Portfolio Management at Standard Chartered

8/6/2019 Portfolio Management at Standard Chartered

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STANDARD CHARTERED BANK

ICFAI BUSINESS SCHOOL 2008

A PROJECT REPORT

ONINVESTMENT OBJECTIVES

&

POR TF OLIO MANAGEMENT AT STANDA RD CHA RTE RED

BANK

SUBMITTED BY

SACHIN MAHIPAL

078456105

2 N D F L O O R , 2 0 , C O M M U N I T Y C E N T R E, N E W F R I E N D S C O L O N Y,N E W D E L H I- 1 1 0 0 6 5


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Investment Objective & Portfolio Mgmt.

IBS, GURGAON Page 2

ACKNOWLEDGEMENT

Life is a journey; it's not the years in your life that count. It's the

life in your years.

But Life cant be completed without the support of many people.

Any accomplishment requires the effort of many people and this work is not

different. I would like to take this opportunity to thanks STANDARD

CHARTERED BANK for giving me an opportunity to be a part of their

esteem organization and enhance my knowledge by granting permission todo summer training project.

I would also like to extend my sincere regards to Mr.NITISH DIPANKAR

(Area Sales Manager, Standard Chartered Bank), my project guide for his

guidance and support throughout my training .My learning has been

immeasurable and working under him was great experience. I would always

be grateful to him for the providing such an opportunity; and exposure to

ground realities of business operations and functionalities.

I would also thank Prof.P.C. VERMA my faculty guide ICFAI Business

School , Gurgaon, for his immense guidance and suggestions in carrying out

this project.

Last but not the least I also wish to thanks to everybody who helped me

through the successful completion of the project. The learning from thisexperience has been immense and would be cherished throughout my life.

It is good to have an end to journey toward; but it is the journey

that matters, in the end.


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IBS, GURGAON Page 3

CONTENTS

1 . Introduction..4

2. Investments6

3. Planning Your Investment8

4. Investment Options Available in India. 1 4

5. Current Banking Scenario of Indian Banking System.26

6. Indian Banking: Strength & Weaknesses3 1

7. Standard Chartered Bank.33

8. Standard Chartered Bank in India.36

9. Products Offered..42

10 . Saving Accounts43

11 . ULIPs..48

1 2. Mutual Funds.59

1 3. ULIPs Vs Mutual Funds 10 8

1 4. Impact of Union Budget 2 00 8- 0 9.. 11 4

1 5. Survey 1 23

1 6. Profile of Respondents. 1 25

1 7. Analysis. 1 30

1 8. Recommendations.. 1 6 1

1 9. Conclusion.. 1 63

2 0 . Annexure. 1 67

2 1 . References. 1 71


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IBS, GURGAON Page 4

INTRODUCTION

Rationale of the Project

In the current banking scenario, all the banks are engaged in an in-depth

introspection for analyzing their strengths and weakness and identifying core

competencies to set a mission in which they are likely to find themselves as

leaders.


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IBS, GURGAON Page 5

In all private and foreign banks stress is being laid on knowing their

customers. This involves not just finding the profile details about the

customer but also catering to their different needs. The needs and

investment pattern of all individual change according to their life stages and

are strongly influenced by their demographics. This project helps to analyze

customer investment habits and suggest portfolio.

Methodology

The study was exploratory in nature and aimed at exploring the factors,

which formed the basis for selection of different types of investments by

individuals. The study also aimed at finding out what type of investment

pattern is followed by individuals of different profiles and what is their

frequency of investments so as to know where a person should invest.

Individuals already availing or planning to avail the services of different

banking firms both in public and private functioning at Delhi and Gurgaon,

formed the population from where the sample was drawn. a sample of

approx 100 respondents was studied for the purpose of this study.

The research was carried out by collecting primary data for the studythrough a self-developed, non-disguised questionnaire for the customers of

various banks. For developing the profile of the customers, the

respondents were classified into various groups on the basis of their

age, occupation and income . For age wise classification the respondents

were categorized into four groups - group of 1 8-3 0 yrs, group of 3 0 -4 0 , 4 0 -

5 0 and groups above 5 0 .

For income group there were four categories low income group of less than

25 0000 , middle income 25 0000 -5 00000 , 5 00000 - 100000 , high level income

group of greater than 1000000 . We tried to find keeping income as constant

what are the various instruments they invest, for how long they invest etc..


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IBS, GURGAON Page 6

For occupation wise classification four categories were selected namely

service, business, self-employed and others for people like housewives.

Limitation of the Study

The study which is being conducted is limited by following reasons:-

1 ) Disclosure of information from the banks is a constraint-when I

approached the various banks for information there was lack of

cooperation on the part of the employees in giving the right

information.

2) Unwillingness of the respondents to provide information-when I

approached the customers for filling the questionnaire, I encountered

2 kinds of problems. First they did not have time to fill the

questionnaire, second they did not want to answer any question

regarding income.

3) Incapacity to survey large number of people. I could survey approx100 people. So whatever analysis has been done is done accordingly.

4) The people surveyed belonged to NCR region only-investment habits of

people in different regions differ.


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IBS, GURGAON Page 7

INVESTMENTS

In finance, the purchase of a financial product or other item of value with an

expectation of favorable future returns. In general terms, investment means

the use money in the hope of making more money. Done wisely, it can help

meet individual financial goals like buying a new house, paying for college

education of children, enjoying a comfortable retirement, or whatever is

important to an individual.

Savings form an imperative part of the economy of any nation. With the

savings invested in various options available to the people, the money acts

as the driver for growth of the country. Indian financial scene too presentsan excess of avenues to the investors.

You do not have to be wealthy to be an investor. Investing even a small

amount can produce considerable rewards over the long-term, especially if

one does it regularly. But one need to decide about how much you want to

invest and where. To choose wisely, one need to know the investment

options thoroughly and their relative risk exposures.

An investment can be described as perfect if it satisfies all the needs of all

investors. So, the starting point in searching for the perfect investment

would be to examine investor needs. If all those needs are met by the

investment, then that investment can be termed the perfect investment.

Understanding the needs of the investor and ensuring that the most

appropriate investments are selected is the most essential.

The investment needs of an investor are simply his lifestyle needs converted

into financial terms. These include the normal living expenses, food,

accommodation, as well as education, health, recreation, transport, special

occasions like marriages, festivals etc.


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IBS, GURGAON Page 8

Investment Strategies

You can make your own investment picking approach or adopt one after

consulting financial experts or investment advisors. Whatever method you

use, keep in mind the importance of diversification, or variety in your

investment portfolio and the need for a strategy, or a plan, to guide your

choices.

Investment approaches

The options you choose to put your money in reflect the investment strategy

you are using - whether you realize it or not. Most people adopt the

following approaches:-

Conservative

These investors take only limited risk by concentrating on secure, fixed-

income investments etc.

Moderate

Such Investors take moderate risk by investing in mutual funds, bonds,

select blue chip equity shares etc.

Aggressive

These are investors who take major risk on investments in order to have

high (above-average) returns like speculative or unpredictable equity

shares, etc.

As a matter of fact, the investment approach of an investor is directly linked

to his or her ability to shoulder risk. The ability to take risks depends largely

on personal circumstances and factors like age, past experiences with

investment, level of responsibility, etc.


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IBS, GURGAON Page 9

Planning Your Investment:

Investment Planning is the process of identifying and implementing effective

investment strategies to create and accumulate the financial resources for

achieving financial planning goals. This section includes in-depth information

related to investment planning.

One of the parts of developing a comprehensive financial plan is the

development of an investment plan. There are six steps that one should

follow while developing an investment plan.

y The Means to Invest .

In order to even begin this portion of your financial plan, one must

determine that he/she is ready to save. In this step one need to determine if

one is going to use the money on some good or service (spend it), or if one

will invest or save the money.

y Investment Time Horizon

In this step, you will be determining how long you plan to invest and when

you will need the funds to meet your financial objective(s). You must decide,

based on the time horizon of your objectives, among short-term

investments, long-term investments or some combination. In this step you

are going to be determining what you will be saving for, which should give

some indication of your time horizon.

y Risk vs Return

Risk and returns go hand in hand. Higher the risk, higher is the possibility of

earning a good return. Thus, it follows that all types of investment have

some form of risk attached to it. Theoretically, even 'safe' investments (such

as bank deposits) are not without some element of risk. Broadly, here are

the various types of risks that you might have to face as an investor.


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IBS, GURGAON Page 10

Credit Risk

The risk is that the issuer of the security will default, or not repay the

principal amount. This is valid for corporate bonds etc.

Liquidity Risk

If you invest in securities, stocks, bonds, you are risking their sell ability. In

other words, your money gets stuck unnecessarily, creating an asset-liability

mismatch.

Market Risk

Financial markets are volatile in nature. Volatility means sudden swings in

value from high to low, or the reverse. The more volatile an investment is,

the more profit or loss you can make, since there can be a big spread

between what you paid and what you sell it for. But you also have to be

prepared for the price to drop by the same amount. Those who invest in

stocks and mutual funds typically run this risk.

Interest Rate Risk

Depending on the interest rate movement in the economy, the rates of

interest investment instruments may go up or come down, resulting in a

subsequent reverse movement of their prices. Such a scenario of economic

instability might affect mutual funds etc.

The whole idea behind investment planning is to evaluate the risk associatedwith various types of investments and take steps so as to balance it with the

desired return.


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You will need to determine what your level of risk tolerance is. As the level

of risk tolerance increases so does the potential for higher returns as well as

larger losses.

y Investment Selection

Based on above three considerations, investments should be selected to

meet your goals. These investments must satisfy your time horizon and your

risk tolerance.

y Evaluate Performance

Once investments are chosen and expectations are established, the

performance of your investments should be determined by comparing the

actual realized returns against the expected returns. The returns should also

be compared to a benchmark, such as the S&P 5 00 index. In addition, the

investments should be reevaluated to determine if they continue to meet

your investment criteria.

y Adjust the Portfolio

Your portfolio should be adjusted to maintain your goals and your

investment criteria. If your goals change, your investments should be

reviewed to determine if they continue to meet your objectives.

To summarize, once you have determined that you are financially able to

begin investing (or saving), you should evaluate your investment goals and

set out a plan to accomplish these goals. Once you have begun your

investment plan, you must periodically review the performance of yourinvestments and re-evaluate your objectives and investments to make

certain there is a good fit.


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Inflation Devil

Inflation, the rate at which the general level of prices for goods and services

rises, can steadily erode the purchasing power of your income. That is why

you should invest a portion of your savings at a rate higher than the inflation

rate to recover the loss of purchasing power.

This means that over time a rupee will be able to buy a lesser amount of

goods and services. If the inflation rate is 5%, then Rs. 100 worth of goods

will cost Rs. 10 5 after a year. The following table indicates how the value of

Rs 1 ,00 ,000 will change over time at different levels of inflation.

Inflation % p.a.

Years 2 3 4 4.5 5 6

5 9 0 ,573 86,26 1 82, 1 93 8 0 ,245 78,353 74,726

10 82, 0 35 74,4 0 9 67,556 64,393 6 1 ,39 1 55,839

1 5 74,3 01 64, 1 86 55,526 5 1 ,672 48, 10 2 4 1 ,727

2 0 67,297 55,368 45,639 4 1 ,464 37,689 3 1 ,1 8 0

25 6 0 ,953 47,76 1 37,5 1 2 33,273 29,53 0 23,3 00

3 0 55,2 0 7 4 1 ,1 99 3 0 ,832 26,7 00 23, 1 38 1 7,4 11


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The Power of Compounding

Regardless of where you choose to put your money - cash, stocks, bonds, or

a combination of these - the key to saving for the future is to make your

money work for you. This is done through the power of compounding.

Compounding investment earnings is what can make even small investments

become larger, given enough time. You are probably already familiar with

the principle of compounding. The money you put into a bank account earns

an interest. Then, you earn interest on the money you originally put in, plus

on the interest you have accumulated. As the size of your account grows,

you earn interest on a bigger and bigger pool of money.

The following table shows how much your money would grow when you

invest a fixed amount per month over a period of 10 , 1 5, 2 0 , 25, and 3 0

years, assuming an interest rate of 10 % p.a.

Amount (Rs)Years 1000 2 000 3 000 4 000 5 000

5 78, 0 82 1 56, 1 65 234,247 3 1 2,33 0 39 0 ,4 1 2

10 2 0 6,552 4 1 3, 10 4 6 1 9,656 826,2 0 8 1 ,0 32,76 0

1 5 4 1 7,924 835,849 1 ,253,773 1 ,67 1 ,697 2, 0 89,62 1

2 0 765,697 1 ,53 1 ,394 2,297, 0 9 1 3, 0 62,788 3,828,485

25 1 ,337,89 0 2,675,78 1 4, 01 3,67 1 5,35 1 ,56 1 6,689,452

3 0 2,279,325 4,558,65 1 6,837,976 9, 11 7,3 01 11 ,396,627


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How power of compounding makes your money grow, when you invest a

fixed amount every month

Here's how much your money would grow if you make an lump sum (one-

time) investment and leave it untouched. The interest rate has beenassumed to be 10 %.

Amount (Rs)

Years 100000 2 00000 3 00000 4 00000 5 00000

5 1 6 1 ,0 5 1 322, 10 2 483, 1 53 644,2 0 4 8 0 5,255

10 259,374 5 1 8,748 778, 1 23 1 ,0 37,497 1 ,296,87 1

1 5 4 1 7,725 835,45 0 1 ,253, 1 74 1 ,67 0 ,899 2, 0 88,624

2 0 672,75 0 1 ,345,5 00 2, 01 8,25 0 2,69 1 ,000 3,363,75 0

25 1 ,0 83,47 1 2, 1 66,94 1 3,25 0 ,4 1 2 4,333,882 5,4 1 7,353

3 0 1 ,744,94 0 3,489,88 0 5,234,82 1 6,979,76 1 8,724,7 01

The real power of compounding comes with time. The earlier you start

saving, the more your money can work for you. To attain certain amount of

corpus within a set period of time, a pro-active investment style ispreferable. Thus, no matter how young you are, the sooner you begin saving

for the future, the better it is.


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Investment options available in India

Today choosing a best investment plan is difficult because there are so many

investment options available in India. These days we are getting more

money compared to last decades.

1 ) Bank Fixed Deposits (FD)

Fixed Deposit or FD is the most preferred investment option today. Minimum

period is 1 5 days and maximum is 5 years and above. Senior citizens get

special interest rates for Fixed Deposits. This is considered to be a safe

investment because all banks operated under the guidelines of Reserve Bankof India. Other features are;

y Very low risk and low liquidity.

y Low returns, but assured. Depending on the tenure and bank, could be

around 6-9%y Since returns are fully taxable, the post-tax returns will be still lower.y Good for very low risk investors and those in the nil or low tax

brackets. As interest rate scenario seems to be peaking, one could

consider investing in 3-5 year FDs.

2 ) Fixed maturity plans (FMPs)

FMPs, as they are popularly known, are the equivalent of a fixed deposit in a

bank, with a caveat. The maturity amount of a fixed deposit in a bank is

'guaranteed', but only 'indicated' in the FMP. Its other features are;

y Low risk and low Liquidity.

y No assured returns but depending on tenure and the MF, could be

around 6-9%. (Ability to deliver the indicative returns).


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y MFs attract much lower taxation and hence give better post-tax

returns vis--vis Bank FDs.

y Good for low risk investors, but in high tax brackets. Good for

investing the debt portion of ones portfolio.

3) National Saving Certificate (NSC)

NSC is backed by Govt. of India so it is a safe investment method. Minimum

amount is Rs 100 and no upper limit. From FY 2 00 5-' 0 6 onwards interest

accrued on NSC is taxable.

y Low risk with low liquidity (6 years lock-in).

y 8% assured returns.

y Interest fully taxable. But eligible for Sec 8 0 C benefit.

Not very attractive vis--vis other options like 5-year Bank FDs.

4) Public Provident Fund (PPF)

PPF is another form of investment backed by Govt. of India. Minimumamount is Rs5 00 and maximum is Rs7 0 ,000 in a financial year. A PPF

account can be opened in a head post office, GPO and selected branches of

nationalized banks. Both PPF and NSC considered to be best investment

option as it is backed by Government of India

y Low risk with very low liquidity ( 1 5-year lock-in period. Partial

withdrawal allowed after 6 years).

y 8% assured returns. Interest is tax-free. Also Sec 8 0 C benefit. Hence

a good scheme.

y Good tax saving investment option. Good for investing the debt

portion of ones portfolio


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5 ) Equity

This need high risk appetite. Ideal for those investors who have a good

corpus, good knowledge and time to track the stock markets regularly. Care

should be taken to invest in good profit making companies. Penny stocks

should be avoided

y High risk and high liquidity.

y Market linked returns. Good potential.

y Attractive tax treatment. No Long Term (investment of more than 1

year) Capital Gain Tax and 10 % Short Term Capital Gains Tax.

6) Mutual Funds

Mutual Fund companies collect money from investors and invest in share

market. Investing in mutual funds is also subject to market risks but return

is good. The various fund options are;

Equity Funds

y High risk and high liquidity in open-ended funds.


y Attractive tax treatment. No Long Term Capital Gain Tax and 10 %

Short Term Capital Gains Tax.

y Ideal for small and common investors, but with high risk appetite. SIP

and a long term investment horizon can cut down risk and increase the

probability of making good returns. Ideally, one should build a well-diversified portfolio with say 4 0 -5 0 % money in 5-7 diversified funds

(large cap oriented), 2 0 -3 0 % money in 3-4 mid/small-cap funds, 10 -

1 5% in 3-4 sector funds and 10 -2 0 % in balanced funds.


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ELSS Funds

y High risk with low liquidity (3 years lock-in period).



Short Term Capital Gains Tax. Also Sec 8 0 C benefit.

y Good tax saving investment option. Amounts beyond Rs. 1 lakh limit

could be invested in open-ended funds. SIP in ELSS would reduce the

volatility risk.

Balanced Funds

y Medium to High risk. High Liquidity.

y Medium to high returns. Market linked.


Short Term Capital Gains Tax.

y Though convenient as both debt and equity investment is covered

under one fund, it may be better to invest separately in equity and

debt funds for better control.

Debt Funds

y Low to Medium risk. High Liquidity.

y Returns are market-linked. Today could be around 5-7%, but

susceptible to interest rate risk.

y Lower taxation of MFs makes such funds attractive.

y Can be avoided in a rising interest rate scenario but is good in a fallinginterest rate scenario.

7) Unit Linked Insurance Plans

ULIPs are remarkably alike to mutual funds in terms of their structure

and functioning; premium payments made are converted into units and a


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net asset value (NAV) is declared for the same. In traditional insurance

products, the sum assured is the corner stone; in ULIPs premium

payments is the key component.

y Low to High Risk depending on the investment option i.e. Pure Debt or

Mixed or Pure Equity. Low Liquidity (3-5 years lock-in period).

y Low to high depending on the investment option. Market linked

returns.

y Tax free returns also Sec 8 0 C benefit available.

y Not an attractive option due to high charges, low flexibility and low

diversification. There are other better similar investment products like

MFs with low charges, high flexibility and high diversification. As

regards life cover, the same could be done through a term policy.

8) Endowment/Money back Plan

These policies are term policies. Investors have to pay the premiums for

a particular term, and at maturity the accrued bonus and other benefits

are returned to the policyholder if he survives at maturity

y Low risk and very low liquidity

y Low returns. Generally around 6-6.5%.

y Tax free returns. Also Sec 8 0 C benefit available.

Not an attractive option due to low returns. There are other better similar

investment products like PPF. As regards life cover, the same could be done

through a term policy

There are many investment options available like investing in Gold, Real

Estate , commodities etc. the features of this options are;


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9) Real Estate

y Variable risk and variable liquidity depending on the type and location

of property.y Market linked returns. Good potential.

y No tax advantages, except attractive tax benefits on the home loans.

y High initial investment required which could make ones portfolio

lopsided; high transactions costs like title-search, registration

brokerage etc.; and cannot be partly liquidated. Therefore, real-estate

MFs (expected in the near future) may be a better alternative than

direct property investment. If investing directly, it is important to

assess the potential and clear title.

10 ) Commodities

y High risk with high liquidity.

y Market linked returns.

y No tax advantages.

y

Highly cyclical.

11 ) Gold

y Low long-term risk. But volatile in short term. High Liquidity.

y Has traditionally been a hedge against inflation. So returns could be

around inflation levels.y No tax advantages.

y Not an attractive investment option. Can be used for portfolio

diversification to partly hedge against inflation. Gold MFs are better

than buying physical gold.


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Because of these unique properties, gold has traditionally been the currency

of choice for much of the world's population. The value of gold has

transcended all national, political, and cultural borders, making it the ideal

currency.

1 2) Post Office Schemes

y Low risk and low Liquidity.

y MIS scheme give 8% interest. Time deposit 6.25-7.5%.

y Since returns are taxable, the post-tax returns will be still lower.

y Good for very low risk investors and those in the nil or low tax

brackets.


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BANKING

The banking section will navigate through all the aspects of the banking

system in India. It will discuss upon the matters with the birth of the

banking concept in the country to new players adding their names in the

industry in coming few years.

The banker of all banks, Reserve Bank of India (RBI), the Indian Banks

Association (IBA) and top 2 0 banks like IDBI, HSBC, ICICI, ABN AMRO etc,

has been well defined. However, in the introduction part of the entire

banking cosmos, the past has been well explained under four different heads

namely:

History of Banking in India

Nationalization of Banks in India

Scheduled Commercial Banks in India.

Current Scenario of Banking in India.

History of Banking in India

Without a sound and effective banking system in India it cannot have a

healthy economy. The banking system of India should not only be hassle

free but it should be able to meet new challenges posed by the technology

and any other external and internal factors.

For the past three decades Indias banking system has several outstanding

achievements to its credit. The most striking is its extensive reach. It is nolonger confined to only metropolitans or cosmopolitans in India. In fact,

Indian banking system has reached even to the remote corners of the

country. This is one of the main reasons of Indias growth process.


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The governments regular policy for Indian bank since 1 969 has paid rich

dividends with the nationalization of 1 4 major private banks of India.

Not long ago. An account holder had to wait for hours at the bank counters

for getting a draft of for withdrawing his own money. Today, he has a

choice. Gone are days when the most efficient bank transferred money from

one branch to other in two days. Now it is simple as instant messaging or

dials a pizza. Money has become the older of the day.

Nationalization of Banks in India

The nationalization of banks in India took place in 1 969 by Mrs. Indira

Gandhi the then Prime Minister. It nationalized 1 4 banks then. These banks

were mostly owned by businessmen and even managed by them.

Central Bank of India

Bank of Maharashtra

Dena Bank

Punjab National Bank

Syndicate Bank

Canara Bank

Indian Bank

Indian Overseas Bank

Bank of Baroda

Union Bank

Allahabad Bank

United Bank of India

UCO Bank

Bank of India


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Before the steps of nationalization of Indian banks, only State Bank of India

(SBI) was nationalized. It took place in July 1 955 under the SBI Act of 1 955.

Nationalization of seven State banks of India (formed subsidiary) took place

on 1 9 th July, 1 96 0 .

The State Bank of India is Indias largest commercial bank and is ranked one

of the top five banks worldwide. It serves 9 0 million customers through a

network of 9 000 branches and it offers either directly or through

subsidiaries a wide range of banking services.

The second phase of nationalization of Indian banks took place in the year

1 98 0 . Seven more banks were nationalized with deposits over 2 00 crores.Till this year, approximately 8 0 % of the banking segment in India was under

government ownership.

After the nationalization of banks in India, the branches of the public sector

banks rose to approximately 8 00 % in deposits and advances took a huge

jump by 11 ,000 %.

1 955: Nationalization of State Bank of India.

1 959: Nationalization of SBI subsidiaries.

1 969: Nationalization of 1 4 major banks.

1 98 0 : Nationalization of seven banks with deposits over 2 00 crores.

Scheduled Commercial Banks in India

The commercial banking structure in India consists of:

Scheduled Commercial Banks in India

Unscheduled Banks in India


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Scheduled banks in India constitute those banks which have been included in

the second schedule of Reserve Bank of India (RBI) Act, 1 934. RBI in turn

includes only those banks in this schedule which satisfy the criteria laid down

vide section 42(6) (a) of the act.

As on 3 0 th June, 1 999, there were 3 00 scheduled banks in India having a

total network of 64,9 1 8 branches. The scheduled commercial banks in India

comprise of State Bank of India and its associates (8), nationalized banks

( 1 9), foreign banks (45), private sector banks (32), co-operative banks and

regional rural banks.

Scheduled banks in India means the State Banks of India constituted

under the State Banks of India Act, 1 955 (23 of 1 955), a subsidiary bank as

defined in the State Bank of India (Subsidiary Banks) Act, 1 959 (38 of

1 959), a corresponding new bank constituted under section 3 of the banking

companies (Acquisition and Transfer of Undertaking) Act, 1 97 0 (5 of 1 97 0 ).

Or under section 3 of the banking companies ( Acquisition and Transfer of

Undertakings) Act,1

980

( 40

of 1

980

), or any other bank being a bankincluded in the second schedule to the Reserve Bank of India Act, 1 934 ( 2

of 1 934), but does not include a co-operative.

Non-scheduled bank in India means a banking company as defined in

clause (c) of section 5 of the Banking Regulation Act, 1 949 ( 10 of 1 949),

which is not a scheduled bank.

The following are scheduled Banks in India (Public Sector):

State Bank of India

State Bank of Bikaner and Jaipur

State Bank of Hyderabad

State Bank of Indore


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State Bank of Mysore

State Bank of Patiala

State Bank of Saurashtra

State Bank of Travancore

Andhra Bank

Allahabad Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Overseas Bank

Indian Bank

Oriental Bank of Commerce

Punjab National Bank

Punjab and Sind Bank

Syndicate Bank

Union Bank of India

United Bank of India

UCO Bank

Vijaya Bank

The following are the Scheduled Banks in India (Private Sector)

y Vysya Bank Ltd

y Axis Bank Ltd

y Indusind Bank Ltd

y ICICI Banking Corporation Bank Ltd


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y Global Trust Bank Ltd

y HDFC Bank Ltd

y Centurion Bank Ltd

y Bank of Punjab Ltd

y IDBI Bank Ltd

The following are the Scheduled Foreign Banks in India

y American Express Bank Ltd.

y ANZ Grid lays Bank Plc.

y Bank of America NT & SA

y Barclays Bank Plcy Citi Bank N.C.

y Deutsche Bank A.G.

y Hongkong and Shanghai Banking Corporation

y Standard Chartered Bank .

Current Scenario of Indian Banking System

Indian economy is one of the fastest growing economies in the world. The

countrys GDP is growing at an average rate of almost 7% during the last

decade with the GDP growth rate touching 9.4% in the last year. The Indian

banking industry also had its share in the growth of the Indian economy.

With the Indian economy moving on to a high growth trajectory,

consumption levels soaring and investment riding high, the Indian bankingsector is at a watershed. The industry has been growing faster than the real

economy, resulting in the ratio of assets of commercial banks to GDP

increasing to 92.5% at end-March 2 00 7. The Indian banks have also been

doing exceptionally well in the financial sector with the price-to-book value


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being second only to China.

Consequently, the degree of leverage enjoyed by the banking system, as

reflected in the equity multiplier (measured as total assets divided by total

equity), has increased from 1 5.2% at end March 2 00 6 to 1 5.8 % at the end

of March 2 00 7.

Growth of the sector

A burgeoning economy, financial sector reforms, rising foreign investment,

favorable regulatory climate and demographic profile has led to India

becoming one of the fastest growing banking markets in the world. The

overall banking industry's business grew at a CAGR of about 2 0 per cent

from US$ 469.4 billion as of March 2 00 2, to US$ 11 7 1 .29 billion by March

2 00 7.

In the current fiscal, aggregate bank deposits increased by 23.8 per cent,

year-on-year, as of January 4, 200

8 as against 21

.5 per cent a year ago.While aggregate demand deposits increased by 1 5.6 per cent, aggregate

time deposits increased by 25.3 per cent in the same period, indicating

migration from small savings schemes of the Government.

Similarly, aggregate deposits of the scheduled commercial banks (SCB),

after growing by 1 7.8 per cent and 24.6 per cent in 2 00 5- 0 6 and 2 00 6- 0 7,

rose by 25.2 per cent, year-on-year, as on January 4, 200

8. In fact, theabsolute increase of US$ 96.34 billion ( 1 4.6 per cent) in the current fiscal

year up to January 4 2 00 8 was higher than the US$ 7 0 .59 billion ( 1 3.2 per

cent) increase in the same period last year.


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Simultaneously, loans and advances of SCBs rose by over 3 0 per cent (i.e.

33.2 per cent in 2 00 4- 0 5, 3 1 .8 per cent in 2 00 5- 0 6 and 3 0 .6% cent in

2 00 6- 0 7) in the last three financial years, underpinned by the robust

macroeconomic performance. The growth has continued in the current fiscal

with non-food credit by SCBs increasing by 22.2 per cent, year-on-year, as

on January 4, 2 00 8.

Private Sector

Ever since the banking operations had been opened to the private sector in

1 99 0 s, the new private banks have been increasing its role in the Indian

banking industry. Against the industry average growth of about 2 0 per cent

in the past five years, the new private sector banks registered a growth of

about 35 per cent per annum, growing from US$ 4 1 .63 billion as of March

2 00 2 to US$ 1 86.7 1 billion by March 2 00 7.

Consequently, new private banks market share has increased from about 9

per cent in 2001

-0

2 to1

6 per cent as of March 200

6-0

7. Foreign banks,which totaled 29 in June 2 00 7, have also been expanding at a rapid pace.

For example, India was the fastest growing market for Global banking major

HSBC in 2 00 6- 0 7, with a growth rate of 64 per cent.

The balance sheet of private banks and foreign banks in India expanded by

38.7 per cent and 39.5 per cent during 2 00 6- 0 7, taking their combined

share (along with private banks) in total assets of the banking sector togrow from 22.3 per cent at the end of March 2 00 6 to 24.9 per cent by March

2 00 7.


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Investment Banking

The flurry of mergers and acquisition deals by Indian corporate has boosted

the investment banking revenues to a record high. Investment banking

revenues from India crossed the US$ 1 billion mark for the first time in 2 00 7

to US$ US$ 1 .0 69 billion.

This is significantly higher than the US$ 4 00 million investment banking

revenues recorded in 2 00 6. Also, this surge in revenues has propelled India

to become the third largest market for investment banking in Asia-Pacific in

2 00 7.

Potential

While this growth has been very impressive, the potential banking market

waiting to be tapped in India is still fairly huge. Out of the 2 0 3 million Indian

households, three-fourths, or 1 47 million, are in rural areas and 89 million

are farmer households. In this segment, 51

.4 per cent have no access toformal or informal sources of credit, while 73 per cent have no access to

formal sources of credit.

In fact, according to a report by Boston Consultancy Group, India has the

second largest financially excluded households of about 1 35 million, which is

next only to china. Also, about 6 0 million new households are expected to be

added to India's bankable pool between 200

5 and 200

9. With such a largeuntapped market, the Indian banking industry is estimated to grow rapidly,

faster than even china in the long run.


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Some of the high growth potential areas to be looked at are: the market for

consumer finance stands at about 2%-3% of GDP, compared with 25% in

some European markets, the real estate market in India is growing at 3 0 %

annually and is projected to touch $ 5 0 billion by 2 00 8, the retail credit is

expected to cross Rs 5, 7 0 ,000 crore by 2 010 and huge SME sector which

contributes significantly to Indias GDP.

Road Ahead

Banks aspiring to become global must have a presence in India and other

emerging markets, as they are set to become a major source of financial

sector revenue and profit growth.

As the Indian banking industry continues its rapid growth along with rise in

financial services penetration in the Indian economy, the industry's profit is

likely to simultaneously surge ahead. According to a report by Boston

Consultancy Group, the profit pool of the Indian banking industry is

estimated to increase to US$ 2 0 billion in 2 010 and further to US$ 4 0 billion

by 2 01 5.

Simultaneously, driven by the expansion of the middle class population. With

such a favorable scenario, India is likely to emerge as the third largest

banking hub in the world by 2 0 4 0 , says a Price Waterhouse Coopers report.


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Indian Banking: Strength & Weaknesses

Major Strength Areas * Area to be geared up for futureGrowth.

Regulatory Systems Diversification of markets beyond Economic Growth Rate big cities Technological Advancement Size of banks Risk Assessment Systems HR Systems Credit Quality Banking Infrastructure

Labour InflexibilitiesHigh Transaction Costs

Turnaround success strategies

Strategies T o Be Adopted For Creating World Class Banking System ConsolidationStrict Corporate Governance NormsRegional Expansion (Both within India as well as Outside)Higher FDI limits

FTA with countries where India has comparative advantage in banking sector

Indian Banking

Sector


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New Business Opportunities

With the interest income coming under pressure, banks are urgently looking

for expanding fee-based income activities. Banks are increasingly getting

attracted towards activities such as mutual funds and insurance policiesoffering credit cards to suit different categories of customers and services

such as wealth management and equity trading. These are indeed proving to

be more profitable for banks than plain vanilla lending and borrowing.

The current policy environment enables a fair level of foreign participation

even in the non-banking financial sector of the country.


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STANDARD CHARTERED BANK: BACKGROUND

Standard chartered: leading the way in Asia, Africa and Middle East

Standard Chartered Bank is a British bank headquartered in London with

operations in more than seventy countries. It operates a network of over

1 ,7 00 branches and outlets (including subsidiaries, associates and joint

ventures) and employs 73, 000 people.

The name Standard Chartered comes from the two original banks from

which it was founded The Chartered Bank of India, Australia and China ,

and The Standard Bank of British South Africa .

It is listed on the London Stock Exchange and the Hong Kong Stock

Exchange and is among the top 25 constituent members of the FTSE 100

Index .

The CharteredBank of India,

Australia & ChinaFounded in 1853

The Standard Bank of British South Africa

Founded in 1862

FriendlyMerger in 1969

to formStandard

Chartered Bank


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In its unique position as an international bank with strong franchise,

Standard Chartered combines an in-depth knowledge of local markets with

global product expertise to offer effective financial solutions. The bank

capitalizes on its onshore presence across Asia, Africa and the Middle East to

offer customers convenient and reliable access to the widest range of

currency markets, to date local market information, country-specific global

risk management strategies, and customized capital raising and liquidity

management solutions.

Group chief executive peter sand

The present CEO is PETER SAND he was nominated as the CEO in

November 2 00 6 Sands has been with the bank since 2 00 2, and was most

recently serving as Group Finance Director. Prior to his appointment to the

Board of Standard Chartered PLC, Peter was a Director with worldwide

consultants McKinsey & Co. Peter had been with McKinsey since 1 988 where

he worked extensively in the banking and technology sectors in a wide range

of international markets. He was elected a partner of McKinsey in 1 996 and

became Director in 2 000 .

Standard Chartered Today

Today Standard Chartered is the world's leading emerging markets bank

employing 3 0 ,000 people in over 5 00 offices in more than 5 0 countries

primarily in countries in the Asia Pacific Region, South Asia, the Middle East,

Africa and the Americas.


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The new millennium has brought with it two of the largest acquisitions in the

history of the bank with the purchase of Grind lays Bank from the ANZ

Group and the acquisition of the Chase Consumer Banking operations in

Hong Kong in 2 000 .

These acquisitions demonstrate Standard Chartered firm committed to theemerging markets, where it has a strong and established presence and

where it sees their future growth .

Awards

Standard Chartered Bank has ended 2 00 7 on a high note by bagging best

bond house titles from three well-respected finance titles, fortifying its

strengths and capabilities as a bond powerhouse in the key markets of Asia,

Africa and the Middle East.

Some of the awards which standard chartered received last year are


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Best Trade Finance Bank in Singapore , Best Transaction Bank in Korea - SC

First Bank, Best Domestic Custodian in Korea - SC First Bank . best

structured trade finance bank, best sub-custodian in Indonesia, Korea and

Thailand, best trade finance bank in Singapore, best bank for liquidity

management Africa. there are many more awards which the bank received

for its good and efficient performance throughout the world.

Recent Acquisitions

In the year 2 000 standard chartered plc was in news because of its

acquisition of Grid lays bank.

Standard Chartered Completes Acquisition Of American Express Bank For$823 Million.

AEB is a wholly-owned subsidiary of AXP. Founded in 1 9 1 9 and

headquartered in New York, this acquisition will Significantly enhance

Standard Chartereds Financial Institutions transaction banking business by

bringing both new client relationships and new capabilities to this key

customer segment.

Standard Chartered Bank in India

The name is derived from Standard & Chartered. Standard Bank of British

South Africa merged with Chartered Bank of India, Australia and China in

1 969. Chartered Bank opened its first overseas branch in India, at Kolkata,

on 1 2 th April 1 858. During that time Kolkata was the most important

commercial city and was the hub of jute and indigo trades. The merger with

the Standard Bank of British South Africa in 1 969 and the acquisition of

Grind lays Bank in 2 000 were two key events that were have played an

important role in making the Bank the largest international Bank in India.


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Mr. NEERAJ SWARUP is the present CEO of standard Chartered bank India.

Mr. Swarup had been heading HDFC Bank's consumer banking business for

the last four years. He was also associated with the Bank of America.

Standard Chartered Bank is the largest international banking group in Indiawith 83 branches in 33 cities. It also has 23 1 ATMs. The Bank is having a

combined customer base of 2.5 million in retail banking and over 1 2 00

corporate customers. Stan Charts Indian operations now accounts for 1 7%

of its global revenues in 2 00 7, making it the second largest contributor (with

operating profit of $69 0 million) to the global revenues after Hong Kong.

The key business of Standard Chartered Bank in India include consumer

bankingmortgages, personal loans and wealth management- and

wholesale banking, where the bank specializes in the provision of cash

management, trade, finance, treasury and custody services.

Standard Chartered was the first to issue global credit card in India, the first

to issue photo card, the first picture card and was the first credit card issuer

to be awarded the ISO 9 00 2 certification.

Some other product innovations of Standard Chartered Bank in India include

the Sap nay credit card, the international debit card that provides free

access to over 1 5 00 visa ATMs, a first in the banking industry, Mileage, an

overdraft facility against the security of a car and smart credit, a personal

line of credit for salaried customers.


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PRESENCE OF STANDARD CHARTERED BANK IN INDIA: 33 CITIES

WITH MORE THAN 83 BRANCHES.


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MORE THAN BANKING

Corporate Social Responsibility (CSR) is at the core of the values of Standard

Chartered Bank. The Bank is committed to the communities and

environments in which it operates. The Bank strongly supports the trendtowards delivering shareholder value in a socially, ethically and

environmentally responsible manner. Living with HIV is a global community

initiative of Standard Chartered that is aimed at raising awareness of

HIV/AIDS amongst employees through workshops and amongst stakeholders

by providing thought leadership. Under Seeing is believing, a programme

that aims to restore sight to one million people globally by 2 00 7, the Bank

has raised funds to help 8 000 people to see.

In partnership with Sight Savers International and VISION2 0 2 0 the Bank is

now involved in two flagship projects at Vishakhapatnam and Muzaffarpur,

both aimed at the elimination avoidable blindness. Furthermore, in support

of the communities ravaged by the Asian Tsunami

Crisis in 2 00 4 the Standard Chartered Group committed US$ 1 million to

India. The Bank is utilizing these funds for the rehabilitation of two villages

adopted near Chennai.

In 2 00 4, Standard Chartered initiated the phenomenally successfulStandard Chartered Mumbai Marathon - an event dedicated to charity fund

raising. The two marathons held so far have forged partnerships with

customers and charities and deepened the Banks ties with the community,

with over US$ 1 million being raised in 2 00 5.


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Products offered by standard chartered

OPERATION

PERSONALBANKING

SMEBANKING

INSURANCE INVESTMENTSERVICES

LOANS ACCOUNTS

SAVINGSACCOUNT

ULIP

COMMERCIALBANKING


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TERM DEMAT 2-IN-1 SAVINGS CURRENT

ACCOUNTS

aXcessPlusNo FrillsAccount

ParivaaraaSaan Super Value


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PRODUCTS OFFERED

Standard Chartered bank provides different products and services in order to

cater the needs of the customers which can be broadly classified into the

following categories:

1 . PERSONAL BANKING : To cater the diverse financial needs, Standard

Chartered offers a wide range of premium banking products and

services through its network of 83 branches in 33 cities across the

country. As a privileged customer of this bank, the customers can

always be assured of a banking service that is flexible enough to tailor-

make a product suite to take care of his specific banking needs.

2. SME BANKING : SME Banking provides integrated financial solutions

to small and medium businesses, through a relationship management

approach. Its customer focused product offerings include working

capital finance, trade services, foreign exchange, and cash

management.

3. COMMERCIAL BANKING : Standard Chartered has maintained a long

local presence, since 1 858, with particular emphasis on relationship

banking. Significant networks have been established with vendors and

financial-related organizations to enable it to offer the customers a

comprehensive range of flexible financial services, with special focus

on transactional banking products. Supported by state-of-the-artoperations, Standard Chartered is pro-active in improving every part

of services. Electronic Delivery system has been put in place to ensure

that transactions are handled speedily. It has its Cash Product


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Specialists and dedicated Customer Service Centers to provide its

customers with effective solutions.

To fully understand the workings and functions of Standard Chartered Bank,

the scope of this project has been limited to the detailed study of only three

products offered by this bank under the above mentioned categories:

1 . Savings Account : Personal banking

2 . Unit Linked Insurance Plan (ULIP): Personal banking

3. Mutual Funds: Commercial banking

SAVINGS ACCOUNT

An account primarily opened for and operated by individuals, wherein the

numbers of transactions are few and which give the customer liquidity, with

the facility to earn some interest on the residual balances. For details of

different saving accounts offered by StanC & comparison with different

banks a/s see annexure.

Standard Chartered bank offers four types of Savings account catering to

the needs of different customers namely:

1 ) Axcess Plus -Standard Chartered bank's aXcess Plus is an innovatory

savings account that provides you with unparalleled aXcess to your money.

The customer can get instant cash at over 1 Million ATMs across the world

through the Visa network. And a globally valid Debit Card that lets you shop

at over 326, 000 outlets in India and at over 2 1 Million outlets across the

world. Minimum average quarterly balance to be maintained is Rs. 10 ,000 .


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Unique Features:

y Free aXcess to cash anytime, anywhere, across Indiay Free Unlimited Visa ATM transactions* (Cash withdrawal and balance

enquiry)y Free Standard Chartered Bank branch access across the countryy Free Doorstep Bankingy Free Demand Drafts/Pay Orders* (drawn at SCB locations)y Free Payable at Par Chequebook

Other features are:

y International debit card

y Phone bankingy Internet bankingy Extended banking hoursy 36 5 days branches open

The aXcess plus customers get FREE aXcess to cash withdrawals at over65 00 Visa ATMs in up to four free transactions per month. This is over and

above unlimited free aXcess to all Standard Chartered Bank ATMs.

2 ) Super Value An account with lots of facilities and can be termed as an

account much more than an ordinary saving account. You name it and they

offer it. The unique SuperValue savings account is proof that the best things

in life come free. With an average quarterly balance of just Rs. 5 0 ,000 , you

get a host of services from Standard Chartered absolutely free.

y Free globally valid Debit cum ATM card.


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y Free doorstep banking.y Free payable at par cheque books/ account statements/ demand

drafts.y Free Bill Pay, Inter banks funds transfer.

y Free foreign inward remittance certificate.y Free access to 65 00 ATMs across India.

Other benefits of the Super Value account

y Globally valid debit card - make purchases at over 1 2 million merchant

outlets and withdraw cash at over 8 10 ,000 ATMs worldwide using

funds from your account.y Multicity Banking - access your account even when you are out of

town.y Enjoy extended banking hours at all our branches, and Speed Cheque

Clearing and Metro Clearing facilities.y 24-hour branches, 365 day branches available at select locations.

y Phone banking - available to you 365 days a year on a 24-hour basis

in the metros and everyday of the week at other centers.y Interne t banking - access and transact on your accounts through the

Internet from any part of the world.y Free Investment Advisory Services to assist you in investing in a range

of mutual funds.y Full suite of complimentary banking services including credit cards,

loan products and capital market services.

3) No Frills Saving Accounts - No Frills Savings Account, a New account

to meet your basic banking requirements


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You can now open an account with Standard Chartered Bank, with an

average quarterly balance of as low as Rs. 25 0 . Whats more you can avail

of Anywhere Banking, by which you can access your account from any

branch of Standard Chartered Bank in India.

Unique features are;

y Quarterly Average Balance, as low as Rs. 25 0 y ATM card & Debit Card availabley 4 free transactions per month at any Standard Chartered Bank channel

(Internet banking, Phone Banking, ATM & Branch)y Anywhere banking Access your account from any branch of Standard

Chartered Bank.y Access to Phone Banking and Internet Bankingy Free Cheque deposit at any SCB Branch or ATM.

Eligibility criteria

This account is available to individual Resident Indian customers.Account may be opened after being properly introduced in a manner

approved by the Bank

4 ) aaSaan - Here's introducing Standard Chartered Bank's aaSaan savings

account - the easy solution to all your banking needs.

Its unique features are:-

y No Minimum Balance requirementy Free unlimited access to any SCB branch across the country for

Customer in-person


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y Unlimited Free access to Standard Chartered Bank ATM'sy Up to 4 free cash withdrawal transactions per month at other domestic

VISA ATMs.y Nominal quarterly fee of Rs. 100 (reversed if the Average Balance in

the quarter is Rs 10 ,000 or more

Other Facilities

y International Debit Card

y Phone bankingy Net Bankingy Extended banking hours*y Locker facility*y Doorstep banking

To open an aaSaan account, you have to initially fund the account with Rs.10 ,000 (Rs. Ten Thousand)

5 ) Parivaar - Parivaar is a unique Wealth Management Solution fromStandard Chartered Bank that offers your family flexibility, convenience and

essential tools for wealth accumulation and preservation.

y Your family can maintain individual savings accounts with the benefit

of clubbing balances in grouped accounts.

y Anytime, anywhere access to accounts through ATMs, Phone Banking

and Inter Net banking.

y Option of Systematic Investment Plan (SIP), a well known long term


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wealth building tool that allows you to invest a fixed amount of

money every month in specific mutual funds. This comes with a

direct debit facility and avoids the need to remember dates and write

cheques every month.

y Globally valid ATM-cum-debit card can be used at 55, 000 merchant

outlets in India and 1 2 million outlets worldwide.

ULIP (Unit Linked Insurance Plan)

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life

insurance policy which provides a combination of risk cover and investment.

The dynamics of the capital market have a direct bearing on the performance

of the ULIPs. ULIP is life insurance solution that provides for the benefits of

protection and flexibility in investment. The investment is denoted as unitsand is represented by the value that it has attained called as Net Asset Value

(NAV).

ULIP came into play in the 1 96 0 s and became very popular in Western Europe

and Americas. 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 lifeinsurance need to retirement planning. In todays times, ULIP provides

solutions for insurance planning, financial needs, financial planning for

childrens future and retirement planning.

A ULIP, as the name suggests, is a market-linked insurance plan. A ULIP is a


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unit linked insurance plan. This is the type of investment where the

characteristics of insurance and mutual fund are combined. Some part of the

money invested goes into the insurance cover and the remaining goes into an

asset class.

The main difference between a ULIP and other insurance plans is the way in

which the premium money is invested. Premium from, say, an endowment

plan, is invested primarily in risk-free instruments like government securities

(gsecs) and AAA rated corporate paper, while ULIP premiums can be invested

in stock markets in addition to corporate bonds and govt. securities.

Type of Funds Most insurers offer a wide range of funds to suit ones investment objectives,

risk profile and time horizons. Different funds have different risk profiles. The

potential for returns also varies from fund to fund.

The following are some of the common types of funds available along with an

indication of their risk characteristics.


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General Description Nature

of Investments

Risk Category

Equity Funds Primarily invested in

company stocks with

the general aim of

capital appreciation

Medium to High

Income, Fixed Interest

and Bond Funds

Invested in corporate

bonds, government

securities and other

fixed income

instruments

Medium

Cash Funds Sometimes known as

Money Market Funds

invested in cash,

bank deposits andmoney market

instruments

Low

Balanced Funds Combining equity

investment with fixed

interest instruments

Medium

ULIPs offer a variety of options to the individual depending on his risk profile.

For instance, an individual with an above-average risk appetite can choose a

ULIP option that invests up to 6 0 % of premium in equities. Likewise, an


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individual with a lower risk appetite can select a ULIP that invests up to 2 0 %

of premium in equities.

SUM ASSURED

Perhaps the most fundamental difference between ULIPs and traditional

endowment plans is in the concept of premium and sum assured.

When you want to take a traditional endowment plan, the question your agent

will ask you are -- how much insurance cover do you need? Or in other words,

what is the sum assured you are looking for? The premium is calculated based

on the number you give your agent.

With a ULIP it works in reverse. When you opt for a ULIP, you will have to

answer the question -- how much premium can you pay?

Reasons why ULIPs score over endowment plans

Such has been the popularity of ULIPs in the recent past that they have

outpaced the growth of regular endowment plans. We take a look at the mostimportant reasons why ULIPs score over endowment plans.

1 . The power of equity

Simply put, ULIPs are life insurance plans, which have a mandate to invest

upto 100 % of their corpus in equities. While individuals have the choice to

shift between equity and debt (explained later in this article), several studies

have shown that equities are best equipped to deliver better returnscompared to their fixed-return counterparts like bonds and gsecs. And given

the fact that life insurance is a long-term contract, equity-oriented ULIPs

augur well for the policyholder.


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2 . Flexibility

While ULIPs offer the opportunity to invest up to 100 % in equity, it is also

true that ULIPs provide individuals the flexibility to shift to up to 100 % debt.

It is entirely upon the individual how he wishes to allocate his premiums

between equity and debt. This is not the case with endowment type plans-

individuals can't choose their investment avenues and have to be content with

the insurance company's investment decisions which revolve largely around

debt.

ULIPs are available in 3 broad variants: 'Aggressive' ULIPs, which invest upto100 % of their corpus in equities, 'Balanced' ULIPs which invest upto 6 0 % of

their corpus in equities and 'Conservative' ULIPs which invest up to 100 % of

their corpus in debt instruments and the money market instruments*.

Individuals are free to decide where they want to invest their money. For

example, individuals with an appetite for risk can invest their entire money in

equities while conservative individuals have the option to park their money in

balanced or conservative ULIPs.

* The percentages given in the paragraph above may differ across life

insurance companies.

That apart, ULIPs also provide individuals with the flexibility of

terminating/resuming premiums, increasing/decreasing premiums and paying

top-ups (i.e. a one-time sum over and above the regular premium) whenever

possible. These options are not available in regular endowment plans.

3. Transparency

For the first time, ULIPs introduced transparency into the manner in which life

insurance products were being managed. This is something that was missing


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in conventional savings-based insurance products (like endowment/ money-

back/ pension plans). To understand why we are saying this, one has to first

understand the structure of traditional endowment plans. Traditional

endowment plans have been opaque in more ways than one.

To begin with, traditional endowment plans have invested a sizable portion of

their corpus in debt instruments like gsecs and bonds. The quantum of money

invested is not known. Individuals do not have access to portfolios of

endowment plans so they never find out how much money is in debt/equities.

Add to this the fact that the expenses, which form a sizable percentage of the

premium in the first few years, are also not clear and you have a situation

where the individual is 'investing' in life insurance purely on the basis of faith

and little else!

Unit linked plans brought transparency into the scheme of things. Today, if an

individual wants to invest in a ULIP, he knows upfront what percentage of the

premium is being invested, what are the charges being levied and where his

monies are being invested. This is a welcome change for the policyholder.

Another advantage ULIPs offer is that they enable insurance seekers to

compare plans across companies and help him buy a plan that fits well into

his portfolio. Also ULIPs disclose their portfolios at regular intervals, so you

know exactly where your money is being invested.

4 . TAX BENEFITS

Taxation is one area where there is common ground between ULIPs and

traditional endowment. Premiums in ULIPs as well as traditional endowment

plans are eligible for tax benefits under Section 8 0 C subject to a maximum

limit of Rs 100 ,000 . On the same lines, monies received on maturity on ULIPs

and traditional endowment are tax-free under Section 10 .


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5 . Liquidity

ULIPs offer liquidity to the individual. He can withdraw money anytime he

wishes to once the initial years' premiums are paid. He will not be levied with

any surrender charges i.e. he stands to get the full market value of his

investments, net of charges, till date. This is unlike conventional endowment

plans where individuals tend to lose out on surrender charges on surrendering

their policies. Besides, part surrender is also allowed in ULIPs. Simply put,

part surrender allows individuals to withdraw a part of their corpus and thuskeep the policy alive, albeit with some adjustments. This helps individuals tide

over a situation where they need cash but have few 'liquid' investments at

their disposal.

So does this mean that it is the end of the road for endowment plans? Not

quite! Individuals need to understand the de-merits of investing in market-

linked products like ULIPs. The latter are susceptible to the vagaries of

markets and can burn a hole in your portfolio over the short term. So if you

can't withstand that kind of volatility, equity-oriented ULIPs are not the right

investment option for you. Insurance seekers would do well to take into

consideration their risk appetite as well as their overall financial portfolio

before taking a final call on ULIP investments. The ideal option is to have a

prudent mix of endowment and ULIPs depending on your preference for either

long-term growth or stability.

CHARGES

Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before


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allocating the units under the policy. This charge normally includes initial and

renewal expenses apart from commission expenses.

Mortality Charges

These are charges to provide for the cost of insurance coverage under the

plan. Mortality charges depend on number of factors such as age, amount of

coverage, state of health etc

Fund Management Fees

These are fees levied for management of the fund(s) and are deductedbefore arriving at the Net Asset Value (NAV).

Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of

units. This could be flat throughout the policy term or vary at a pre-

determined rate.

Surrender Charges

A surrender charge may be deducted for premature partial or full encashment

of units wherever applicable, as mentioned in the policy conditions.

Fund Switching Charge

Generally a limited number of fund switches may be allowed each year

without charge,with

subsequent switches, subject to a charge.

Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the

risk portion of the premium.


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Investors may note, that the portion of the premium after deducting for all

charges and premium for risk cover is utilized for purchasing units.

ULIP STANDARD CHARTERED

The flexible Unit linked life insurance plans at Standard Chartered bank

provides the opportunity to participate in market-linked returns while enjoying

the valuable benefits of life insurance. Insurance Plans for Standard Chartered

Bank customers is issued by Bajaj Allianz Life Insurance Company Limited.

BAJAJ ALLIANZ:

Bajaj Allianz General Insurance Company Limited is a joint venture between

Bajaj Auto Limited and Allianz SE. Both enjoy a reputation of expertise,

stability and strength.

The Allianz Group is one of the leading global services providers in insurance,

banking and asset management.

With approximately 1 8 1 ,000 employees worldwide (as of December 3 1 ,2 00 7), the Allianz Group serves more than 8 0 million customers in about 7 0

countries. On the insurance side, Allianz is the market leader in the German

market and has a strong international presence.

In fiscal 2 00 7 the Allianz Group achieved total revenues of over 10 2 billion

euros. Allianz is also one of the worlds largest asset managers, with third-

party assets of 765 billion euros under management at year end 2 00 7.

Bajaj Auto Ltd, the flagship company of the Rs8 0 bn Bajaj Group is the largest

manufacturer of two-wheelers and three-wheelers in India and one of the

largest in the world. Bajaj Auto has a strong brand image & brand loyalty

synonymous with quality & customer focus in India


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In the Indian market, together are committed to offer Insurance solutions that

provide all the security needed for a family.

BAJAJ ALLIANZ NEW SECURE FIRST PLAN

Bajaj Allianz New Secure First offers the unique option of combining the

protection of life insurance with the attractive prospect of investing in

securities. It provides you with an opportunity to have a direct stake in the

performance of financial market. . By choosing an appropriate premium level

and term, individual can match the maturity date of the plan to a specific

savings need such as childs education, wedding, retirement etc. This is theone-stop solution to investment, tax-saving and protection needs.

The key features of New Secure First Plan are :

y It is a unit linked plan with a minimum of 5 years and maximum

maturity age 7 0

y Guaranteed death benefit: Value of units plus Sum Assured.

y Choice of 5 investment funds today with flexible investment

management: you can change funds at any time and also invest in the

newer funds that would be introduced from time to time.

y Attractive investment alternative to fixed interest securities

y Provision for full/partial Withdrawl any time after three years from

commencement if three full years premium are paid.

y Unmatched flexibility to match changing needs of customer to manage

investments, pay top-ups, and cash withdrawal option.


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Other benefits are;

y Maturity benefit- On maturity, the value of units in the fund will be paid

out and policy will terminate.

y Option of choosing from a host of additional rider benefits:

UL Accidental Death Benefit, UL Accidental Permanent Total/Partial Disability

Benefit, UL Critical Illness; Benefit and UL Hospital Cash Benefit

y Increase savings by paying top up premiums

y Flexibility to increase / decrease the regular premiums


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MUTUAL FUNDS

A mutual fund is a pool of money, collected from investors, and is investedaccording to certain investment objectives. A mutual fund uses the money

collected from the investors to buy those assets which are specifically

permitted by its stated investment objective. The funds assets are owned by

the investors in the same proportion as their contribution bears to the total

contributions of all investors put together.

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1 963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank


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the. The history of mutual funds in India can be broadly divided into four

distinct phases

First Phase 19 6 4 -87 GROWTH OF UNIT TRUST OF INDIA

Unit Trust of India (UTI) was established on 1 963 by an Act of Parliament. It

was set up by the Reserve Bank of India and functioned under the

Regulatory and administrative control of the Reserve Bank of India. In 1 978

UTI was de-linked from the RBI and the Industrial Development Bank of

India (IDBI) took over the regulatory and administrative control in place of

RBI. The first scheme launched by UTI was Unit Scheme 1 964. At the end of

1 988 UTI had Rs.6, 7 00 crores of assets under management.

Second Phase 19 87- 199 3 (Entry of Public Sector Funds)

1 987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC). SBI Mutual Fund was the first

non- UTI Mutual Fund established in June 1 987 followed by Canbank Mutual

Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90

), Bank of Baroda Mutual Fund(Oct 92). LIC established its mutual fund in June 1 989 while GIC had set up

its mutual fund in December 1 99 0 . At the end of 1 993, the mutual fund

industry had assets under management of Rs.47, 00 4 crores.

Third Phase 199 3- 200 3 (Entry of Private Sector Funds)

With the entry of private sector funds in 1 993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider choice of

fund families. Also, 1 993

was the year in which the first Mutual Fund Regulations came into being,

under which all mutual funds, except UTI were to be registered and


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governed. The erstwhile Kothari Pioneer (now merged with Franklin

Templeton) was the first private sector mutual fund registered in July 1 993.

The 1 993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1 996. The industry

now functions under the SEBI (Mutual Fund) Regulations 1 996.

The number of mutual fund houses went on increasing, with many foreign

mutual funds setting up funds in India and also the industry has witnessed

several mergers and acquisitions. As at the end of January 2 00 3, there were

33 mutual funds with total assets of Rs. 1 ,2 1 ,8 0 5 crores. The Unit Trust of

India with Rs.44, 54 1 crores of assets under management was way ahead of

other mutual funds.

Fourth Phase since February 200 3

In February 2 00 3, following the repeal of the Unit Trust of India Act 1 963

UTI was bifurcated into two separate entities. One is the Specified

Undertaking of the Unit Trust of India with assets under management of

Rs.29, 835 crores as at the end of January 200

3, representing broadly, theassets of US 64 scheme, assured return and certain other schemes. The

Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and

LIC. It is registered with SEBI and functions under the Mutual Fund

Regulations. With the bifurcation of the erstwhile UTI which had in March

2 000 more than Rs.76, 000 crores of assets under management and with

the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund

Regulations, and with recent mergers taking place among different private

sector funds, the mutual fund industry has entered its current phase of


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consolidation and growth. As at the end of September, 2 00 4, there were 29

funds, which manage assets of Rs. 1 53 10 8 crores under 42 1 schemes.

The graph indicates the growth of assets over the years.

CHARGES

The Asset Management Companies (AMCs) managing the Mutual Funds levy

a load as a percentage of NAV at the time of entry into the Schemes or at

the time of exiting from the Schemes.

Entry Load - It is the load charged by the fund when an investor invests

into the fund. It increases the price of the units to more than the NAV and is

expressed as a percentage of NAV.

Exit Load - It is the load charged by the fund when an investor redeems the

units from the fund. It reduces the price of the units to less than the NAV

and is expressed as a percentage of NAV.


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Cost of Churning/Turnover cost - It refers to the costs associated with

the churning (or changes made to the holdings) of the portfolio. Portfolio

changes have associated costs of brokerage, custody fees, transaction fees

and registration fees, which lower the returns. The quantum depends on the

management style of the fund manager.

Expense Ratio - The Expenses of a mutual fund include management fees

and all the fees associated with the fund's daily operations. Expense Ratio

refers to the annual percentage of fund's assets that is paid out in expenses.

Tax

Capital Gains Tax - The profit realizations on sale of securities and certain

other capital assets (including units of mutual funds) are called capital gains.

The gains can be classified into long-term or short-term depending on the

period of holding of the asset and are charged to tax at different rates. Gains

on mutual fund units held for a period of 1 2 months or more are long-term

gains. These gains are taxable.

Dividend Distribution Tax The Mutual Fund schemes dist

Documents

Portfolio Management at Standard Chartered