provide custodian service for other Mutual funds.
SEBI will issue its approval for the trustees, AMC and custodian if it is satisfied that
they fulfill the established criteria.

4. Execution of Trust deed

After receipt of approval from SEBI, the draft trusts deed between the sponsor and the
trustees should be settled in consultation with the solicitors if necessary and executed.

5. Formation of AMC

Where the AMC function is to be performed by a new Company to be floated,

necessary steps should be taken for Incorporation of AMC.

6. Appointment of Custodian

The agreement between AMC and the custodian should be settled and executed.

7. Approval of SEBI for formal Authority

After the above formalities are completed, a formal application should be made to
SEBI in the “Application form for authorization” along with the application fee to be
specified by SEBI. SEBI shall grant authorization subject to compliance with certain
conditions as may be considered necessary.

8. Approval of SEBI

18
After the formal authorization is obtained, the Mutual fund should formulate the
scheme for investors’ subscription. Mutual funds sponsored by banks/financial
institutions will have to get their Schemes approved by RBI/Central Government.

How Mutual Fund Works:

Investor pools their money, to buy units of mutual fund, Later the fund manager
Channel and invests that fund in different securities of the market

Later assuming financial securities like stocks, Bonds and other securities and
generates the returns. Later the fund manager transfers the generated returns and
income to investor.

Types of Mutual Funds

19
1. Based on Asset class

 Equity Funds

These funds invest in stocks. These funds aim to grow faster than money market or
fixed income funds, so there is usually a higher risk that you could lose money. You
can choose from different types of equity funds including those that specialize in
growth stocks (which don’t usually pay dividends), income funds (which hold stocks
that pay large dividends), value stocks, large-cap stocks, mid-cap stocks, small-cap
stocks, or combinations of these.

 Debt Funds

A debt fund is an investment pool, such as a mutual fund or exchange-traded fund, in

which core holdings are fixed income investments. A debt fund may invest in
short-term or long-term bonds, securitized products, money market instruments
or floating rate debt. The fee ratios on debt funds are usually lower, on average,
than equity funds because the overall management costs are lower.

20
 Money Market Fund

These funds invest in short-term fixed income securities such as government bonds,
treasury bills, bankers’ acceptances, commercial paper and certificates of deposit.
They are generally a safer investment, but with a lower potential return then other
types of mutual funds.

 Hybrid Fund

A hybrid fund is an investment fund that is characterized by diversification among

two or more asset classes. These funds typically invest in a mix of stocks and bonds.
They may also be known as asset allocation funds.

2. Based on Structure

 Open ended funds

An open-end fund is a type of mutual fund that does not have restrictions on the
amount of shares the fund can issue. The majority of mutual funds are open-end,
providing investors with a useful and convenient investing vehicle.

 Closed ended Funds

A closed-end fund is organized as a publicly traded investment company by the

Securities and Exchange Commission (SEC). Like a mutual fund, a closed-end fund is
a pooled investment fund with a manager overseeing the portfolio; it raises a fixed

21
amount of capital through an initial public offering (IPO). The fund is then structured,
listed and traded like a stock on a stock exchange.

 Interval Funds

An interval fund is a non-traditional type of closed-end mutual fund that periodically

offers to buy back a percentage of outstanding shares from shareholders. Shareholders
are not required to sell their shares back to the fund.

3. Specialized Mutual Funds

 Sector Funds

A sector fund is a fund that invests solely in businesses that operate in a particular
industry or sector of the economy. Sector funds are commonly structured as mutual
funds or exchange-traded funds (ETFs).

 Index Funds

An index fund is a type of mutual fund with a portfolio constructed to match or track
the components of a market index, such as the Standard & Poor's 500 Index (S&P
500). An index mutual fund is said to provide broad market exposure, low operating
expenses and low portfolio turnover. These funds adhere to specific rules or standards
(e.g. efficient tax management or reducing tracking errors) that stay in place no matter
the state of the markets.

 Emerging Market Fund

An emerging market fund is a fund that invests the majority of its assets in securities
from countries classified as emerging. These countries are in an emerging growth
phase and offer high potential return with higher risks than developed market
countries.

22
 International Fund

An international fund is a fund that can invest in companies located anywhere outside
of its investors' country of residence. International funds differ from global funds,
which can invest in companies from any country in the world. International funds may
also be referred to as foreign funds.

 Global Fund

A global fund is a fund that invests in companies located anywhere in the world
including the investor’s own country. A global fund seeks to identify the best
investments from a global universe of securities. Global funds may also be passively
managed. A global fund can be focused on a single asset class or allocated to multiple
asset classes.

 Real Estate Fund

A Real Estate Fund is a Sector Fund which predominantly invests in securities which
are provided by companies which invest in real estate projects. In essence, it is
a fund which provides capital and investment which can be used by the real estate
company to develop properties.

Types Of Mutual Fund Schemes

There are different MF schemes to cater to the needs of investors whatever the age,
financial position, risk tolerance and return expectations. Whether as the foundation
of the investor’s investment program or as a supplement, Mutual fund schemes can
help him meet his financial goals. The funds are classified on the basis of structure,
objective, and other benefits.

23
1. By Structure

 Close Ended Schemes

Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called
close-ended schemes. You can invest directly in the scheme at the time of the initial
issue and thereafter you can buy or sell the units of the scheme on the stock exchanges
where they are listed. The market price at stock exchange could vary from the
scheme’s NAV on account of demand and supply situation, unit holder’s expectations
and other market factors. One of the characteristics of the close-ended schemes is that
they are generally traded at a discount to NAV; but closer to maturity the discount
narrows.

 Open-Ended Schemes

These schemes do not have a fixed maturity period. One deals directly with the
mutual fond for his investments and redemptions. The key feature is liquidity. One
can conveniently buy and sell your units at net asset value (NAV) related prices.

 Interval Schemes

These schemes combine the features of open-ended and close-ended schemes. They
may be traded on the stock exchange or may be open for sale or redemption during
pre-determined intervals at NAV related prices.

2. Investment Objective:

 Growth Schemes

24
They Aim to provide capital appreciation over the medium to long term. These
schemes normally invest a majority of their funds in equities and are willing to bear
short-term decline in value for possible future appreciation.

 Income Schemes

They Aim to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debenture. Capital
appreciation in such schemes is limited.

 Balanced Schemes

They Aim to provide both growth and income by periodically distributing a part of the
income and capital gains they earn. They invest in both shares and fixed income
securities in the proportion indicated in their offer document. In a rising stock market,
the NAV of these schemes may not normally keep place, or fall equally when the
market falls.

 Money Market Schemes

They Aim to provide easy liquidity, preservation of capital and moderate income.
These schemes generally invest in safer, short-term instruments such as treasury bills,
certificates of deposit, commercial paper and inter-bank call money. Returns on these
schemes fluctuate depending upon the interest rates prevailing in the Market.

3. Other Schemes

25
 Tax Saving Schemes

These schemes offer tax rebates to the investors under tax laws as prescribed from
time to time. This is made possible because the government offers tax incentives for
investment in specified avenues. For example, equity linked savings schemes (ELSS)
and pension Schemes.

 Special Schemes

This category includes index schemes that attempt to replicate the performance of a
particular index such as the BSE Sensex or the NSE 50, or Industry specific schemes
(which invest in specific industries) or sectoral schemes (which invest exclusively in
segments such as “A” group shares or initial public offerings).

Index fund Schemes are ideal for investors who are satisfied with a return
approximately equal to that of an index.

Sectoral fund Schemes are ideal for investors who have already decided to invest in a
particular sector or segment

Top 10 Large Cap Oriented Equity Funds (Regular):

Fund Name 1 - Year Returns 3 - Year Returns

Reliance Top 200 Fund 9.75% 14.26%

Reliance Vision Fund 6.40% 7.67%

HDFC Growth Fund 13.41% 12.74%

ICICI Prudential Focused 14.86% 12.12%

Bluechip Equity Fund

26
Invesco India Dynamic 13.85% 11.63%
Equity Fund

Top 10 Large Cap Oriented Equity Schemes (Direct):

Fund Name 1 - Year RETURN 3 - YEARS RETURN

Kotak Select Focus Fund 11.02% 15.55%

Invesco India Dynamic 15.57% 13.52%

Equity Fund

Reliance Top 200 Fund 13.47% 12.48%

HDFC Growth Fund 14.18% 13.45%

SBI Blue Chip Fund 13.38% 13.44%

UNIT LINKED INSURANCE POLICY

What is ULIP?
ULIP or Unit Linked Insurance Plan is a mix of insurance along with investment.
From a ULIP, the goal is to provide wealth creation along with life cover where the
insurance company puts a portion of your investment towards life insurance and rest
into a fund that is based on equity or debt or both and matches with your long term
goal. These goals could be retirement planning, children’s education or another
important event you may wish to save for.

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How does ULIP work?
When an investor makes an investment in ULIP, the insurance company invests part
of the premium in shares/bonds etc and the balance amount is utilized in providing an
insurance cover. There are fund managers in the insurance companies who manage
the investments and therefore the investor is spared from tracking the investments.

ULIPS allow you to switch your portfolio between debt and equity based on your risk
appetite as well as your knowledge of how the market is performing. It has been
noticed that many of the ULIP buyers do not have the time or adequate knowledge to
understand the mix they must keep between debt and equity and also when to make
the right switch. Therefore, if you are someone who has deep knowledge of how the
fluctuation of interest rates and equity returns work – this may be the product for you.
Also, it is wiser to invest in a ULIP with a long term horizon, of at least 10 years.

Lock-in-period of ULIP

One of the changes brought about by the Insurance Regulatory and Development
Authority of India (IRDAI) in the year 2010 as regards ULIPs was to increase the
lock in a period from 3 years to 5 years. However, insurance being a long-term
product, an investor may not really reap the benefit of the policy unless he holds it for
the entire term of the policy which can range from 10 to 15 years.

Benefits of ULIP

 Life cover:

First and foremost, ULIPs offer a life cover coupled with investment. If offers
security that a taxpayer’s family can fall back on in case of untimely death of the
taxpayer.

 Income tax benefits:

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Not many are aware that that premium paid towards a ULIP is eligible for a deduction
under Section 80C. Additionally, the returns out of the policy on maturity are exempt
from income tax under Section 10(10D) of the Income-tax Act

 Finance Long Term Goals:

For long-term goals like buying a house, a new car, marriage, etc ULIP is a good
option as the money gets compounded. As a result, the net returns are generally more
even if you want to exit after the 5 year lock-in period in comparison to not having
invested the amount at all and retaining it in a savings account or in the form of an FD.
Further, under ULIP, the mantra is always to keep the policy going for a longer time
horizon to reap the best out of it.

 Flexibility of a portfolio switch:

As already mentioned earlier, ULIPS are usually designed in a way that they allow
you to switch your portfolio between debt and equity based on your risk appetite as
well as your knowledge of how the market is performing. Insurance companies allow
a few numbers of switches free of cost.

Types of ULIPs:
ULIPs are categorized based on the following broad parameters:

A.Funds that ULIPs invest in:

Equity Funds:

Where the premium paid is invested in the equity market and thereby its riskier .

Balanced funds:

Where the premium paid is balanced between the debt and the equity market to
minimize the risk for investors.

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Debt Funds:

Where the premium is invested in debt instruments which come with a lower risk but
also a lower return.

B. End use of Funds

i. Retirement Planning:

For those who plan to invest for their retirement days while they are employed.

ii. Child Education:

Investment made with a long-term goal of saving to fund a child education would
come to one’s rescue during unforeseen circumstances.

iii. Wealth Creation:

Investment made to build a heavy corpus to be utilized for a financial goal.

C. Death benefit to Policy Holders

i. Type I ULIP:

Which pays higher of the assured sum value or the fund value to the nominee in case
of death of the policyholder.

ii. Type II ULIP:

Which pays the assured sum value plus the fund value to the nominee in case of death
of the policyholder.

Myths and Facts about Mutual fund:

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Myths:

 MF are for experts

 MF investments are only for long term

 One needs to have Demat A/C to invest in MF

 One needs to have large amount of money to invest in MF

 A scheme with higher NAV has reached its peak!

 Buying a top-rated MF scheme ensures better return

 Investing MF is same as investing in stock market

Facts:

 Any layman can invest in MF.

 MF can be of short term or long term based on investment goal.

 Demat account is optional to hold MF expect for ETF.

 Absolutely wrong, one can start to invest in MF with minimum of Rs.500.

 This is a very common misconception because of associating the same concept

with shares.

 Past performance does not guarantee better returns in future.

 MF invests not only in stock market but also in debts, bond and other money
market instruments.

COMPARISON BETWEEN ULIPS AND MUTUAL FUNDS:

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Particulars ULIPs Mutual Funds

Nature Investment cum insurance Pure Investment product

product

Withdrawal Only after lock-in-period of Can be withdrawn anytime

5 years

Switching Alternating between funds Switching is permitted between

is permitted and not subject schemes of the same fund house.
to taxation. However, it’s treated as a
redemption and the resulting capital
gains are taxable.

Charges Mortality charges, No entry load, the annual fund

premium allocation charge, management charge and an exit load,
fund management charge if applicable.
and administration charges

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Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual
funds in terms of their structure and functioning. As is the cases with mutual funds,
investors in ULIPs are allotted units by the insurance company and a net asset value
(NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar
to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced
funds and debt funds to name a few. Generally speaking, ULIPs can be termed as
mutual fund schemes with an insurance component.

However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs

Points of difference between Two:

1. Mode of investment/ investment amount:

Mutual fund investors have the option of either making lump sum investments or
investing using the systematic investment plan (SIP) route which entails commitments
over longer time horizons. The minimum investment amounts are laid out by the fund
house. ULIP investors also have the choice of investing in a lump sum (single
premium) or using the conventional route, i.e. making premium payments on an
annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium
paid is often the starting point for the investment activity.

This is in stark contrast to conventional insurance plans where the sum assured is the
starting point and premiums to be paid are determined thereafter.

ULIP investors also have the flexibility to alter the premium amounts during the
policy's tenure. For example an individual with access to surplus funds can enhance
the contribution thereby ensuring that his surplus funds are gainfully invested;
conversely an individual faced with a liquidity crunch has the option of paying a

33
lower amount (the difference being adjusted in the accumulated value of his ULIP).
The freedom to modify premium payments at one's convenience clearly gives ULIP
investors an edge over their mutual fund counterparts.

2. Expenses:

In mutual fund investments, expenses charged for various activities like fund
management, sales and marketing, administration among others are subject to
predetermined upper limits as prescribed by the Securities and Exchange Board of
India.

Insurance companies have a free hand in levying expenses on their ULIP products
with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory
and Development Authority. This explains the complex and at times 'unwieldy'
expense structures on ULIP offerings. The only restraint placed is that insurers are
required to notify the regulator of all the expenses that will be charged on their ULIP
offerings.

Expenses can have far-reaching consequences on investors since higher expenses

translate into lower amounts being invested and a smaller corpus being accumulated.
ULIP-related expenses have been dealt with in detail in the article "Understanding
ULIP expenses"

3. Portfolio disclosure:

Mutual fund houses are required to statutorily declare their portfolios on a quarterly
basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity
to see where their monies are being invested and how they have been managed by
studying the portfolio.

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There is lack of consensus on whether ULIPs are required to disclose their portfolios.
During our interactions with leading insurers we came across divergent views on this
issue.

Some insurance companies do declare their portfolios on a monthly/quarterly basis.

However the lack of transparency in ULIP investments could be a cause for concern
considering that the amount invested in insurance policies is essentially meant to
provide for contingencies and for long-term needs like retirement; regular portfolio
disclosures on the other hand can enable investors to make timely investment
decisions.

4. Flexibility in altering the asset allocation:

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment
are largely comparable. For example plans that invest their entire corpus in equities
(diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced
funds) and those investing only in debt instruments (debt funds) can be found in both
ULIPs and mutual funds.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a
debt from the same fund house, he could have to bear an exit load and/or entry load.

On the other hand most insurance companies permit their ULIP inventors to shift
investments across various plans/asset classes either at a nominal or no cost (usually,
a couple of switches are allowed free of charge every year and a cost has to be borne
for additional switches).

Effectively the ULIP investor is given the option to invest across asset classes as per
his convenience in a cost-effective manner

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This can prove to be very useful for investors, for example in a bull market when the
ULIP investor's equity component has appreciated, he can book profits by simply
transferring the requisite amount to a debt-oriented plan.

5. Tax benefits:

ULIP investments qualify for deductions under Section 80C of the Income Tax Act.
This holds well, irrespective of the nature of the plan chosen by the investor. On the
other hand in the mutual funds domain, only investments in tax-saving funds (also
referred to as equity-linked savings schemes) are eligible for Section 80C benefits.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for
example diversified equity funds, balanced funds), if the investments are held for a
period over 12 months, the gains are tax free; conversely investments sold within a
12-month period attract short-term capital gains tax @ 10%.

Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a
shortterm capital gain is taxed at the investor's marginal tax rate.

Despite the seemingly similar structures evidently both mutual funds and ULIPs have
their unique set of advantages to offer. As always, it is vital for investors to be aware
of the nuances in both offerings and make informed decisions.

36
Best ULIP’s in India 2018:

ULIP Plan Entry Age Minimum Premium Policy No of Free

Premium Allocation Admin Switches in
Charges Charges A year

Aegon Life 7 to 55 Rs. 24000 Nil Rs. 100 per 4

I Maximise years to Rs. month
Secure Plan 36000

Bajaj 1 to 60 Rs. 25000 0% to 1.5% Rs. 33.33 Unlimited

Alliance years per Month
Future Gain

PNB Met 7 to 70 Rs. 30000 1.25 Per Rs. 40 4

Life Smart years to Rs. Annum (Max)
Platinum 60000 (maximim)

MAX Life 18 to 50 Rs 25000 to 2% (Single Rs. 1500 12

Fast Track years Rs. 100000 Premium) per year
Growth to 4%
Fund (Annual
Premium)

SBI Life 8 to 65 Rs. 50000 3% of Rs. 45 per 2

Wealth Years single month

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 Assure Premium

Impact Of LTCG:

The Budget 2018 has changed how long-term capital gains tax on equity mutual funds
will be levied from April 1, 2018. Here’s how the new tax regime will apply to
individuals:

1. Long Term Capital Gain On equity Mutual Fund:

investors, who invested in equity mutual funds and sold them after holding them for
more than a year, paid zero LTCG tax. In this year’s budget, the government has
proposed a 10 per cent LTCG tax on gains made above Rs 1 lakh per annum.

2. The budget talks about grandfathering in LTCG. What does that mean?

The grandfathering clause is the exemption granted to existing investors for gains
made by them before the new tax law came into force. The government has done this
to ensure that investors who have committed money keeping in mind the easier tax
regime are protected. As per the new laws, the government has said that gains made in
equity-oriented mutual fund schemes till January 31, will be grandfathered or
exempted. There will be no LTCG tax on notional profits on mutual funds till then.

Competitors of Right Horizons

Water Field Advisory :

They are India’s Leading Multi-Family Office & BoutiqueAdvisory Firm Waterfield
recognises that clients are dealing with multiple issues around the creation and
preservation of wealth, their desire to create lasting legacies and to ensure good
governance standards. Our role as their trusted advisor is to help them navigate
through these complex issues. We are a team of dedicated professionals, working
solely for the benefit of the families that we represent. ”

38
Sanctum Wealth Management Private Limited :

They are wealth management firm, provides wealth management solutions for high
net worth individuals. It offers investment solutions, such as equities, fixed income,
mutual funds, alternative investments, structured products, derivatives, and tailored
discretionary mandates, as well as portfolio management, execution and depository,
and advisory services; wealth planning services that include wealth transmission,
succession, protection, and preservation; and real estate services. Sanctum Wealth
Management Private Limited was formerly known as The Royal Bank Of Scotland
N.V. (India) and changed its name to Sanctum Wealth Management Private Limited.

Avendus :

Avendus Wealth Management focuses on providing its customers customized

investment solutions in equity, fixed income, real estate and alternate investment
classes. As a market-first, Avendus Wealth Management is the one of the earliest
wealth management firm to have taken client exposure in Micro Finance securitised
debt products. The team currently provides investment advice to 140 High Net Worth
families in India and in the USA.

L&T Finance Holding Ltd.:

L&T Finance Holdings Ltd. (LTFH) is a financial holding company offering a

focused range of financial products and services across rural housing and wholesale
finance sectors as well as mutual fund products and wealth management services
through its wholly-owned subsidiaries viz. L&T Finance Ltd. L&T Housing Finance
Ltd. L&T Infrastructure Finance Company Ltd. L&T Investment Management Ltd.
and L&T Capital Markets Ltd. LTFH is registered with RBI as a CIC-ND-SI. LTFH
is promoted by Larsen & Toubro Ltd. (L&T) one of the leading companies in India
with interests in engineering construction electrical & electronics manufacturing &
services IT and financial services.LTFH's wholesale finance business comprises
infrastructure finance structured corporate finance and supply chain finance. The
company also offers debt capital markets services as part of its wholesale finance
business segment. The company's housing finance business comprises home loans and

39
loans against property and real estate finance. The company's rural finance business
comprises farm equipment finance two wheeler finance and micro loans.

Centrum Wealth Management:

Centrum is a diversified financial services organization with deep experience in

financial markets. It has expertise across the Equity & Debt spectrums with
capabilities in Equity Capital Markets, M&A Advisory, Corporate Finance &
Advisory, Primary & Secondary Debt Placement, Project Finance and Corporate Debt
Restructuring. Its retail arm provides integrated solutions for Private Wealth
Management, Stock Broking, SME & Housing Finance.

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