Factors Affecting Investors' Perceptions towards ...

Paper Title

Factors Affecting Investors’ Perceptions towards Investment in ULIP Author Dr. Vinod K. Bhatnagar Assistant Professor, Prestige Institute of Management, Gwalior, MP, Email: [email protected] Mob: 9329082151 Co-author Dr. S.K. Shrivastava Professor, VRG Govt. College, Morar, Gwalior, MP, Email: [email protected] Dr. Prakash Sharma Assistant Professor Department of ASBT, Faculty of Commerce University of Rajasthan, Jaipur

Published in Edited book, Sun India Publications, New Delhi, 2015, pp. 14-22, ISBN: 978-81-907387-05

Factors Affecting Investors Perceptions’ towards Investment in ULIP *Dr. Vinod K. Bhatnagar **Dr. S.K. Shrivastava ***Dr. Prakash Sharma ABSTRACT Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to an individual. Unit Linked Insurance Plan (ULIP) provides the life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides the benefits of protection and flexibility in investment. In today's times, ULIP provides solutions for insurance planning, financial needs, financial planning for children’s marriage planning etc., Unit Linked Insurance Plan is a financial product that offers life insurance as well as an investment like a mutual fund. The objectives of the study is to design, develop & standardize the measures, to identify factors underlying as to form the perception of customers towards ULIP and to measure perception. The study was exploratory in nature and survey method was used to complete it. Population was user of ULIP within Gwalior region, Individual respondent was the sampling element. Sample Size was 50 individuals including male and female. For the purpose of the study Non Probability Quota Sampling was used. Data have been collected through a self-designed questionnaire. Item to total correlation to check the internal consistency of the questionnaires, Reliability test to check the reliability of the questionnaire with the help of Cronbach Alpha, Factor analysis to find out the factors of perception of customer towards ULIP in India were used as a tool. During the study we found that there are four major factors like Return, Benefit, Switching and Comparison which determine the perception of investors to invest in ULIP. Our study also revealed that there is no difference in male and female perception towards the investment in ULIP in Gwalior region. Key words: Insurance, ULIP, Investors’ Perception. *Assistant Professor, Prestige Institute of Management, Gwalior, MP, Email: [email protected] ** Professor, VRG Govt. College, Morar, Gwalior, MP, Email: [email protected] ***Assistant Professor, Department of ASBT, Faculty of Commerce, University of Rajasthan, Jaipur

INTRODUCTION In last two decades, after liberalization in India, GDP of India has shown noteworthy surge indicating escalation in income level of common people. This amplified level has enthused people to quest for diverse sources of investment options. ULIP has originated as a virtuous option for venture beside with other choices like bonds, debentures, mutual funds etc. ULIP has its benefits and downsides as any other possibility of investment bearing in mind which individuals forms perception and make choice regarding investment. Unit Linked Insurance Plans (ULIP) is presently making waves in the Insurance industry. Market linked plans are the most sought after plans because of the flexibility of these plans compared to the traditional plans. Market link insurance plan is life insurance solution that provides the client with the benefits of protection and flexibility in investment. The investment decision is borne by the policy holder whereby he may lose money and may not achieve his financial goals but has the potential of earning high returns which opportunity is not available under conventional policy .The value of the fund goes up and down based upon market conditions. Market linked plans enables the investor to diversify his investment in different sectors which he may not be able to do as an individual investor in stock market. Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).ULIP came into play in the 1960s and is popular in many countries in the world. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In today's times, ULIP provides solutions for insurance planning, financial needs, financial planning for children’s marriage planning etc., Unit Linked Insurance Plan is a financial product that offers life insurance as well as an investment like a mutual fund. Part of the premium pay goes towards the sum assured (amount consumers get in a life insurance policy) and the balance will be invested in whichever investments consumers desire - equity, fixed-return or a mixture of both. In India Insurance Regulatory Development Authority (IRDA) on the recent regulations 1st following changes such as increasing cap on various charges, change in the lock in period from 3 to 5 years and the assured return has been stated as 4.5%.Hence there is a need to understand the consumer perception

Unit-linked life insurance products are those where the benefits are expressed in terms of number of units and unit price. They can be viewed as a combination of insurance and mutual funds. The number of units that a customer would get would depend on the unit price when he pays his premium. The daily unit price is based on the market value of the underlying assets (equities, bonds, government securities, etc.) and computed from the net asset value. The advantage of unit-linked plans is that they are simple, clear, and easy to understand. Being transparent the policyholder gets the entire upside on the performance of his fund. Besides all the advantages they offer to the customers, unit-linked plans also lead to an efficient utilization of capital. Unit-linked products are exempted from tax and they provide life insurance. Investors welcome these products as they provide capital appreciation even as the yields on government securities have fallen below 6 per cent, which has made the insurers slash payouts. HISTORY Unit linked insurance policies [ULIP] was first offered in the United States in 1976, [after being developed and sold successfully in the Netherlands, England, and Canada] in the name of variable life insurance. Fundamentally it was a type of whole life insurance whose values may vary directly with the performance of a set of earmarked investments. REVIEW OF LITERATURE Agarwal (2010), found that ULIP helps to manage the risk return profile. With the double advantage of security and investment, ULIPs have become the most popular insurance product from the available range of life insurance policies. With a higher rate of return, ULIP gives tough competition to traditional insurance products like endowment plans and money back plans. The basic reason for opting for policies other than the term insurance is ensuring highest maturity value for invested sum besides mortality benefits. In estimating the maturity value the important factors to be considered is the internal rate of return (IRR) on investment. Mondal Deepak (2010), identified that the minimum sum assured (life cover) in ULIPs is five times and most policies offer cover between 5-10 times the annual premium which has been the signaling factor for the investors. Ranu Amar (2010), has also identified that ULIPs return by a larger margin in the long term which confirms that investment in ULIPs are ideal investment vehicle for wealth creation in long run. ULIP score over other products in terms of returns and additional benefits such as insurance cover. However it scores below PPF as investment in ULIPs involves high risks. Mathew Sanjay (2010), has shown tax incentives covered under sec 80(C), 10 10(D) of IT Act for ULIPs; hence tax benefits up to a maximum of Rs.1,00,000 investment can claimed in these plans.

Chakraborti Suddhadeb (2010), discussed about the latest amendments that provides mortality health cover in which it has been made mandatory to have Mortality Health Cover for all ULIPS apart from Pension and Annuity schemes. No partial withdrawal is available under new ULIPS. This enables a person to stay invested and hence protect his corpus. A guaranteed return of 4.5% has been announced to keep investors happy. NEED OF THE STUDY ULIP- provides for life insurance where the policy value at anytime varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). A research survey is needed to know about the customer perception of ULIPS as an investment alternative who perceive Life Insurances are not only best suited for the purpose of insuring their life, but also are capable of meeting future financial challenges effectively. Hence, this study explores customers’ perception and awareness level of Unit Linked Insurance Policy (ULIP). OBJECTIVES 1. To develop and standardize the measure to evaluate perception towards investment in ULIP. 2. To identify factors underlying perception towards investment in ULIP. RESEARCH METHODOLOGY Study and Sample: The study was empirical in nature and survey method was used to collect the data. The population was user of ULIP within Gwalior region, Sample Size was 50 individuals including male and female. Tools used for data collection: The primary data was collected through nonprobability judgmental sampling. Data have been collected through a self-designed questionnaire. The questionnaire was on a 5 point Likert Type scale where 1 indicated ‘Strongly Disagree’ and 5 indicated ‘Strongly Agree’ consisting of 12 items. Tools used for Data Collection: Perception towards investment in ULIP was assessed through using SPSS, the questionnaire was standardized using various measures such as Item to Total Correlation and Reliability. Factor analysis was used to identify underlying factors of respondents’ perception towards investment in ULIP. ANALYSIS AND DISCUSSION Standardization of Measure

As stated earlier the questionnaire was standardized, Item to total correlation was applied then reliability was calculated through the Cronbach’s Alpha test.

Table 1: Showing Reliability Statistics. Cronbach's Alpha

Cronbach's Alpha Based on

N of Items

Standardized Items .770

.769

12

From the above table, we found that the calculated value of Cronbach’s Alpha which is (0.770) which is more than the book value of Cronbach’s Alpha which is (0.7) hence the questionnaire was found is highly reliable. Table 2: KMO and Bartlett's Test The KMO and Bartlett’s test of Sphericity indicates that the data is suitable for factor analysis. Kaiser-Meyer-Olkin Measure of Sampling Adequacy.

.677

Bartlett's Test of Sphericity

Approx. Chi-Square

135.548

Df

66

Sig.

.000

The KMO measures the sampling adequacy and it should be greater than .5 for a satisfactory factor analysis to proceed. Looking at table above, the KMO measure is .677 which is significant at .000 per cent level of significance. This means the item to item correlation matrix was not an identity matrix and factor analysis can be applied.

Factor Analysis Factor Analysis was calculated by using SPSS software, in this firstly all the data of the items was loaded in the SPSS software. Then correlation between these items and total variance was calculated which gives the value of variance and the Cumulative. Factor analysis using principal component varimax rotation kiser normalization was applied on the raw scores of 12 items to find out the factors that contribute towards investment in ULIP.

The factors were calculated with the help of total variance explained. After factor analysis four factors were identified;

Table 3: Showing Total Variance Explained

Initial Eigen Value Variables/ Convergence Factor Name

Total

% of variance

1.Return

3.499

29.155

Loadings S1- Invest in ULIP for long term.

.657

S3- Knowledge of ULIP insurance plan

.766

than at the type of buying policy. S7-

Satisfaction

of

the

return

.721 on

investment 2.Benefits

1.436

11.966

S2- I would like to have Insurance Policies

.645

of ULIP Life Insurance. S4- Invest in ULIP Mutual Fund after

.753

evaluating returns. S5- Invest in Insurance Plans of ULIP because of Tax Benefits. S9- I am satisfied with the wealth creation

.623 , .509

of ULIP insurance. 3. Switching

1.308

10.900

S8- Switch from my present ULIP to other

.680

if it provides more return. S10- Partial withdrawal from ULIP plan if

.716

needed. S12- expects more return in ULIP

.621

insurance policy. 4. Comparison 1.192

9.935

S11- ULIP has less risk in comparison others.

Description of Factors 1. Return

.851

A company has been giving more return on the long term investment for the future benefits in ULIP. The company provides best knowledge for buying the plan and policy. The ULIP plans provide more return to the investors. This factor has received higher Eigen value of 3.499 with percentage of value of variance Explained of 29.155; even statements were clubbed in this factor. 2. Benefits A company provides the benefits to the product and plans which a company product which the customer can see or hold, as against something like advice and trust is ability to perform the promised service dependably and accurately (Parasuram et al, 1988). This factor has received second highest value i.e.1.436 with percentage of value of variance Explained of 11.966, in this factor four statements were clubbed. 3. Switching This was the third emerged factor of the study with a total Eigen value 1.308, with percentage of value of variance Explained of 10.900, The customers switch from present ULIP to other if it provided more return, partial withdrawal from ULIP plan if needed and they expects more return in ULIP insurance policy were the reasons for switching.

4. Comparison In this factor ULIP has been provides less risk in comparison to other. This factor has received the Eigen value among all three i.e. 1.192, with percentage of value of variance Explained of 9.935. SUGGESTION AND IMPLICATION Suggestion 1. The study has been done by taking only a sample of 50 respondents. It is suggested to take larger sample size as well to obtain more accurate results. 2. The study has been done in Gwalior region so it is suggested to take larger area or other region so that more appropriate results can be obtained. 3. Self designed questionnaire has been used to conduct the study. Standardized questionnaire can also be used to measure the perception of investors. Implication 1. This study can be a useful contribution to the organizations whose shares are listed and organization which are going to be listed on any of the stock exchanges. 2. This study can be used by different researchers for further research. 3. This study is a useful contribution to understand the psychology and behavior of investor in ULIP.

4. It will help society at large in knowing the perception of an individual investor to invest in ULIP. CONCLUSION Our study revealed that people have great awareness about ULIP plans and product. People in general have been influenced by the marketing activities of insurance companies. During the study we found that there are four major factors like Return, Benefit, Switching and Comparison which determine the perception of investors to invest in ULIP.

*********

References • •

•

• • •

• • • • • •

Agrawal.(n.d.) long term ULIP Management retrieved December 13, 2010, from. www.ariclesnatch.com/Article/Long-term-ULIP-Management/1411742 Dipak Mondal (Apr 15 2010). The business New delhi, many offer life cover of 50 time year premium retrieved December 13, 2010 from. http://www.mydigitalfc.com/insurance/many-ulipsoffer-life-cover-50-times-yearly-premium-965 Amar Ranu (16mar 2010).invest in ULIPs –A good Wealth creator Tool in long term retrieved Dec 13, 2010 from. http://ezinearticles.com/?Invest-in-ULIPs---A-Good-Wealth-Creator-Tool-in-LongTerm&id=3939540 Sanjay Mathew.(n.d.) ULIP-merits and demerits retrieved Dec 13, 2010 from. http://www.articleslash.net/Insurance/571692__ULIP-Merits-and-Demerits.html The business line (Dec 13, 2010) IRDA issues ULIP guidelines Retrieved Dec 13, 2010 from. http://www.businessworld.in/bw/2010_06_28_IRDA_Issues_Ulip_Guidelines.html Suddhadeb Chakraborti (22 nova. 2010) New ULIP guidelines: Benefits and ipact retrieved Dec 13, 2010 from. http://ezinearticles.com/?New-ULIP-Guidelines:-Benefits-and-Impact&id=5398783 Appa Rao. MAchiraju “Risk management and family Economics” Yogakshema, Ap. 1998. Bernstein, peter L, (1998).”Against the gods”, John wiley and sons, New york. Black,JR. Kenneth and Harold Skipper JR. (2000) “ life and health Insurance”, (13th edition). Prentice- Hall, INC, Englewood cliffs .N.J. Joseph M. Belth “Life Insurance – a consumer’s Handbool” Indiana University press Bloomington. London. Huebner S.S.(1927) “The Economics of Life Insurance” (3rd Edition) Appleton Century –crofts, INC., New York. The new life insurance investment advisor, Baldwin & Ben G, Probus Pub. Co Marketing management by Philip kotler ‘13th edition’s south Asian perspective Insurance by ‘Harold d.skipper’Blackwell publishing

Webology:

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www.irdaindia.org www.birlasunlifelifeinsuranse.com www.mutualfundsindia.com www.mutualfundsnavindia.com www.Finance.indiamart.com

Annexure Item Statistics Mean

Std. Deviation

N

Invest.in.ULIP.for.long.term

2.9600

1.06828

50

like.to.have.ULIP

3.3000

.97416

50

Have.knowledge

3.5000

.88641

50

Invest.in.ULIP.MF

3.1400

.90373

50

Invest.in.ULIP.for.tax.benefit

3.6200

.96658

50

ULIP.provides.more.return

3.4800

.88617

50

Satisfied.with.the.return

3.5200

1.11098

50

Expect.more.return

3.6400

.87505

50

Satisfied.with.the.wealth.creation

3.4000

.92582

50

Switch.if.provides.more.return

3.5600

1.07210

50

ULIP.has.less.risk

3.4800

.99468

50

Partial. Withdrawal

3.6200

.75295

50

Item-Total Statistics Scale Mean if Scale Variance Corrected Cronbach's Item Deleted

if Item Deleted Item-Total

Alpha if

Correlation Item Deleted Invest.in.ULIP.for.long.term

38.2600

30.523

.476

.746

like.to.have.ULIP

37.9200

30.524

.539

.739

Have.knowledge

37.7200

32.940

.349

.760

Invest.in.ULIP.MF

38.0800

32.402

.394

.755


37.6000

31.347

.462

.748


37.7400

31.584

.493

.745


37.7000

29.561

.537

.738

Expect.more.return

37.5800

32.983

.351

.760

Satisfied.with.the.wealth.creatio 37.8200

32.028

.419

.753

n Switch.if.provides.more.return

37.6600

32.229

.320

.765

ULIP.has.less.risk

37.7400

33.666

.227

.774

partial.withdrawal

37.6000

33.959

.313

.763

Total Variance Explained Compone Initial Eigen values

Extraction Sums of SquaredRotation

nt

Loadings Total

%

ofCumulativ Total

Variance e %

Sums

of

Squared

Loadings

%

ofCumulati Total

Variance

ve %

%

ofCumulative

Variance %

1

3.499

29.155

29.155

3.499

29.155

29.155

2.214

18.452

18.452

2

1.436

11.966

41.121

1.436

11.966

41.121

2.183

18.192

36.645

3

1.308

10.900

52.021

1.308

10.900

52.021

1.572

13.099

49.743

4

1.192

9.935

61.956

1.192

9.935

61.956

1.466

12.213

61.956

5

.917

7.638

69.595

6

.817

6.806

76.400

7

.736

6.130

82.531

8

.569

4.740

87.271

9

.513

4.271

91.542

10 .417

3.476

95.018

11 .327

2.724

97.742

12 .271

2.258

100.000

Extraction Method: Principal Component Analysis. Component Matrixa Component

Invest.in.ULIP.for.long.term

1

2

.650

-.515

3

4

like.to.have.ULIP

.692

Have.knowledge

.467

-.608

Invest.in.ULIP.MF

.523

.446


.584


.612


.685

Expect.more.return

.432

Satisfied.with.the.wealth.creation

.535

Switch.if.provides.more.return

.428

.565

.651

ULIP.has.less.risk

.819

partial.withdrawal

.419

.504

Extraction Method: Principal Component Analysis. a. 4 components extracted.

Rotated Component Matrixa Component 1 Invest.in.ULIP.for.long.term

.657

like.to.have.ULIP

.402

Have.knowledge

.766

2

3

4

.680

.403

.645

Invest.in.ULIP.MF

.753


.623

ULIP.provides.more.return Satisfied.with.the.return

.721

Expect.more.return Satisfied.with.the.wealth.creation Switch.if.provides.more.return

.509 .716

ULIP.has.less.risk partial.withdrawal Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 22 iterations.

.851 .621