Comparitive Analysis of Ulips and Mutual Funds

Topics: Mutual fund, Investment, Hedge fund Pages: 58 (14666 words) Published: March 20, 2011

1.1 Theoretical Foundation

The financial service sector has undergone a complete transformation during the last decade, since the liberalization process began. In particular the most dramatic change has occurred in the Mutual Fund industry and in the insurance industry. There has been a distinctive change both in the quality and the range of products being offered by the various Suppliers (Asset management companies, AMCs) and insurance firms. Both the industries were a monopoly for a long time.

However since the entry of new public as well as private players, the Indian consumers are being offered the best and the choicest of products foreign players have also changed the complete scenario of both of the industries whether it is the Mutual fund or the Insurance. The bullish run of the stock market has certainly helped the industry, but it is not the only factor behind the industry’s success.

Today, Consumers (investors) have realized the opportunity cost of keeping their fund idle. They are looking for better returns from their investments. Mutual funds and ULIPs both provide a safe way for investing along with better returns from their investments. Mutual fund presents a safe way of investing along with other advantages such as liquidity, transparency of functioning and professional management. At the moment, mutual funds have reached a level of popularity where they are replacing traditional avenues such as bank, trust and post office deposits. Though still at a nascent stage, Indian MF industry offers a plethora of schemes and serves broadly all type of investors. The range of products includes equity funds, debt, liquid and balanced funds

On the other hand ULIPs have gained high acceptance due to attractive features they offer like flexibility, fund optioning, transparency and liquidity. Till recently, individuals seeking to provide protection to their family had no other option except a life insurance term plan. The plan promised a stipulated amount to the family of policyholder in the event of his death.

However, the insurance sector has evolved over the last few years and a number of innovative products have hit the market and ULIP is one product category that is increasingly catching the fancy of individuals. ULIP a combination of insurance and investment, provide the policyholder with life cover and additionally offer the opportunity to earn a return on the premium paid. The idea of having insurance and investment conveniently rolled into one product looks alluring enough and saves the common investor the time and effort to consider different options. However, an investor may build a customized solution for himself separating insurance from his investment needs.

1.2 Evolution of Subject


Mutual funds are money-managing institutions set up to professionally invest the money pooled in from the public. These schemes are managed by Asset Management Companies (AMC), which are sponsored by different financial institutions or companies.

Each unit of these schemes reflects the share of investor in the respective fund and its appreciation is judged by the Net Asset Value (NAV) of the scheme. The NAV is directly linked to the bullish and bearish trends of the markets as the pooled money is invested either in equity shares or in debentures or treasury bills. Indian Mutual Funds unveils this multi-dimensional avenue, with its intricacies, in a fashionable manner as mutual funds up-hold ample scope of generating decent returns by some thoughtful investment.

The concept: A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in...
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