West Bengal University of Technology

Summer Project Report

Comparative Analysis of Reliance ULIP Funds

At

By

Saikat Nandy

WBUT Registration No: 141360710087 of 2014-2015

WBUT Roll No: 13600914087

Army Institute of Management

Kolkata

DECLARATION

I hereby declare that this Project Report entitled Comparative Analysis of

Reliance ULIP funds submitted by me to the Army Institute of

Management Kolkata, is a bonafide work undertaken by me under the

guidance of Mr. Ankur Das, ULIP Sales Manager at Reliance Life Insurance

and Prof. Rajib Bhattacharya, faculty of AIMK and it is not submitted to any

other University or Institution for the award of any degree or diploma /

certificate or published any time before.

Signature

[Saikat Nandy]

ACKNOWLEDGEMENT

First of all I would like to acknowledge our indebted to our Director Maj Gen

(Dr) SC Jain, VSM**(Retd) for his valuable guidance and consistent

supervision throughout the course.

I am also thankful to Mr. Ankur Das, Company Guide of Reliance Life

Insurance Company LTD, Kolkata, for his valuable guidance for preparing

the Final Report and also for providing the necessary facilities.

I am extremely thankful to Prof. Rajib Bhattacharya, Faculty Guide of

Army Institute of Management, Kolkata for their timely guidance and

support throughout the project work.

Finally I am indebted to our other faculty members, my friends and my

parents who gave their full-fledged co-operation for successful completion

of my project.

It was an indeed learning experience for me.

Saikat Nandy

Table of Contents

Authorization

Certificate from Guides i

Declaration by the Student ii

Acknowledgements iii

Executive Summary iv

1. Introduction

1.1 Company Profile .………………………………....................................1

1.2 Objectives of the Study …………………………………………………..3

1.3 Scope, and Limitations ………………………………..………………....3

2. Methodology

2.1 Data collection ……………………………….…………………………...5

2.2 Data Analysis and interpretations…………………..…………………...9

3. Findings and recommendations

3.1 Results ……………………..……………………………………………..23

3.2 Conclusions ...………………..…………………………………………..24

3.3 Recommendation ……………..………………………………………... 25

Appendices & Annexure …………………………………………………..26

References ...…………………………………………………………………46

EXECUTIVE SUMMARY: The project is basically towards conducting a comparative performance

analysis of ULIP funds, the ULIP funds are basically similar to mutual funds

scheme but the only difference in ULIP is that it has an insurance cover

attached with it to protect the investor from uncertainties.

In this project an attempt has been made to present a clear picture of the

risk and return aspects of the ULIP funds. The project includes different

benchmark analysis to begin with, in order to attract investors it is of critical

nature that the investor’s perception and the sentiments are kept intact. So,

in order to do that certain benchmark analysis is presented in this project

which is very common to investors, these benchmark analysis is presented

with the motive of capturing the investors’ attention and to indulge them in

investing in these ULIP funds.

The problem that this research project is trying to address is the problem of

choice, which fund to select and which fund to reject. Now this choice is

entirely up to the investor how he or she would like to create their own

portfolio which will help in diversification of risk and maximisation of return.

To address this basic problem the ULIP funds are analysed from numerous

technical standpoints which will help the investor in identifying the accurate

fund for him or her.

The methodology used in this project is the technical analysis comprising

of volatility test then differentiating the volatility into good and bad volatility

.After trimming out the harmful volatility from general volatility certain

minimum accrued returns are targeted which acts as the threshold limit.

Tests are conducted based on it to analyse the performance of these funds.

The analysis is conducted for five selected ULIP funds which are selected

randomly from given array of funds, the number of funds is restricted to five

funds because of the design of the Reliance ULIP plans which restricts an

investor to only five funds at a time, the data is analysed for every quarter

in last twenty four months. The time period is also restricted due to the

inconsistency of funds over a period of time.

Since this project is only acting as a guidance tool for a ULIP investor,

certain recommendations related to certain specific fund is mentioned over

here which includes conditions and results that are followed if that particular

fund is added to a portfolio or in other words every fund is analysed in such

a way so that by just going through this project the ideal investor can gather

enough expertise on whether to actually select the particular ULIP fund or

not and whether to add it in his or her portfolio or not.

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1. INTRODUCTION

1.1 COMPANY PROFILE:

Reliance Life Insurance Company (RLIC) is one of the largest life

insurance companies in India with a market share of 5%. The company has

over 7 million policy holders and a distribution network of close to 1,230

branches with over 124,000 agents as of 31 March 2013. The firm offers

life insurance products targeted at individuals and groups, catering to four

distinct segments: protection, children, retirement and investment plans.

Reliance Life Insurance is amongst the top 5 private sector life insurance

companies in terms of individual WRP (weighted received premium) and

new business WRP. The company is by far the largest non-bank supported

private life insurer with over 10 million policy holders, a strong distribution

network of over 800 branches and over 1,00,000 advisors as on March 31,

2015. Claim settlement ratio stands at 91% as of June 30, 2015.

Rated amongst the Top 2 Most Trusted Private Life Insurance Service

Brands by Brand Equity-Nielsen Most Trusted Brands Survey 2014. The

company’s vision is “To be a company people are proud of, trust in and

grow with; providing financial independence to every life we touch.” With

this in mind, Reliance Life caters to five distinct segments, namely

Protection, Child, Retirement, Saving & Investment and Health; for

individuals as well as Groups/Corporate entities.

Reliance Life Insurance is a part of the Reliance Capital of the Reliance Anil

Dhirubhai Ambani Group and is one of the top five Private Sector Insurance

companies in terms of weighted received premium (WRP). In 2007, Japan’s

largest private sector insurance player, Nippon acquired 26% interest in

equity share capital of the company. Currently, with over 9 million

policyholders, over 900 branches in the domain and around 1,00,000

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insurance agents, Reliance Life Insurance is strongly and surely continuing

on a successful spree of satisfying its customers.

Reliance Life Insurance ULIP Plans

These are unit linked plans that provide you the security required for the

future of your loved ones as well as returns on your investments through

market-linking of funds. Here are a couple of such schemes by the

company.

Reliance Classic Plan II - The Classic plan comes with a life cover

as well as long-term investment option that is protected against any

uncertainties. The flexibility to choose and manage your funds is in

your hands. You get to avail life cover as well as market-linked profits

on your premiums paid.

Reliance Pay Five Plan - This is a unique investment plan that

allows you to generate a life cover as well as savings option with just

5 premiums to be paid in each policy year.

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1.2 OBJECTIVES OF THE STUDY

To understand the nature behaviour and structure of ULIP funds, by

analysing and comparing different ULIP funds.

To understand the perception of risk and return and how can returns

vary from one ULIP fund to another ULIP fund depending on the

nature of its risk, volatility and several variable factors.

To understand how the ULIP funds would perform, in terms of

returns, when pitched against each other for different benchmark

disciplines vis-à-vis NIFTY, NSE 100, NSE 200 and NSE 500

To understand, check and interpret the returns series and analyse

how this return series will perform against risk-free securities and

whether this fund is suitable for investors based on wide variety of

parameters.

1.3 SCOPE AND LIMITATIONS

SCOPE:

The scope of this project is limited i.e. the project includes analysis of NAV

data of selected ULIP funds and comparing them against certain standard

benchmarks like NIFTY, NSE 100, NSE 200 and NSE 500. The scope

includes the normality test of returns series based on data from twenty four

months for five ULIP funds.

The significant scope of this project is the computation and interpretation

part of the six ratios which are calculated, computation of Beta, Alpha,

Omega, Treynor, Sharpe and Sortino which help portray a clear picture of

the scenario from volatility clusters, threshold return, comparison between

different market & govt. securities and finally discriminating the harmful

volatility from general volatility.

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The scope of this project essentially highlights the features of risk and return

for the selected ULIP funds.

LIMITATIONS:

The limitations can be listed out as:

1. The project was limited to a time frame of twenty four months because

Reliance ULIP plans showed that the ULIP funds were shut down by the

company too often.

2. Based on the criteria of investment flexibility in Reliance Classic Plan II

our project is limited to only five funds.

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2. METHODOLOGY:

The entire methodology for the project includes computation of the six ratios

vis-à-vis Beta, Jensen’s Alpha, Treynor ratio, Sharpe ratio, Omega ratio and

Sortino.

The implications of these ratio is:

BETA : A measure of the volatility, or systematic risk, of a security or a

portfolio in comparison to the market as a whole. Beta is calculated using

regression analysis, and it can be considered as the tendency of a security's

returns to respond to swings in the market. A beta of 1 indicates that the

security's price will move with the market. A beta of less than 1 means that

the security will be less volatile than the market. A beta of greater than 1

indicates that the security's price will be more volatile than the market. For

example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the

market.

β = (Covariance of Market Return with Stock Return) / (Variance of Market

Return)

TREYNOR RATIO: the Treynor ratio is a risk-adjusted measure of return

based on systematic risk. It is similar to the Sharpe ratio, with the difference

being that the Treynor ratio uses beta as the measurement of volatility. Also

known as “reward-to-volatility ratio”, it can be calculated as:

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Where:

Treynor ratio,

Return,

Risk free rate

Beta

SHARPE RATIO: The Sharpe Ratio is the measure for calculating risk-

adjusted return, and this ratio has become the industry standard for such

calculations. It was developed by Nobel laureate William F. Sharpe. The

Sharpe ratio is the average return earned in excess of the risk-free rate per

unit of volatility or total risk. Subtracting the risk-free rate from the mean

return, the performance associated with risk-taking activities can be

isolated. One intuition of this calculation is that a portfolio engaging in “zero

risk” investment, such as the purchase of Treasury bills (for which the

expected return is the risk-free rate), has a Sharpe ratio of exactly zero.

Generally, the greater the value of the Sharpe ratio, the more attractive the

risk-adjusted return.

Sharpe ratio = (Mean portfolio return − Risk-free

rate)/Standard deviation of portfolio return

JENSEN’S ALPHA: The basic idea is that to analyse the performance of

an investment manager, the focus should not only be at the overall return

of a portfolio, but also at the risk of that portfolio. For example, if there are

two mutual funds that both have a 12% return, a rational investor will want

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the fund that is less risky. Jensen's measure is one of the ways to help

determine if a portfolio is earning the proper return for its level of risk. If the

value is positive, then the portfolio is earning excess returns. In other words,

a positive value for Jensen's alpha means a fund manager has "beat the

market" with his or her stock picking skills.

OMEGA RATIO: The Omega ratio is a relative measure of the likelihood of

achieving a given return, such as a minimum acceptable return (MAR) or a

target return. The higher the omega value, the greater the probability that a

given return will be met or exceeded. Omega represents a ratio of the

cumulative probability of an investment's outcome above an investor's

defined return level (a threshold level), to the cumulative probability of an

investment's outcome below an investor's threshold level. The omega

concept divides expected returns into two parts – gains and losses, or

returns above the expected rate (the upside) and those below it (the

downside). Therefore, in simple terms, consider omega as the ratio of

upside returns (good) relative to downside returns (bad).

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SORTINO RATIO: A modification of the Sharpe ratio that differentiates

harmful volatility from general volatility by taking into account the standard

deviation of negative asset returns, called downside deviation. The Sortino

ratio subtracts the risk-free rate of return from the portfolio’s return, and

then divides that by the downside deviation. A large Sortino ratio indicates

there is a low probability of a large loss.

It is calculated as follows:

2.1 DATA COLLECTION

Data are values of qualitative or quantitative variables, belonging to a set

of items. Data in computing are often represented by a combination of items

organized in rows and multiple variables organized in columns. Data are

typically the results of measurements and can be visualized using graphs

or images. The data related to the study is collected mainly from secondary

sources.

1) PRIMARY DATA

Since the study is based on secondary data, primary data is not considered.

2) SECONDARY DATA

Secondary data consists of periodical fund reports, publications, NAVs

indicator, files; obtained from different websites.

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2.2 DATA ANALYIS AND INTERPRETATION Funds taken into consideration: Life Corporate Bond Fund 2

With reference to Chart I, Chart VI, Chart XI and Chart XVI of ANNEXURE

BETA: The beta analysis for this fund in almost all the benchmarks shows

that returns from this fund is operating in the range of low to moderate risks.

The CNX NIFTY test results reveals that upto 2nd quarter the volatility is

rising to the point of 0.141 and the results of remaining six quarters is

observed with a steady fall in the volatility.

The CNX NSE 100 test results reveals that for the 1st two quarters we see

the beta is rising , again in the 3rd quarter period it is observed that the

beta fall by a some margin and remaining quarters fall by steady margin .

Even with these fluctuations it is observed that the beta is still operating at

a low to moderate risks level.

It is observed in CNX NSE 200 test that beta is operating in between 0.121

to 0.095, for the entire eight quarter which is considered a low to moderate

risks level.

The CNX NSE 500 operates within the risky zone of 0.131 to .095 which is

considered low risks level.

From this test we can say that our fund is very safe because we know that

in a beta test “0” means riskless and “1” means average risk. Now in the

two years data that we have taken we see a beta appearing 1st quarter is

0.13 and at high point 0.15 (approx) and end of the two years it is at .096.

So, it is safe to assume that our fund is quite safe as its low risk to moderate.

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TREYNOR: The second test for this fund will be the treynor ratio analysis

which will help us understand the reward to volatility ratio, the treynor

movements of this funds for all the benchmarks indicates a more or less

similar pattern i.e. the treynor initially is at a zero level or a negative level

and from there it reaches a higher positive value, this pattern is observed

in NIFTY, NSE 100, NSE 200 and NSE 500.

Now it is known that higher the treynor higher is the reward to volatility ratio,

it is observed that in Nifty benchmark the Treynor is maximised at the end

of eighth quarter with Treynor = 1.41 , similarly the NSE 100, NSE 200

and NSE 500 benchmark analysis revealed that at the end of eighth quarter

the Treynor is maximised.

SHARPE: The third test conducted was the computation of Sharpe ratio,

keeping NIFTY, NSE 100, NSE 200 and NSE 500 as benchmarks.

The Sharpe ratio in NIFTY showed us that for the first 12 months we see a

negative Sharpe ratio that is trying to reach “0” and at the end of 15 months

sharpe ratio become with an increasing trend.

Since, Sharpe is calculated on the basis of standard deviation and not on

the basis of volatility so it is natural that the graph of Sharpe ratio will be

similar in all the benchmark standards i.e. the graph that is generated in

NIFTY would be same graph generated in NSE 100, NSE 200 and NSE

500.

Thus the result of this test would indicate similar movements for all the

benchmarks.

The movements indicated in this test tell us that the risk adjusted return for

this particular fund is not at all sound, it is understood that with a low beta

or the low volatility ratio the expected return would be very less but still it is

observed that the returns generated from this fund is not at all up to the

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mark. The negative Sharpe indicates us that initially the returns generated

from this fund was very low compared to the risk taken, but gradually it is

observed that the Sharpe ratio curve is trying to move upwards to bridge

the gap and arrive at a positive value. By the end of 15 months it is seen

that Sharpe becomes positive and continues to show an increasing trend

for the remaining quarter i.e. the returns generated from this fund are finally

keeping up with the amount of risk that is initiated.

JENSEN’s ALPHA: The fourth test conducted was the computation of

Jensen’s Alpha, it will help in determining whether the performance of the

fund is earning proper return for its level of risk. A positive alpha would

determine that a particular fund is earning excess returns.

For this Life corporate bond fund 2 the curve derived from benchmark

analysis with CNX NIFTY, CNX NSE 200 and CNX NSE 500 resulted in a

similar movement pattern. The movements in NIFTY ,CNX 100 ,CNX 200

and CNX 500 indicates us that the returns from this fund is justified with the

amount of risk that is taken, or the fund is giving excess reward in terms of

return compared to the benchmark markets. The alpha in all of these

benchmarks show that the fund is continuously trying to improve its

performance in every single quarter that we have tested.

OMEGA: The fifth test includes the Omega computation, this test result will

demonstrate whether the returns are above or below threshold.

The Omega curve demonstrates a downward trend for the two continuous

quarters, a landslide movement is exhibited in this test for straight

6months.The downward trend is an indication that the returns generated

are getting close to a specific threshold value and the fund is not performing

at a desired level. The performance of this particular fund in the first two

quarters is poor, the perception of an investor would be always to attain

returns above threshold.

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For the next 6 quarters the fund is trying to come out the downward trend

and move towards a greater omega ratio, ensuring a return above the

threshold. The beginning of the 6th month it is seen that the fund’s omega

ratio has stopped falling and is trying to move in upward direction, aiming

for a higher omega value.

SORTINO: The sixth test conducted was the sortino test, sortino is a

measure for identifying the downward deviation in the returns series, a

higher value will ensure that risk of having a significance loss will be much

less.The CNX Nifty benchmark analysis shows us that the 6th to 12 months

sortino was negative, remaining quarter the sortino showed a growth

pattern to make more than zero. The CNX NIFTY 100, CNX NIFTY 200 and

CNX NIFTY 500 showed a similar movement pattern that is observed in

CNX NIFTY benchmark test .The formula does not penalize a portfolio

manager for volatility, and instead focuses on whether returns are negative

or below a certain threshold. The mean in the Sortino ratio formula

represents the returns a portfolio manager is able to get above the return

that an investor expects.

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Life Energy Fund 2

With reference to chart II, chart VII, chart XII and chart XVII of ANNEXURE

BETA: The beta for this Life Energy Fund 2 appeared to be high risky for

all the benchmarks.

The CNX NIFTY benchmark showed that for the 1st two quarters there is a

steady growth of beta upto 0.78, then there is a slightly fall in 3rd quarters,

after 3rd quarter there is an upwards increasing of beta upto 7th quarters

make it beta 0.91, which consider high risky. By end of final quarter of 2

years there is a slightly fall in beta and end it at 0.893.

The movements observed imply that the operating region of this beta is very

limited in this benchmark, the beta fluctuates in between 0.78 to 0.91, this

indicates that the volatility of this particular fund is of high risk because it is

close to 1 and “1” implies risky .

The next benchmark is CNX NSE 100, it is observed that in this benchmark

analysis also the operating range for the beta is tight like the previous

benchmark i.e. the fluctuations are in between 0.81 to 0.92.

The movements observed in this discipline states that the volatility is high

and the returns from this fund is of high.

The CNX NSE 200 benchmark analysis reveals same movement observed

like CNX NIFTY, 1st two quarters there is a growth and make it 0.83, after

that there is slightly fall. In 4th quarters growth increase of beta is quite high.

After 4th quarter growth of beta is steady up to 7th quarter .The final quarter

is observed that there is slightly fall of beta to make it 0.94.

This movement in this particular benchmark indicates that the fund is

moving in High Risks.

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The CNX NSE 500 benchmark again showed a movement pattern similar

to the first three benchmark analysis.

The entire beta analysis of this fund with respect to the market disciplines,

it is observed and noted that this particular fund has a beta that is operating

in the High Risk region.

TREYNOR: The second test for this fund will be the treynor ratio analysis

which will help us understand the reward to volatility ratio, the treynor

movements of this funds for all the benchmarks indicates a more or less

similar pattern i.e. the treynor initially is at a zero level or a negative level

and from there it reaches a higher positive value, this pattern is observed

in NIFTY,CNX 100, CNX 200 and CNX 500 all of them start at -.001, but

there is a fall in 2nd quarter . At the end of 3rd quarter its reaches towards

positive value.There is a steady increase and at the end of final quarter the

ratio is 0.38 approx.

SHARPE: The next test conducted was the Sharpe ratio, as it is known that

Sharpe ratio doesn’t take into consideration the volatility factor and solely

relies on the standard deviation so it is expected that the Sharpe will show

a similar movement pattern in all the benchmarks.

The CNX NSE NIFTY, NSE 100, NSE 500 showed a similar movement that

is the Sharpe was initially in the negative zone for first three quarters

gradually it moved towards zero, in between the 9th and 15th month the

Sharpe in all of the above mentioned benchmark moved upwards of zero

and in 6th quarter there is slightly fall but the remaining quarters it kept on

moving up.

JENSEN’s ALPHA: According to the graph in annexure observed that

Nifty, CNX 100 & CNX 200 movement of the alpha are quite similar trend,

there is a fall in 2nd quarter, but alpha remain above zero and after then

movement of trends is toward upwards. In Case of CNX 500 , there is a fall

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in 2nd quarter and it become negative, but suddenly from 3rd quarter

onwards upwards trends is observed which continue till the end.

OMEGA: The results of this test were quite similar in all the benchmarks

because the beta factor is not coming in play here so it is assumed that for

all the disciplines we have a consolidated omega graph. Now since omega

measures returns which are above threshold (the threshold is assumed to

be the G sec return), so we see a quite supportive omega graph. The

omega fall in the 2nd quarters, the next three quarters is observed with

movements towards upward trend. Remaining quarter between the 15th and

24st month period, the movement is towards down A higher omega

indicates a higher return compared to the threshold, the returns from this

fund is quite standard as it is not going below the minimum threshold value.

SORTINO: The sortino analysis which indicates if the negative returns are

close to the threshold or not (the threshold here is the g sec return), the

sortino analysis of this fund in different benchmark shows that the

performance in the first three quarters is not satisfactory because we see a

negative sortino in almost all the benchmarks. It is observed that in the CNX

NIFTY, CNX NSE 100, CNX NSE 200 and CNX 500 benchmark the sortino

gets negative in first three quarters. After the 3rd quarter it is observed that

the sortino movements are positive for the entire quarter and never even

once they have gone down zero, though there is fluctuations but still

movements are acceptable.

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Life Infrastructure Fund 2

With reference to Chart III, Chart VIII, Chart XIII and Chart XVIII of

ANNEXURE

BETA: The beta analysis for this fund in almost all the benchmarks shows

that returns from this fund is operating in the range of high level of risk.

The CNX NIFTY test results reveals that for the 2nd quarters the volatility

is increasing from 0.86 to 0.9. In the 3rd Quarter there is a fall in Beta. After

the 3rd the volatility is increasing upto 7th Quarter and in the Final quarter

observed with a fall in growth.

The next benchmark is CNX NSE 100, it is observed that in this benchmark

analysis also the operating range for the beta is tight like the previous

benchmark i.e. the fluctuations are in between 0.90 to 1.01.

The movements observed in this discipline states that the volatility is high

and the returns from this fund is of high.

It is observed in CNX NSE 200 test that beta is operating in between 0.92

to 1.03, for the entire eight quarter which is considered a risky.

The CNX NSE 500 operates within the risky zone of 0.95 to 1.06 which is

high risk zone.

JENSEN’S ALPHA: According to the Graph observed are pretty much

standard because in almost all of the benchmarks an identical movement

is observed, except for the CNX NSE 500 where it is observed that the

returns were not satisfactory in the initial 2nd quarters because negative

alpha is not desirable, a negative alpha would indicate return below the

standard annual risk free rate. But overall the fund’s performance is pretty

good enough because it is earning the returns for its investors which are

pretty much above the returns from annualised risk free instruments.

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TREYNOR: The CNX NSE NIFTY benchmark test indicates that initially the

returns generated from this fund for the amount of volatility was not

sufficient but later on it is observed that the treynor corrects itself and

ensures a very high reward for the high volatility, the movements observed

indicate that during the first two quarter the returns were not at all

satisfactory because a negative treynor is not desirable, but gradually we

see a boost in returns in the next six quarters.An almost similar pattern is

observed in three of the benchmarks CNX NSE 100, CNX NSE 200 and

CNX NSE 500.

SHARPE: The Sharpe test results for the CNX NIFTY, CNX NSE 100, CNX

NSE 200 and CNX NSE 500 benchmark reveals that except for the 1st three

quarters we see a rising Sharpe for the remaining quarters are in positive.

Since sharpe ratio doesn’t take into consideration the beta factor it is

observed that more or less similar movements is observed in all the

benchmarks. The sharpe ratio here indicates that the fund’s return are

operating at a satisfactory level or in other words the risk adjusted returns

are feasible in all of the benchmarks. The risk adjusted return is basically

computed on a risk free return instrument or the G sec return.

OMEGA: According to the graphical pattern of omega for all the

benchmarks, the movements observed first 15 months is an upwards trend,

the operating region for the omega is very tight and no major fluctuations

are observed in the last three quarters.

The omega remained entirely positive indicating heavy amounts of positive

returns or returns above the minimum accrued return or the threshold

return.

SORTINO: The test analysis of Sortino reveals that in all of the benchmarks

the first three quarter is clearly struggling to maintain a positive return above

threshold value or the propensity of harmful returns / negative returns is

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more during this particular time frame. While the remaining five quarters

clearly indicates that the returns are healthy and are not accompanied by

the harmful volatility.

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Pension Balanced Fund 1

With reference to Chart IV, Chart IX, Chart XIV and Chart XIX of

ANNEXURE

BETA: The beta analysis for this fund shows that the fund in CNX NIFTY

is operating in between a tight range 0.254 to 0.252 and high point at 0.284

which can be considered a Low to moderate level of risk zone, in CNX NSE

100 the operating range for beta for the entire eight quarters is in between

0.26 to 0.25 again a moderate to a very high risk zone, in CNX NSE 200 it

is observed that initially during the first two quarter the beta is operating

between 0.271 to 0.298 but remaining six quarters show a steady fall and

the range of operation is in between 0.29 to 0.25. A similar pattern is

observed in NSE 500 where the movements indicate that the find is low to

moderate volatile.

TREYNOR: The treynor ratio is an indication of the reward to volatility ratio,

the rewards generated for volatility is satisfactory for only six quarters

because in all of the benchmark disciplines it is observed that the first

quarters the trend are in positive but in at end of 2nd quarter it become

negative, means there is a fall and after then gradually an increasing trend

is observed in the remaining six quarters. The CNX NIFTY, NSE 100, NSE

200 and NSE 500 show a similar growth pattern.

SHARPE: In this sharpe analysis it is observed that the curve is following

a pattern which was identical to the pattern observed in treynor for this fund.

The sharpe is a tool which indicates risk adjusted returns, so it is observed

that for the first two quarters the fund didn’t quite perform well, as result at

the end of second quarter Sharpe is negative. The returns generated

compared to a risk free instrument was not all justified but this situation is

only temporary and in the long run, i.e. the remaining six quarter, the

performance is a lot better and it keeps on improving in every quarter.

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JENSEN’S ALPHA: The alpha analysis for this fund reveals that the fund’s

performance is better as the trend are toward upward,but the first two

quarters it is observed that the fund is operating at a level close to zero

which indicates that the returns generated in the first two quarters is poor

compared to the risk factor, average market return and the annual risk free

rate, but the latter half shows better results compared to the first two

quarters. The movements of this fund is similar to the movements observed

in all the benchmark disciplines.

OMEGA: In this omega analysis it is observed that the omega is operating

in tight range of 1.2 to 1.26, which is observed in all the benchmarks and

an inference can be made that the return are above the threshold limit, there

is a fall in 2nd quarters but after that the omega is climbing with slight

fluctuations .

SORTINO: The sortino analysis for this fund reveals that in CNX NIFTY,

CNX NSE 100 CNX NSE 200 and CNX NSE 500 the sortino shows that 2nd

and 3rd quarters the harmful returns or the negative returns , but gradually

in the last five quarters the fund has overcome its limitations and

outperformed itself indicating positive returns which in other words would

indicate that the fund is healthy with less harmful volatility compared to

general volatility.

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Reliance Assured Maturity Debt Fund

With reference to Chart V, Chart X, Chart XV and Chart XX of ANNEXURE

BETA: The CNX NSE NIFTY test results reveal that the beta for the first

two quarter is showing stready , the level of volatility here is .08 indicating

low risk. However the remaining quarters shows a steady fall curve with no

major fluctuations.

The CNX NSE 100 benchmark results show that the beta is operating

between a tight range of 0.07 to 0.04 for the entire eight quarters and thus

operating at a low risk zone.

The CNX NSE 200 benchmark result show that the beta is operating

between 0.08 to 0.046 again a low risk zone

The CNX NSE 500 benchmark results show that the beta movements are

restricted in between 0.08 to 0.04 for the entire eight quarter, though slight

fluctuations are observed in this range but a tight segment is maintained for

the entire 24 months.The beta is observed to operate at a low risk zone in

all of the benchmarks.

TREYNOR: The treynor test results reveal an almost identical pattern in all

of the benchmark disciplines i.e. except for a fall in the performance in 2nd

quarters the treynor’s overall performance can be marked with an overall

growth trend in the remaining six quarters. The returns from this fund is

justified compared to the amount of volatility observed but such statement

only holds good for the remaining six quarters.

SHARPE: The movements observed in the Sharpe ratio computations

reveal that in 2nd quarter there is in fall in growth, still it is positive.But later

on by the end of 24 months the performance of Sharpe gets better because

in every quarter the performance level has improved significantly.

22

JENSEN’S ALPHA: The alpha test results in CNX NIFTY,CNX NSE 100,

CNX NSE 200, CNX NSE 500 are quite similar i.e. for the entire eight

quarters the fund is earning returns on an average better than an risk free

instrument or in other words the returns are better than the annual risk free

returns, whose risk is very minimal compared to the returns, the alpha

movements for this fund beats that because the returns are quite better

than annual risk free rate.

OMEGA: The omega movements are operating in between 1.6 to 1.3 in

almost all of the benchmark disciplines, the movements indicate that the

the fund is performing at a satisfactory level and the returns are above the

fixed threshold limit indicating healthy and positive returns compared to risk

free instruments.

SORTINO : The sortino analysis for this fund reveals that in CNX NIFTY,

CNX NSE 100 CNX NSE 200 and CNX NSE 500 the sortino shows that 2nd

quarters the harmful returns or the negative returns , but gradually in the

last six quarters the fund has overcome its limitations and outperformed

itself indicating positive returns which in other words would indicate that the

fund is healthy with less harmful volatility compared to general volatility.

23

3. FINDINGS AND RECOMMEDATIONS:

3.1 RESULTS

This study is mainly done to know the asset allocation of ULIPs’ funds with

regards to Reliance Life. In the study, the investment portfolio of different

ULIPs’ funds has been described and detailed. For a life insurance

companies offering ULIPs, its funds investment portfolio and funds

performance plays very important role. With the information pertaining to

fund where ULIPs invest, the customers both existing as well as potential

can simply identify the funds where they can put the investing portion of

their premium. As we know, ULIPs are becoming a growing and common

avenue for investment, it is very important to understand the funds’ asset

allocation and their performance to avoid risks and to achieve financial

goals.

The project was carried out with the purpose to study and understand the

fund’s portfolio and performance of Reliance Life. It was prepared by visiting

the branch of the company in Kolkata and interacting with different

personnel like Branch Manager, Financial Consultants, Sales Block

Manager and HR executives as well as with my college guide. The study

gives a bird’s eye view on the asset allocation and the performance against

the benchmark performance of the funds.

Graphical and tabular representation has been used to analyse and

interpret the investment portfolio of the funds. The performance of the fund

over various periods has been compared against the benchmark

performance. The description is made available regarding the equities,

debentures/bonds, government securities and money market instruments

depending upon the type of the funds.

24

3.2 CONCLUSIONS

The life insurance sector has been booming in recent times and the growth

rate of this sector has been substantial. It is a place where the insurance

services are offered like traditional insurance plans, conventional insurance

plans and Unit linked insurance plans (ULIPs). In the present context, the

life insurance sector is booming exceptionally from the introduction of

information, communication and technology. Reliance Life, being one of the

major insurance companies providing life insurance products and services

to the general public in the country. It has always focused on building

products and services to cater the changing needs of the clients that

enhance high comfort value.

In Unit Linked Insurance Plans (ULIPs), the investments made are subject

to risks associated with the capital markets. This investment risk in

investment portfolio is borne by the policy holder. Thus, one should make

the investment choice after considering the risk appetite and needs.

Another factor that one needs to consider is the future need for funds.

Reliance Life offers a variety of unit-linked insurance products to suit

financial goals - be it for retirement planning, for health, for child's education

and marriage or for investment purposes. In a Unit Linked Plan (ULIP), the

premiums you pay are invested in the funds chosen by you after deducting

allocation charges and charges including those for managing funds, policy

administration and for providing insurance cover are deducted from the

funds by cancelling certain units. The value of each unit of a fund is

determined by dividing the total value of the fund's investments by the total

number of units.

From this study of analysing different funds where Reliance Life makes

investment out of ULIPs holders’ premium, it can be concluded that the

asset allocation among equities, corporate bonds/debentures, government

securities and money market instruments is done by the fund managers

based on different market tactics, investment situations, investment options

25

available and investment strategies. The investment in ULIPs funds is

subject to capital market risks and the fund performance is high or stable

or low or even negative as against the benchmark performance depending

upon various factors. Credit rating is highly taken into consideration while

pooling investment in different investment avenues.

3.3 RECOMMENDATIONS AND SUGGESTIONS

The investors prefer most economical mode of investment. Hence, ULIPs

being one of the emerging medium of investment should be economical

mainly in terms of different fees and charges associated with them such as

Administration charges, Fund management charges, Switch charges,

Surrender charges, Mortality charges, Premium Allocation charges and

Partial Withdrawal charges.

As ULIPs are not still the popular investment option as compared to

others like Gold/Silver, Mutual Funds, Equities trading etc., the

company create awareness and initiate customer education about

ULIPs and its structure, functioning and benefits to the general mass

of investors. This will help the company to create increased customer

base.

The company should utilize the fund in best financial instruments as

per fund objective and policy holders’ goals to yield higher returns as

compared to its benchmark counterparts.

The company should focus on achieving regular premium payments

from the policy holders and minimizing the surrender/discontinuity of

the insurance policies.

The company should build up its funds’ investment portfolio in such

a way that it yields maximum return at minimal risks considering

tactics in buying, selling, and holding assets in capital market.

The company should also consider its competitors’ business, its

competitors’ funds’ investment portfolio, marketing strategies,

investment strategies so as to sustain and progress in the sector.

26

ANNEXURE

NIFTY BENCHMARK: Life Corporate Bond Fund 2

CHART - I

27

Life Energy Fund 2

CHART - II

28

Life Infrastructure Fund 2

CHART - III

29

Pension Balanced Fund 1

CHART - IV

30

Reliance Assured Maturity Debt Fund

CHART V

31

NSE 100 BENCHMARK: Life corporate bond fund 2

CHART – VI

32

Life Energy Fund 2

CHART VII

33

Life Infrastructure Fund 2

CHART VIII

34

Pension Balanced Fund 1

CHART IX

35

Reliance Assured Maturity Debt Fund

CHART X

36

NSE 200 BENCHMARK: Life corporate bond fund 2

CHART XI

37

Life Energy Fund 2

CHART XII

38

Life Infrastructure Fund 2

CHART XIII

39

Pension Balanced Fund 1

CHART XIV

40

Reliance Assured Maturity Debt Fund

CHART XV

41

NSE 500 BENCHMARK: Life corporate bond fund 2

CHART XVI

42

Life Energy Fund 2

CHART XVII

43

Life Infrastructure Fund 2

CHART XVIII

44

Pension Balanced Fund 1

CHART XIX

45

Reliance Assured Maturity Debt Fund

CHART XX

46

References:

Bloomberg. (n.d.). Retrieved from http://www.bloomberg.com

Chandra, P. (2012). Investment Analysis and Portfolio Management. McGraw-Hill.

Fischer, D. E., & Jordan, R. J. (2008). SECURITY ANALYSIS AND PORTFOLIO

MANAGEMENT. Prentice - Hall of India Private Limited.

Investopedia.com. (n.d.). Retrieved from http://www.investopedia.com

Moneycontrol. (n.d.). Retrieved from http://www.moneycontrol.com

Reliance Life Insurance. (n.d.). Retrieved from http://www.reliancelife.com/fund-

performance

Value Research. (2015). Great Old Fund. Mutual Fund Insight.