insurance and mutual fund

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Financial planning ensures efficient

management of

expenses as well as investments, maximizing

ones ability to meet aspirations and life

goals.

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INSURANCE

Wealth unable us service the changing needs of life. Financial planning

helps create and manage wealth ensuring a good today and a secure

future.

The service industry is one of the fastest growing sectors in India today.

The upcoming sectors which are really showing the graph towards

upwards are - Telecom, Banking, Mutual fund and Insurance. These

sectors really have a lot of responsibility towards the economy.

Insurance may be described as a social device to reduce or eliminate risk

of life and property. Under the plan of insurance, a large numbers of

people associate themselves by sharing risk, attached to individual. The

risk, which can be insured against include fire, the peril of sea, death,

incident, & burglary. Any risk dependent upon these may be insured

against at a premium proportionately with the risk involved.

Insurance is actually a contract between 2 parties whereby one party

called insurer undertakes in exchange for a fixed sum called premium to

pay the other party happening of a certain event. In return for the

payment of premium by the insured, the insurers pay the financial losses

suffered by the insured as a result of the occurrence of unexpected

events.

Insurance is a contract whereby, in return for the payment of premium by

the insured, the insurers pay the financial losses suffered by the insured

as a result of the occurrence of unforeseen events.

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The General insurance business in India, on the other hand, can trace its

roots to the Triton Insurance Company Ltd., the first general insurance

company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in

India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to

transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound

business practices.

1968: The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalization) Act, 1972

nationalized the general insurance business in India with effect from 1st

January 1973.

107 insurers amalgamated and grouped into four companies viz. the

National Insurance Company Ltd., the New India Assurance Company Ltd.,

the Oriental Insurance Company Ltd. and the United India Insurance

Company Ltd. GIC incorporated as a company.

THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(IRDA)

The Insurance Act, 1938 had provided for setting up of the Controller of

Insurance to act as a strong and powerful supervisory and regulatory

authority for insurance. Post nationalization, the role of Controller of

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Insurance diminished considerably in significance since the Government

owned the insurance companies.

But the scenario changed with the private and foreign companies foraying

in to the insurance sector. This necessitated the need for a strong,

independent and self-directed Insurance Regulatory Authority was felt. As

the performance of legislation would have taken time, then Government

constituted through a Government resolution an Interim Insurance

Regulatory Authority pending the performance of a comprehensive

legislation.

The Insurance Regulatory and Development Authority Act, 1999 is an act

to provide for the establishment of an Authority to protect the interests of

holders of insurance policies, to regulate, promote and ensure orderly

growth of the insurance industry and for matters connected therewith or

incidental thereto and further to amend the Insurance Act, 1938, the Life

Insurance Corporation Act, 1956 and the General insurance Business

(Nationalization) Act, 1972 to end the monopoly of the Life Insurance

Corporation of India (for life insurance business) and General Insurance

Corporation and its subsidiaries (for general insurance business).

The act extends to the whole of India and will come into force on such

date as the Central Government may, by notification in the Official

Gazette specify. Different dates may be appointed for different provisions

of this Act.

The Act has defined certain terms; some of the most important ones are

as follows appointed day means the date on which the Authority is

established under the act. Authority means the established under this Act.

Interim Insurance Regulatory Authority means the Insurance Regulatory

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Authority set up by the Central Government through Resolution No. 17(2)/

94-lns-V dated the 23rd January, 1996.

Words and expressions used are not defined in this Act but defined in the

Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the

General Insurance Business (Nationalization) Act, 1972 shall have the

meanings respectively assigned to them in those Acts.

A new definition of "Indian Insurance Company" has been inserted. "Indian

insurance company" means any insurer being a company:

(a) Which is formed and registered under the Companies Act, 1956

(b) In which the aggregate holdings of equity shares by a foreign

company, either by itself or through its subsidiary companies or its

nominees, do not exceed twenty-six per cent. Paid up capital in such

Indian insurance company

(c) Whose sole purpose is to carry on life insurance business, general

insurance business or re-insurance business?

LIFE INSURANCE CORPORATION OF INIDA (LIC)

Vision

To emerge as a transnational competitive financial conglomerate of

significance to societies and be the pride of India.

Mission

Explore and enhance the quality of life of people through financial

security by providing products and services of aspired attributes with

competitive returns and by rendering resources for economic

development

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Members On The Board Of The Corporation

Shri. T.S. Vijayan (Chairman)

Shri. D.K. Mehrotra (Managing Director - LIC)

Shri. Thomas Mathew T. (Managing Director - LIC)

Shri. A.K. Dasgupta (Managing Director - LIC)

Shri. Ashok Chawla (Finance Secretary, Ministry of Finance, Govt. of India)

Shri. G.C. Chaturvedi (Additional Secretary, Department of Financial

Services, Ministry of Finance, Govt. of India.)

Shri. Yogesh Lohiya (Chairman cum Managing Director, GIC of India)

Shri. T.C. Venkat Subramanian (Chairman & Managing Director. Export

Import Bank of India)

Dr. Sooranad Rajashekhran

Shri. Monis R. Kidwai

List of Life Insurance Providers in India

Bajaj Allianz Life Insurance

Birla Sun Life Insurance

HDFC Standard Life Insurance

ICICI Prudential Life Insurance

ING Vysya Life Insurance

Life Insurance Corporation of India

Max New York Life Insurance

Kotak Mahindra Life Insurance

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SBI Life Insurance

Tata AIG Life Insurance

Reliance Life Insurance

Aviva Life Insurance Company

Sahara India Life Insurance

Shriram Life Insurance

Future Generally India Life Insurance

IDBI Fortis Life Insurance

Types of Life insurance Policy:-

a. Endowment Policy

Endowment insurance are policies that cover the risk for a specified

period and at the end the sum assured is paid back to the policyholder

along with all the bonus accumulated during the term of the policy. The

Endowment insurance policies work in two ways, one they provide lifeinsurance cover and on the other hand as an vehicle for saving. They are

more expensive than Term policies and Whole life policies. Normally the

bonus is calculated on the sum insured but the only drawback is that the

bonuses are not compounded. Endowment insurance plans are best for

people who do not have a saving and an investing habit on a regular

basis. Endowment Insurance Plans can be bought for a shorter duration

period.

b. Whole Life Insurance

A whole life policy continues as long as the policyholder is alive. In whole

life insurance plan the risk is covered for the entire life of the policyholder

that is the reason they are called whole life policies. The nominee of the

beneficiary are paid the policy dues and the bonus only upon the death of

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endowment assurance policy, but they hope to be able to pay for such a

policy in the near future.

e. Money Back Policy

Money back policies are plans where the survival benefits are payable

only at the end of the term period, plus the added benefit of money back

policies is that they provide for periodic payments of partial survival

benefits during the term of the policy so long as the policy holder is alive.

An additional and important feature of money back policies is that in the

event of death at any time during the term of the policy, the death claimcomprises full sum assured without deducting any of the survival benefit

amounts. Money Back Policies are good for people who want to insure

their life and also want to some return from their investment's at a later

date. The return from investments in Money Back Policies would range

between 5% to 8% annually depending on the interest rate movements.

Example:

Ms. Sania Mirza, aged 25 invests Rs.2lac in a money back policy (T.No-75)

paying an annual premium of Rs.12, 546/- for 20 years period. She

receives Rs.40, 000 at the end of each 5th, 10th, 15th year. On maturity

balance Rs.80, 000+ Rs.1, 64,000/- (as per bonus rate of 2005 i.e.

Rs.41per thousand p.a.)+Rs.4000/- FAB. If Ms. Sania dies after 8 year, his

nominee will receive S.A. +Bonus without deducting the survival benefit

already paid to Ms. Sania

Products of Life Insurance:-

Basically LIC offers more than 150 different products. However, in my

training period, I had worked on following main products and their details

are as follows:

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Additions are payable at the end of the term of the policy or earlier death

of the Life Assured. The Guaranteed Additions will be payable:

(i) On death or

(ii) On maturity i.e. on policy anniversary immediately after the Life

Assured attains the age of 26 years, provided the risk has commenced

under the policy.

b. Installment Benefits:

The Sum Assured under this plan will be paid in installments at periodic

intervals provided the policy is in force for full sum assured as under:

c. Loyalty Addition:

Loyalty Additions will also be payable on maturity or on death after the

commencement of the risk under the policy based on the rates declared

from time to time , depending on the experience of the Corporation.

d. Death Benefit:

In the event of unfortunate death during the term, after the

commencement of risk but before policy matures, the Sum Assured

together with Guaranteed Additions is payable without any deduction or

adjustment for the amount that may have been paid earlier by way of

installments benefits.

e. Premium Waiver Benefit:

Premium waiver benefit can be availed by the proposer under this plan for

which additional premium will be payable. Lives up to the age of 50

(nearer birthday) are eligible, subject to normal underwriting

requirements.

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f. Term Rider Benefit:

Term Rider Benefit can be availed by the proposer to the extent of 20% of

the basic Sum Assured under the policy not exceeding Rs.100000/-. The

benefit will be payable in case the proposer dies before the policy

anniversary on which the child completes 18 years. Lives up to the age of

50(nearer birthday) are eligible for this benefit subject to normal

underwriting requirements. In order to understand the policy more clearly

let us consider following illustration:

C. BIRLA SUNLIFE INSURANCE TERM PLAN

Ageat

entry

SumAssure

d

YearlyPremiu

mPayabl

e

Amount payable ondeath during the

Amountpayable

on

Survival

GuaranteedAddition

payable on

maturity

8th Year 12th Year

5Rs.5Lak

hRs.5063

2

SumAssured of

Rs.5,lakh+GuaranteedAddition ofRs.2,62,500/- + LoyaltyAddition* ifany

Sum Assured ofRs.5,lakh+Guaranteed Additionof Rs.4,12,500/- +Loyalty Addition* ifany

Rs.1,lakh onattainment of age18 yrs.

Rs.1,lakh onattainme

nt of age20 yrs.

Rs.1.5lakh onattainment of age22 yrs.

Rs.1.5lakh on

attainment of age24 yrs

Sum ofRs.7,87,500+ plusLoyalty

addition* ifany

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Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla

Group, an Indian multinational corporation, and Sun Life Financial Inc, a

leading global insurance company. Birla Sun Life Insurance is

distinguished as the first company in the sector of financial solutions tobegin Business Continuity Plan. This insurance company has pioneered

the unique Unit Linked Life Insurance Solutions in India. Within 4 years of

its launch, BSLI became one of the leading players in the industry of

Private Life Insurance Scheme. This plan has been designed for people

who want to avail of the benefits of life insurance at low cost. It is a low

premium, pure risk coverage plan which takes care of our financial

commitments towards our family or dependants, should anything

unfortunate happen to you. This is an pure risk cover plan without any

maturity benefit.

(* As per current tax legislations)

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Entry Age 18-55 yr.

Minimum Face Amount (SumAssured)

Rs.2, 50,000 in case of singlepremium & Rs.2, 00,000 in case of

regular premium for a personfulfilling the eligibility criteria.

Benefit Period As per policy terms 5,10, 15, 20 or25 years

Premium Paying Period Annually, semi-annually, quarterly,Monthly (through ECS) or one-time

payment

Amount due to nominee in eventof death of the life insured

Sum assured/face amount

Maturity benefit Nil

*Tax Benefits Under Sec 80C and Sec 10 (10D)of the Income Tax Act 1961**

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Aspiration and realities influence ones financial

planning.

A good plan ensures access to money at right time

for deployment in right assets class.

Mutual Fund investments are subject to market

risks.

MUTUAL FUNDS

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A mutual fund is nothing more than a collection of stocks and/or bonds.

One can think of a mutual fund as a company that brings together a group

of people and invests their money in stocks, bonds, and other securities.

Each investor owns shares, which represent a portion of the holdings of

the fund. It is a trust that pools the savings of a number of investors who

share a common financial goal.

The income earned through these investments and the capitalappreciations realized are shared by its unit holders in proportion to the

number of units owned by them. Thus a Mutual Fund is the most suitable

investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low

cost.

1. A mutual fund actually belongs to the investors who have pooled theirfunds. The ownership of the mutual fund is in the hand of the investor.

2. A mutual fund is managed by investment professional and other service

providers who earn a fee for their services from the fund.

3. The pool of funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

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4. The investors share in the fund is denominated by UNIT. The value of

the unit changes with changes in the portfolio value every day the value

of the unit of investment is called as the Net Assets Value or NAV.

5. The investment portfolio of the fund is created according to the stated

investment objectives of the fund.

History of Mutual Fund

The concept of mutual funds was introduced in India with the formation of

Unit Trust of India in 1963. The first scheme launched by UTI was the now

infamous Unit Scheme 64 in 1964. UTI continued to be the sole mutual

fund until 1987, when some public sector banks and Life Insurance

Corporation of India and General Insurance Corporation of India set up

mutual funds. It was only in 1993 that private players were allowed to

open shops in the country.

Today, 32 mutual funds collectively manage Rs 6713575.19 crores under

hundreds of schemes. The year 1993 was a remarkable turning point in

the Indian Mutual Fund industry. The stock investment scenario till then

was restricted to UTI (Unit Trust of India) and public sector. But this year

marked the entry of private sector mutual funds, giving the Indian

investors a wider choice of selecting mutual funds. From then on, the

graph of mutual fund players has been on the rise with many foreign

mutual funds also setting up funds in India. The industry has alsowitnessed several mergers and acquisitions proving it advantageous to

theIndian investors.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era

between 1963 and 1987 marked the existence of only one mutual fund

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Company in India with Rs. 67 Bn assets under management (AUM), by the

end of its monopoly era, the Unit Trust of India (UTI). By the end of the

80s decade, few other mutual fund companies in India took their position

in mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund,

Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank

Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a

new horizon in Indian mutual fund industry. By the end of 1993, the total

AUM of the industry was Rs. 470.04 Bn. The private sector funds started

penetrating the fund families. In the same year the first Mutual Fund

Regulations came into existence with re-registering all mutual funds

except UTI. The regulations were further given a revised shape in

1996.Kothari Pioneer was the first private sector mutual fund company in

India which has now merged with Franklin Templeton. Just after ten years

with private sector players penetration, the total assets rose up to Rs.

1218.05 Bn. Today there are 33 mutual fund companies in India.

Major Mutual Fund Companies in India

Birla Sun Life Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual FundState Bank of India Mutual Fund

Tata Mutual Fund

Kotak Mahindra Mutual Fund

Unit Trust of India Mutual Fund

Reliance Mutual Fund

Franklin Templeton India Mutual Fund

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LIC Mutual Fund

Governance of Mutual Fund

a. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund

association in India was generated to function as a non-profit organization.

Association of Mutual Funds in India (AMFI) was incorporated on 22nd

August 1995.

AMFI is an apex body of all Asset Management Companies (AMC), which

has been registered with SEBI. Till date all the AMCs are that have

launched mutual fund schemes are its members. It functions under the

supervision and guidelines of board of directors. AMFI has brought down

the Indian Mutual Fund Industry to a professional and healthy market with

ethical lines enhancing and maintaining standards. It follows the principle

of both protecting and promoting the interest of mutual funds as well as

their unit holders.

It has been a forum where mutual funds have been able to present their

views, debate and participate in creating their own regulatory framework.

The association was created originally as a body that would lobby with the

regulator to ensure that the fund viewpoint was heard. Today, it is usually

the body that is consulted on matters long before regulations are framed,

and it often initiates many regulatory changes that prevent malpracticesthat emerge from time to time.

OBJECTIVES:

1. To define and maintain high professional and ethical standards in all

areas of operation of mutual fund industry.

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2. To recommend and promote best business practices and code of

conduct to be followed by members and others engaged in the

activities of mutual fund and asset management including agencies

connected or involved in the field of capital markets and financialservices.

3. To interact with the Securities and Exchange Board of India (SEBI)

and to represent to SEBI on all matters concerning the mutual fund

industry.

4. To represent to the Government, Reserve Bank of India and other

bodies on all matters relating to the Mutual Fund Industry.

5. To develop a cadre of well trained Agent distributors and to

implement a programme of training and certification for all

intermediaries and other engaged in the industry.

6. To undertake nationwide investor awareness programme so as to

promote proper understanding of the concept and working of mutual

funds.

7. To disseminate information on Mutual Fund Industry and toundertake studies and research directly and/or in association with

other bodies.

b. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUALFUNDS) REGULATIONS, 1996

S - Securities provide for investor.T

-Tax Benefits planning and exemption.

O - Optimum return on investment.C - Cautious Approach.K - Knowledge of Market.Ex - Exchange of Securities Transacted.C - Cyclopedia of Listed Companies.H - High Yield.A - Authentic InformationN - New Entrepreneur encouraged.G - Guidance of Investor & Company.

E - Equity

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To protect the interest of the investors, SEBI formulates policies and

regulates the mutual funds. It notified regulations in 1993 (fully revised in

1996) and issues guidelines from time to time. MF either promoted by

public or by private sector entities including one promoted by foreign

entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by

making investments in various types of securities. Custodian, registered

with SEBI, holds the securities of various schemes of the fund in its

custody.

According to SEBI Regulations, two thirds of the directors of Trustee

Company or board of trustees must be independent. They should not be

associated with the sponsors. 50% of the directors of AMC must be

independent. All mutual funds are required to be registered with SEBI

before they launch any scheme.

Types of Mutual fund

A wide variety of Mutual Fund exists to cater to the needs such as

financial position, risk tolerance and return expectations etc. The table

below gives an overview into the existing types of funds in the Industry.

By Constitution

a) Open-ended schemes

b) Close-ended schemes

c) Interval schemes

By Investment objective:

a) Equity Fund

i. Diversified Fund

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ii. Tax Saving Fund

iii. Index Fund

iv. Sectoral Fund

b) Debt Fund schemesc) Hybrid schemes

d) Money market schemes

a. Open-ended Fund

Funds that can sell and purchase units at any point in time are classified

as Open-end Funds. The fund size (corpus) of an open-end fund keeps onchanging because of continuous selling (to investors) and repurchases

(from the investors) by the fund. Since the NAV of an open-end fund is

calculated daily, it serves as a useful measure of its fair market value on a

per-share basis.

b. Close-ended Fund

Funds that can sell a fixed number of units only during the New Fund Offer

(NFO) period are known as Closed-end Funds. The corpus of a Closed-end

Fund remains unchanged at all times. After the closure of the offer, buying

and redemption of units by the investors directly from the Funds is not

allowed. However, to protect the interests of the investors, SEBI provides

investors with two avenues to liquidate their positions

Closed-end Funds are listed on the stock exchanges where investors can

buy/sell units from/to each other. The trading is generally done at a

discount to the NAV of the scheme. The NAV of a closed-end fund is

computed on a weekly basis (updated every Thursday). Closed-end Funds

may also offer "buy-back of units" to the unit holders. In this case, the

corpus of the Fund and its outstanding units do get changed.

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Distinct Features of Closed-end Funds:

These funds are closed to new capital after they begin operating.

Closed-end funds trade on stock exchanges rather than being

redeemed directly by the fund.

Unlike open-end funds, the closed-end funds can be traded during

the market day at any time. Open-end funds are generally traded at

the closing price at the end of the market day.

Closed-end funds are usually traded at a premium or discount

whereas open-end funds are traded at NAV.

c. Large-Cap Fund

Large cap funds are those mutual funds, which seek capital appreciation

by investing primarily in stocks of large blue chip companies with above-

average prospects for earnings growth.

Different mutual funds have different criteria for classifying companies as

large cap. Generally, companies with a market capitalization in excess of

Rs 1000 crore are known large cap companies. Investing in large caps is a

lower risk-lower return proposition (vis--vis mid cap stocks), because

such companies are usually widely researched and information is widely

available.

Large cap funds invest in those companies that have more potential of

earning growth and higher profit. One of the major advantages of large

cap funds is that they are less unstable than mid cap and small cap funds

and the near term forecast of large cap funds can be more accurately

predicted. On the flip side, the large cap funds offer lower returns than

mid cap or small cap funds. But when compared in totality, large cap

funds outperform all other funds. These funds come under low risk low

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return category. In volatile times it is advisable to invest in large cap

funds.

d. Mid-Cap Fund

Mid cap funds are those mutual funds, which invest in small / medium

sized companies. As there is no standard definition classifying companies

as small or medium, each mutual fund has its own classification for small

and medium sized companies. Generally, companies with a market

capitalization of up to Rs. 500 crore are classified as small. Those

companies that have a market capitalization between Rs. 500 crore andRs. 1,000 crore are classified as medium sized.

Big investors like mutual funds and Foreign Institutional Investors are

increasingly investing in mid caps nowadays because the price of large

caps has increased to a large extent. Small / midsized companies tend to

be under researched thus they present an opportunity to invest in a

company that is yet to be identified by the market. Such companies offerhigher growth potential going forward and therefore an opportunity to

benefit from higher than average valuations.

Mid cap companies are looked upon as wealth creators and have the

potential to join the league of large cap companies. Such companies are

quick, flexible and can adapt to the changes faster. One of the challenges

that fund managers of mid cap funds face is to identifying suchcompanies. But mid cap funds are very unpredictable and tend to fall like

a pack of cards in bad times. So, caution should be exercised while

investing in mid cap mutual funds. Mid cap funds are a good option in

case the investor wants to add some diversity to his portfolio.

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e. Equity Fund

Equity mutual funds are also known as stock mutual funds. Equity mutual

funds invest pooled amounts of money in the stocks of public companies.

Stocks represent part ownership, or equity, in companies, and the aim of

stock ownership is to see the value of the companies increase over time.

Stocks are often categorized by their market capitalization (or caps), and

can be classified in three basic sizes: small, medium, and large. Many

mutual funds invest primarily in companies of one of these sizes and are

thus classified as large-cap, mid-cap or small-cap funds.

f. Balanced Fund

Balanced fund is also known as hybrid fund. It is a type of mutual fund

that buys a combination of common stock, preferred stock, bonds, and

short-term bonds, to provide both income and capital appreciation while

avoiding excessive risk.

Balanced funds provide investor with an option of single mutual fund that

combines both growth and income objectives, by investing in both stocks

(for growth) and bonds (for income). Such diversified holdings ensure that

these funds will manage downturns in the stock market without too much

of a loss. But on the flip side, balanced funds will usually increase less

than an all-stock fund during a bull market.

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i. Tax-saving funds

Also known as ELSS or equity-linked savings schemes, these funds offer

benefits under Section 88 of the Income-Tax Act. So, on an investment of

up to Rs 10,000 a year in an ELSS, you can claim a tax exclusion of 20 per

cent from your taxable income. One can invest more than Rs 10,000, but

wont get the Section 88 benefits for the amount in excess of Rs 10,000.

The only drawback to ELSS is that you are locked into the scheme for

three years.

In terms of investment profile, tax-saving funds are like diversified funds.The one difference is that because of the three year lock-in clause, tax-

saving funds get more time to reap the benefits from their stock picks,

unlike plain diversified funds, whose portfolios sometimes tend to get

dictated by redemption compulsions.

j. Debt/ Income Fund

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities such

as bonds, corporate debentures, Government securities and money

market instruments. Such funds are less risky compared to equity

schemes. These funds are not affected because of fluctuations in equity

markets. However, opportunities of capital appreciation are also limited in

such funds. The NAVs of such funds are affected because of change ininterest rates in the country. If the interest rates fall, NAVs of such funds

are likely to increase in the short run and vice versa. However, long term

investors may not bother about these fluctuations.

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k. Index Funds

An index fund is a type of mutual fund that builds its portfolio by buying

stock in all the companies of a particular index and thereby reproducing

the performance of an entire section of the market. The most popular

index of stock index funds is the Standard & Poor's 500. An S&P 500 stock

index fund owns 500 stocks-all the companies that are included in the

index. Investing in an index fund is a form of passive investing. Passive

investing has two big advantages over active investing. First, a passive

stock market mutual fund is much cheaper to run than an active fund.

Second, a majority of mutual funds fail to beat broad indexes such as the

S&P 500.

Net Assets Value:-

Net Asset Value, or NAV, is the sum total of the market value of all the

shares held in the portfolio including cash, less the liabilities, divided by

the total number of units outstanding. It is the price at which investors canbuy or redeem the mutual funds units. Thus, NAV of a mutual fund unit is

nothing but the 'book value.'

A fund's NAV fluctuates along with the value of its underlying investments.

The formula for NAV is:

Market Value of All Securities Held by Fund + Cash and Equivalent

Holdings - Fund Liabilities

Total Fund Units Outstanding

Let's assume at the close of trading day before today a particular mutual

fund held Rs.10, 500,000 worth of securities, Rs.2, 000,000 of cash, and

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Rs.500, 000 of liabilities. If the fund had 1,000,000 units outstanding, then

yesterday's NAV would be:

NAV = Rs. (10,500,000 + 2,000,000 - 500,000) / 1,000,000 = Rs.12.00

A fund's NAV will change daily as the value of a fund's securities, cash

held, liabilities, and the number of shares outstanding fluctuates.

Advantages of Mutual Funds:

A Mutual Fund is not an alternative investment option to stocks and bond;

rather it pools the money of several investors and invests this in stocks,

bonds, money market instruments and other types of securities.

Professional Management

The primary advantage of funds (at least theoretically) is the professional

management of our money. Investors purchase funds because they do not

have the time or the expertise to manage their own portfolios. A mutual

fund is a relatively inexpensive way for a small investor to get a full-time

manager to make and monitor investments.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the

provisions of strict regulations designed to protect the interests ofinvestors. The operations of Mutual Funds are regularly monitored by

SEBI.

Diversification

By owning shares in a mutual fund instead of owning individual stocks or

bonds, our risk is spread out. The idea behind diversification is to invest in

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a large number of assets so that a loss in any particular investment is

minimized by gains in others. In other words, the more stocks and bonds

we own, the less any one of them can hurt us (Enron Corporation). Large

mutual funds typically own hundreds of different stocks in many differentindustries. It wouldn't be possible for an investor to build this kind of a

portfolio with a small amount of money.

Economies of Scale

Because a mutual fund buys and sells large amounts of securities at a

time, its transaction costs are lower than what an individual would pay forsecurities transactions.

Liquidity

Just like an individual stock, a mutual fund allows us to request that our

shares be converted into cash at any time. With open-end funds, we can

redeem all or part of our investment any time we wish and receive thecurrent value of the shares. Funds are more liquid than most investments

in shares, deposits and bonds. Moreover, the process is consistent,

making it quick and efficient so that we can get our cash in hand as soon

as possible.

Simplicity

Buying a mutual fund is easy. Many banks have its own line of mutual

funds, and the minimum investment is small. Most companies also have

automatic purchase plans whereby as little as $100 can be invested on a

monthly basis.

Tax Benefits

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Last but not the least, mutual funds offer significant tax advantages.

Dividends distributed by them are tax-free in the hands of the investor.

They also give the advantages of capital gains taxation. If we hold units

beyond one year, we get the benefits of indexation. Simply put, indexationbenefits increase our purchase cost by a certain portion, depending upon

the yearly cost-inflation index (which is calculated to account for rising

inflation), thereby reducing the gap between your actual purchase costs

and selling price. This reduces our tax liability. Whats more, tax-saving

schemes and pension schemes give us the added advantage of benefits

under Section 88. We can avail of a 20 per cent tax exemption on an

investment of up to Rs 10,000 in the scheme in a year.

Disadvantages of Mutual Funds:

Professional Management

Notice we qualified the advantage of professional management with the

word "theoretically"? Many investors debate whether or not the so-calledprofessionals are any better than you or I at picking stocks. Management

is by no means perfect, and, even if the fund loses money, the manager

still takes his/her cut. We'll talk about this in detail in a later section.

Costs

Mutual funds don't exist exclusively to make our life easier all funds are in

it for a profit. The mutual fund industry is masterful at burying costs under

layers of terminology. These costs are so complicated that in this tutorial

we have devoted an entire section to the subject.

Dilution

It's possible to have too much diversification. Because funds have small

holdings in so many different companies, high returns from a few

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investments often don't make much difference on the overall

return. Dilution is also the result of a successful fund getting too big.

When money pours into funds that have had strong success, the manager

often has trouble finding a good investment for all the new money.

Taxes

When making decisions about your money, fund managers don't consider

your personal tax situation. For example, when a fund manager sells a

security, a capital-gains tax is triggered, which affects how profitable the

individual is from the sale. It might have been more advantageous for the

individual to defer the capital gains liability.

Systematic Investing Plan:-

An SIP is a vehicle offered by mutual funds to help you save regularly. It is

just like a recurring deposit with the post office or bank where we put in a

small amount every month. The difference here is that the amount is

invested in a mutual fund.

How to invest in SIPs

The SIP option is available with all types of funds like equity, income

or gilt.

An investor can avail the SIP option by giving post-dated cheques of

Rs 500 or Rs 1,000 according to the funds policy.

If an investor wants to put more than Rs 500 or Rs 1,000 in any

given month he will have to fill in a new a form for SIP intimating the

fund that he is changing his SIP structure. Also he will be allowed to

change the SIP structure only in the multiples of the SIP amount.

If an investor is investing in two different schemes of the same fund

he can fill in a common SIP form for all the schemes. However if the

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first holders in those schemes are different than they will have to fill

different SIP forms, as the first holder has to sign on the form.

The investor can get out of the fund i.e. redeem his units any time

irrespective of whether he has completed his minimum investmentin that scheme. In such a case his post-dated cheques will be

returned back to him.

Investing in SIPs is also known as Rupee cost averaging. The advantage

of rupee cost averaging is that the Net asset value (NAV) is averaged out,

as the investor will be entering the fund at different NAVs, which may be

higher or lower depending on the market condition.

For e.g., two investors Ashok and Kishore invested in an equity mutual

fund at the same time. While Ashok made a lump sum investment of Rs.

60,000/-, Kishore chose the SIP way to invest the same amount but in

multiples of Rs.10, 000/- each month for six months.

Heres what they gained at the end of the period

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COMPARISION BETWEEN INSURANCE AND MUTUAL FUND

Ashoks lump sum

investment

Kishores SIP route

Month UnitPrice(Rs)

AmountInvested

(Rs)

UnitsBought

AmountInvested

(Rs)

UnitsBought

1 20 60000 3000 10000 5002 18 - - 10000 5563 14 - - 10000 7144 22 - - 10000 4555 26 - - 10000 385

6 20 - - 10000 500Total Invested 60000 60000Average Price Paid 20 20Total numberof units bought 3000 3109Value ofInvestmentsafter six months 60000 62180

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Insurance plans and mutual funds are not comparable as both serves

different investor needs. While mutual funds fulfil the investment need,

life insurance acts as a safety net. Unit-linked insurance plans (Ulips) do

have some similarity with mutual funds. The primary objective of aninsurance product is protection. The whole reason why it has evolved as a

savings plan in the minds of certain people is because there is a

significant savings component attached to it; however, it is still not the

primary purpose of the plan.

Both these instruments are designed to serve different purposes and are

not comparable. A unit-linked plan from an insurance company is an

insurance policy designed to pay a lump sum on maturity or on death if

earlier. Premium paid under these plans is eligible for tax deduction under

Section 88 of the Income Tax Act. On the other hand, mutual funds are

investment avenues to participate in the growth of financial markets and

do not provide any tax deduction (except ELSS and pension funds).

For a unit-linked insurance plan, providing life cover is the most important

function; returns are just an added benefit, which gets magnified, given

the tax rebates. Though unit-linked plans offer transparency in returns in

terms of net asset value and flexibility in investment options in debt,

equity or mixes of both, these advantages remain secondary, whereas for

a mutual fund, the main objective is to provide returns.

Moreover, unit-linked plans are not as liquid as mutual funds. There is a

lock-in of three years. Even if one redeems after three years, you would

be at a loss because of higher initial administrative charges. For example,

the upfront charges for the first two premium amounts are as high as 20-

27 per cent. Then there is an annual management fee of 0.8-1.25 per cent

and a flat fee of Rs 15-20 per month. Finally, there is a deduction for risk

cover. This goes towards contribution to the sum assured or the life

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insurance cover, which is based on mortality rates as calculated by

actuaries. Though mutual funds too have entry and exit loads (maximum

2 per cent) and expenses (maximum 2.5 per cent), these costs are lower

than unit-linked plans.

If we take a look at the recent scenario in the Indian financial market then

we can find the market flooded with a variety of investment options which

includes mutual funds, equities, fixed income bonds, corporate

debentures, company fixed deposits, bank deposits, PPF, life insurance,

gold, real estate etc. All these investment options could be judged on the

basis of various parameters such as- return, safety convenience, volatility

and liquidity. measuring these investment options on the basis of the

mentioned parameters, we get this in a tabular form

Return Safety Volatility Liquidity Convenience

Equity High Low High High orlow

Moderate

FI Bonds Moderate High Moderate Moderate High

Co.Debentures

Moderate Moderate Moderate Low Low

Co. FDs Moderate Low Low Low ModerateBankDeposits

Low High Low High High

PPF Moderate High Low Moderate High

LifeInsurance

Low High Low Low Moderate

Gold Moderate High Moderate Moderate LowRealEstate

High Moderate High Low Low

MutualFunds

High High Moderate High High

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RESEARCH METHODOLGY

Research always starts with a question or a problem. Its purpose is to

question through the application of the scientific method. It is asystematic and intensive study directed towards a more complete

knowledge of the subject studied. Marketing research is the function

which links the consumer, customer and public to the marketer through

information- information used to identify and define marketing

opportunities and problems generate, refine, and evaluate marketing

actions, monitor marketing actions, monitor marketing performance and

improve understanding of market as a process.

Marketing research specifies the information required to address these

issues, designs, and the method for collecting information, manage and

implemented the data collection process, analyses the results and

communicate the findings and their implication.

I have prepared project as descriptive type, as the objective of the studydemands the answers of the question related to find the potentiality of life

insurance?

There are two types of data collection method use in my project report.

Primary data

Secondary data.

For my project, I decided on primary data collection method for observing

working of company and approaching customers directly in the field, tele-

calling, cold calling, campaigning and through references to know their

interest in business with company in my project and also make

questionnaire for creating database of business class as well as routine

working people in Jodhpur city for company.

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I decided on Secondary data collection method was used by referring to

various websites, books, magazines, journals and daily newspapers for

collecting information regarding project under study.

Data Interpretation and Analysis

No. of Customers how have invested in mutual fund

Respons

e

Frequenc

y

Percentag

eYes 19 38%No 31 62%

Total 50 100

Interpretation:

Still 62% of the people prefer to invest in other financial derivatives.

Only 38% of people invest in mutual fund.

Other Investment option

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Interpretation:-

The analysis of data reveals that 50% investors still consider FDs as

most suitable instrument for investment. And prefer Rds over

Systematic Plan of mutual fund.

Different policies bought by customers

Options Frequenc

y

Percentage

sFixed deposits 12 50%Post office

schemes

6 25%

Recurring

deposits

6 25%

Total 24 100%

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COMPANYSNAME

NO.OFRESPONDENT PERCENTAGE

L.I.C. 28 56%HDFC 02 04%Icici Prudential 10 20%SBI Life Insurance 07 14%Reliance Life

Insurance

03 06%

Total 50 100%

Interpretation:-

LIC has retained the Interest of its customers. Still 56% peoples

prefer the policies of LIC of India as most suitable for getting

themselves and their family insured.

Modes of Information

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Interpretation:

Peoples use

the various

mode of

information

for

purchasing

insurance

policies. But advertisement is more popular.

Sectors where investment in made.

Options Frequenc

y

Percentag

eAdvertisement

s

22 44%

Agents 12 24%Seminar 7 14%Workshop 9 18%

Total 50 100%

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Interpretation:

People prefer both the sectors approx equally.

Rate at which investors want to grow their investment

Options Frequenc

y

Percentage

sGovernment

sector

27 54%

Private sector 23 46%

Total 50 100%

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Interpretation:

40% of the respondents want their investments to grow fastly.

Reaction on unfortunate market fall

Options Frequenc

y

Percentage

sSteadily 17 34%

At an average

rate

13 26%

Fast 20 40%

Total 50 100%

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Interpretation:

52% of the respondents will wait and watch even if the share market

drops.

Options Frequenc

y

Percentage

sWithdraw your

money

8 16%

Wait and watch 26 52%

Invest more in it 16 32%

Total 50 100%

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Factors considered before investing in mutual fund or Ulips

Response No. of Respondent PercentageSafety of principal 14 28%Low risk 15 30%Higher Return 14 28%Maturity Period 04 08%Terms &

Conditions

03 06%

Total 50 100%

Interpretation:

30% Investors wants to invest in instrument which offers lowest risk,

but 28% wants the safety of their principal amount and 28% can

afford to invest in securities offering higher risk higher return.

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Interpretation:

In the past maximum 50% percent of the respondents have invested

in saving a/cs and Pos.

Comfort level in making investment decisions

Options Frequenc

y

Percentage

sSavings A/cs & PO schemes 18 36%Mutual funds investing in bonds 6 12%Mutual funds investing in stocks 3 06%Balanced mutual funds 1 02%Individual stocks & bonds 5 10%Ulips 4 08%Other instruments like real estate,

gold

13 26%

Total 50 100%

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Interpretation:

41% of the respondents are moderately comfortable in making

investment decisions.

Recommendations: (With reference to mutual fund)

Options Frequenc

y

Percentage

sLow 14 32%

Moderate

18 41%

High 12 27%Total 50 100%

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The most vital problem spotted is of ignorance. Investors should be made

aware of the benefits. Nobody will invest until and unless he is fully

convinced. Investors should be made to realize that ignorance is no longer

bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer.

But most of the people are not even aware of what actually a mutual fund is?

They only see it as just another investment option. So the advisors should try

to change their mindsets. The advisors should target for more and more

young investors. Young investors as well as persons at the height of their

career would like to go for advisors due to lack of expertise and time.

The advisors may try to highlight some of the value added benefits of MFs

such as tax benefit, rupee cost averaging, and systematic transfer plan,

rebalancing etc. these benefits are not offered by other options

singlehandedly. So these are enough to drive the investors towards mutual

funds. Investors could also try to increase the spectrum of services offered.

Now the most important reason for not availing the services of advisors was

spotted was being expensive. The advisors should try to charge a nominal

fee at the beginning. But if not possible then they could go for offering more

services and benefits at the existing rate. They should also maintain their

decency and follow the code of ethics so that the investors could trust upon

them. Thus the advisors should try to attract more and more persons and

turn them into investors and finally their clients.

BIBLIOGRAPHY

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1. http://www.scribd.com/doc/15516166/Final-Project-Report-on-

Mutual-Fund

2. http://www.scribd.com/doc/17314260/Mutual-Funds-Project

3. http://www.thehindubusinessline.com/iw/2004/05/30/stories/200405

3000241300.html

4. http://www.indianexpress.com/news/mutual-funds-and-insurance-

serve-different/482613/

5. http://www.birlasunlife.com/BirlaSunLife/Insurance/BSLI_MP/BSLI_Ins

Plans/Individual/Protection/bsl_termplan.aspx

6. http://www.bimadeals.in/content/birla-sun-life insurancebirla-term-plan

7. http://new.valueresearchonline.com/story/h2_storyView.asp?

str=7430

8. http://www.clickindia.com/detail.php?id=447489

9. http://www.akanshaindia.com/komal.htm

10. http://www.licindia.com/children_need_002_benefits.htm

11. http://www.financials.co.in/question/20090302103454AAtkWw9

.html

12. Factsheets of different Companies of mutual fund and of LIC of

India.

13. www.mutualfundsindia.com

14. www.amfi.com

15. www.investopedia.com

16. www.investorsgudie.com

17. www.valueresearchonline.com

18. www.canbankmutual.com

51
http://www.mutualfundsindia.com/http://www.mutualfundsindia.com/http://www.amfi.com/http://www.amfi.com/http://www.investopedia.com/http://www.investopedia.com/http://www.investorsgudie.com/http://www.investorsgudie.com/http://www.valueresearchonline.com/http://www.valueresearchonline.com/http://www.canbankmutual.com/http://www.canbankmutual.com/http://www.mutualfundsindia.com/http://www.amfi.com/http://www.investopedia.com/http://www.investorsgudie.com/http://www.valueresearchonline.com/http://www.canbankmutual.com/


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ANNEXURE

Questionnaire

1. Do you invest in Mutual Funds

a. Yesb. No

2. If not, then what other option(s) do you prefer to invest

a. Fixed depositsb. Post office schemes

c. Recurring deposits

3. Which companys insurance policy you prefer the most

a. L.I.C.b. HDFCc. Icici Prudentiald. SBI Life Insurancee. Reliance Life Insurance

4. What is the mode of information that you use for insurancecompanies

a. Advertisements

b. Agents

c. Seminar

d. Workshop

5. In which sector do you prefer to invest your money

a. Government sectorb. Private sector

6. At which rate do you want your investment to grow

a. Steadily

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b. At an average ratec. Fast

7. Imagine that stock market drops immediately after you invest in it

then what will you do

a. Withdraw your money

b. Wait and watch

c. Invest more in it

8. Which factor do you consider before investing in mutual fund or Ulips

a. Safety of principal

b. Low risk

c. Higher Return

d. Maturity Period

e. Terms & Conditions

9. In the past, you have invested mostly in (choose one)

a. Savings A/cs & PO schemes

b. Mutual funds investing in bonds

c. Mutual funds investing in stocks

d. Balanced mutual funds

e. Individual stocks & bonds

f. Ulips

g. Other instruments like real estate, gold

10. Your comfort level in making investment decisions can best bedescribed as

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a. Low

b. Moderate

c. High

Documents

insurance and mutual fund