Comparitive Analysis of Ulips and Mutual Funds
1. INTRODUCTION
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
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
References: 1. Anirudh Lasker(2010) “Budget signals higher returns on ULIPs”,[ available at” http://www.livemint.com/2010/02/28233434/Budget-signals-higher-returns.html] 2 3. Carther,S.(2003) “Socially (Ir)responsible Mutual Funds”, [available at” http://www.investopedia.com/articles/mutualfund/03/031903.asp] 4 5. Deepak Shenoy (2007) “ULIPs lower management fees must be matched by performance”, [available at “http://blog.investraction.com/2007/04/ULIPs-lower-management-fees-must-be.html] 6 7. George D. Lambert (2010),“ Using Mutual Funds To Profit From Market Dips”,[available at” http://www.investopedia.com/articles/mutualfund/07/against_the_market.aspJ Hari 8 9. J Rathore,(2005) “4 reasons why ULIPs make sense”,[available at” http://www.rediff.com/money/2005/apr/05perfin2.htm] 10. Kartik Jhaver(2007) “Investing in ULIPs? Careful!” ”,[available at” http://www.rediff.com/money/2007/feb/02perfin.htm] 11. Loth,R.(2007) “5 Ways To Measure Mutual Fund Risk”, [available at” http://www.investopedia.com/articles/mutualfund/112002.asp] 12 Singh,R.(2009) “Mutual Funds or ULIPs: Which one is a better deal?”, [available at” http://www.sharegyan.com/investment-gyan/mutual-funds-or-ULIPs-which-one-is-a-better-deal-66/ ] 13