A Project Study Report On Training Undertaken at

Titled FINANCIAL ADVISORY SERVICES

Submitted in partial fulfillment for the Award of degree of Master of Business Administration

Submitted To:

FMS- MAIET
sharma

Submitted By: Rajesh kumar

MBA III Sem.

2012-2013

MAHARISHI ARVIND
INSTITUTE OF ENGINEERING & TECHNOLOGY

PREFACE

Today realize the importance of practical Knowledge over the theoretical base. Hence, most of the business schools today have mid-modules as well as final projects incorporation as a part of their syllabus. The Project is about Financial Advisory Services. In which bank provides information about the investment & insurance plans. According to their age & income group, AXIS Bank provides different plans. Axis bank has Bajaj Allianz and MetLife as channel partners so that it provide good services at one place. Axis bank promotes Mutual funds of ICICI, Reliance, DSPML, SBI, and Birla Sun Life etc. Under this project I, as a trainee under the bank authorities, promoted different investment & insurance plans to customers and also did market survey in order to study consumer behaviour.

ACKNOWLEDGEMENT
I express my sincere thanks to my project guide, me right form the inception till the successful completion of the project. I sincerely acknowledge him/her/them for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he/she/they had provided to me with all stages of this project. I would also like to thank the supporting staff (FAS Realationship Manager) of Department, for their help and cooperation throughout our project.

(Signature of Student) Rajesh kumar sharma Name of the Student

CONTENTS

1. Introduction to the industry 2. Introduction to the Organization 3. Research Methodology 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Title of the Study Duration of the Project Objective of the Study Type of Research Sample Size and method of selecting sample Scope of Study Limitation of Study

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29 29 29 29 29 31 65 69 70 80 82
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4. Facts and Findings 5. Analysis and Interpretation 6. SWOT 7. Conclusion

8. Bibliography

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INTRODUCTION TO THE INDUSTRY

Banking in India

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. 5

Early history Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1925 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. The first fully Indian owned bank was the Allahabad Bank, established in 1865. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondichery, then a French colony,

followed. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. Punjab National Bank is the first Swadeshi Bank founded by the leaders like Lala Lajpat Rai, Sardar Dyal Singh Majithia. The Swadeshi movement in particular inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

From World War I to Independence The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to warrelated economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalisation of major banks in India on 19th July, 1969.

Nationalisation By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies 9

(Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. Liberalisation In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank(now re-named as Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more.

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Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

INTRODUCTION TO THE ORGANIZATION

ABOUT AXIS BANK

Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) 11

and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank today is capitalized to the extent of Rs. 358.56 crores with the public holding (other than promoters) at 57.60%. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. Presently, the Bank has a very wide network of more than 701 branch offices and Extension Counters. The Bank has a network of over 2854 ATMs providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country.

Promoters The largest and the best Financial Institution of the country, UTI, have promoted Axis Bank Ltd.. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing Rs. 100 crore, LIC - Rs. 7.5 crore and GIC and its four subsidiaries contributing Rs. 1.5 crore each.

SUUTI - Shareholding 27.11% Erstwhile Unit Trust of India was set up as a body corporate under the UTI Act, 1963, with a view to encourage savings and investment. In December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 by the Parliament, paving the way for the bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003. In accordance with the Act, the Undertaking specified as UTI I has been transferred and vested in the Administrator of the Specified Undertaking of the 12

Unit Trust of India (SUUTI), who manages assured return schemes along with 6.75% US-64 Bonds, 6.60% ARS Bonds with a Unit Capital of over Rs. 14167.59 crores. The Government of India has currently appointed Shri K. N. Prithviraj as the Administrator of the Specified undertaking of UTI, to look after and administer the schemes under UTI - I, where Government has continuing obligations and commitments to the investors, which it will uphold.

Milestones
Mar-08 Axis Bank launches Platinum Credit Card, India's first EMV chip based card Dec-07 Axis Bank gets AAA National Long-Term Rating from Fitch Ratings Sept-07 Axis Bank ties up with Banque Prive Edmond de Rothschild Europe for Wealth 13

Management July-07 UTI Bank re-brands itself as Axis Bank July-07 UTI Bank successfully raises USD 1050 million July-07 UTI Bank ties up with Tata Motors Ltd. for Car Loans June-07 UTI Bank's expansion into Asia supported by FRS May-07 UTI Bank launches 'Spice Rewards' on the bankcards - India's first-ever merchant-supported rewards program April-07 UTI Bank opens a Financial Services Category I Branch in the DIFC in Dubai Mar-07 UTI Bank ties up with Hyundai Motor India Ltd. for Car Loans

Mar-07 UTI Bank ties up with IIFCL to provide finance for infrastructural projects in the country

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Mar-07 UTI Bank launches Car Loans in association with Maruti Udyog Ltd Mar-07 UTI Bank opens a Full License Bank Branch in Hong Kong Feb-07 Finance Minister Shri P. Chidambaram Launches Shriram - UTI Bank Co - Branded Credit Card Exclusively For Small Road Transport Operators (SRTOS) Feb-07 UTI Bank announces the launch of its Meal Card Feb-07 UTI Bank announces the launch of its Gift Card Feb-07 LIC Premium payment now through UTI Bank Branches Jan-07 UTI bank opens Priority Banking branch in Mumbai and Kolkata Nov-06 UTI Bank opens Priority Banking Lounge in Pune Sep-06 UTI Bank launches operations of UBL Sales, its Sales Subsidiary - Inaugurates its first office in Bangalore 15

Aug-06 UTI Bank announces the launch of its Credit Card Business Aug-06 UTI Bank becomes the first Indian Bank to successfully issue Foreign Currency Hybrid Capital in the International Market Aug-06 UTI Bank Business Gold Debit Card MasterCard Launched - Designed for business related spending by SMEs and self employed professionals Aug-06 UTI Bank announces the scheme of issuance of "Senior Citizen ID Card" in association with Dignity Foundation Aug-06 UTI Bank rolls out its 2000th ATM July-06 UTI Bank opens Representative Office in Shanghai May-06 UTI Bank and LIC join hands to launch an Annuity Card for group pensioners of LIC May-06 UTI Bank ties up with Geojit Financial Services to offer Online Trading service to its customers 16

Apr-06 UTI Bank opens its first international branch in Singapore Jan-06 UTI Bank and UTI Mutual Fund to launch a new service for sale and redemption of mutual fund schemes through the Bank's ATMs across the country Dec-05 UTI Bank wins International Financing Review (IFR) Asia 'India Bond House' award for the year 2005 Oct-05 UTI Bank extends banking services to the rural milk producers in Anand and Kheda districts in Gujarat July-05 UTI Bank and Visa International launch Mobile Refill facility - Anytime, Anywhere Pre-Paid Mobile Refill for all Visa Cardholders in India May-05 UTI Bank and Bajaj Allianze join hands to distribute general insurance products Apr-05 UTI Bank launches Smart Privilege - a special bank account designed for women Mar-05 MTNL ties up with UTI Bank for payment of telephone bills through the Bank's ATM network

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Mar-05 UTI Bank gets listed on the London Stock Exchange, raises US$ 239.30 million through Global Mar-05 Depositary Receipts (GDRs)

Feb-05 UTI Bank appointed by Government of Karnataka as the sole banker for the Bangalore One (B1) project Feb-05 UTI Bank launches a powerful version of Kisan Credit Card Jan-05 UTI Bank ties up with Remit2India to launch the Remittance Card Mar-04 UTI Bank enables premium payment of LIC policies through its ATMs. Feb-04 Bilateral arrangement between State Bank of India (and its 7 associate member banks) and UTI Bank. comes into force with the commencement of operations (as on 3rd February '04) of the combined network of over 4000 ATMs Feb-04 UTI Bank (by pursuing a proactive strategy of forging bilateral agreements and being a 18

progressive player in the multi-lateral consortiums for shared ATM network) offers its customers access to over 7000 ATMs across the country - the largest to be offered by any bank in India so far. Dec-03 Bank inaugurated its ATM at Thegu near the Nathula Pass in Sikkim. This ATM is at the highest altitude in India. Sep-03 The Bank's ATMs across the country crosses the thousand mark Sep-03 Bank launches the Travel Currency Card.

Aug-03 The Bank's Debit Card crosses the one million mark. Aug-03 Total Advances cross Rs 7,000 Crore. May-03 Bank declares a net profit of Rs 192.18 crores for FY03, a growth of 43% over the previous year Mar-03 Bank signs Agreement with Employees Provident Fund Organization (EPFO) for disbursement of Pension

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Mar-03 Bank crosses the 800 ATM mark Mar-03 The Bank issues 3,83,62,834 fully paid up equity shares totaling to Rs. 164.00 crores. Mar-03 Preferential offer to Life Insurance Corporation of India (now constituting 13.54% of Mar-03 the Bank's expanded equity), Citicorp Banking Corporation, Bahrain (holding 3.84%), ChrysCapital I, Mar-03 LLC, Mauritius (holding 3.84%) and Karur Vysya Bank Ltd.(constituting 1.00%) The Bank also Mar-03

Increases the authorised share capital of the Bank from Rs. 230 crores to Rs. 300 crores. Feb-03 Bank, in a pioneering move, launches the AT PAR Cheque facility, free of cost, for all its Savings Bank customers. Feb-03 Bank wins mandate to set up 14 ATMs at the Western Railway stations along the Mumbai division. 20

Oct-02 Bank launches Corporate iConnect? - the Internet Banking facility for Corporates Aug-02 Bank signs MoU with BSNL regarding bill collection services across the country through both online and offline channels. Apr-02 Bank opens its 500th ATM Mar-02 Deposits Cross Rs.12, 000 Crore Jan-02 The Bank's 100th branch opens at Tuticorin,Tamilnadu Jan-02 The Bank opens an ATM at the Gol Dak-Khana, i.e. the New Delhi GPO, making it the first instance of a commercial bank setting up an ATM at any post-office in the country. Dec-01 Total Advances cross Rs 5,000 Crore Nov-01 The deposit base for the Bank crosses Rs. 10,000 Crore Sep-01 Private placement of 26% stake in the Bank to CDC Capital Partners. UTI holding reduces to 21

44.88% Aug-01 Bank signs MoU with India Post for introducing value added financial products and services to customers of both organizations, including setting up of UTI Bank ATMs in post offices. July-01 Bank ties up with Govt of Andhra Pradesh for collection of commercial tax Dec-00 Bank opens its 200th ATM. It becomes the 2nd largest ATM network in the country, a position held even today. Oct-00 Bank becomes fully networked July-00 E-commerce initiatives announced July-00 Financial Advisory Services offered beginning with marketing of US 64 Apr-00 UTI Bank calls off its proposed merger with Global Trust Bank and surges ahead on its own. Apr-00 Bank launches its Internet banking module, iConnect Retail loans introduced for the first time by the Bank 22

Mar-00 Profits cross Rs 50 crore mark for the first time. Feb-00 Bank adopts Finacle software from Infosys for core banking Jan-00 Dr.P.J Nayak takes over as Chairman and Managing Director from Shri Supriya Gupta. Sep-99 Cash management services (CMS) launched, Co branded credit card launched Mar-99 Deposits cross Rs.3000 crores Sep-98 UTI Bank goes public with a Rs. 71 crore public issue; Issue over-subscribed 1.2 times, over 1 lakh retail investors. UTI holding reduces to 60.85% Jun-96 Crosses Rs.1000 crore deposit mark Mar-95 Completes first profitable year in operation

Why UTI bank converted into Axis bank?

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The erstwhile UTI Bank has changed its name to Axis Bank effective July 30, 2007. This is the first time that a bank has gone in for a brand-change voluntarily; earlier names of banks have been changed either due to a merger or an acquisition. Its promoters gave UTI brand in 1994 and UTI Bank could use the brand only till January 2008 as per Govt directives. Many unrelated shareholder entities like UTI Technological Services, UTI Investor Services and UTI Securities were carrying the UTI brand. Axis refers to a line of reference, stability and maturity. The new logo of the bank has the same color as the previous UTI logo but now uses the alphabet A from the word Axis. The bank is also publicizing the change through campaign titled Twins both equal. Axis Bank has business of Rs.102, 000 crore with a market capitalization of Rs.21, 817 crore making it the fifth largest in India. It has 60 lakh customers and communicating to them the name change would be the prime exercise for the bank. Immediately, the bank will replace signages in 8 metro cities while in other 250 cities by September. It is also informing customers about the brand change though Internet and mobile banking, ATM, call centers, newspapers and radio. Even elements like chequebooks, welcome kits, and pay orders have been resigned to reflect the new look. Now with a name having universal appeal, the bank would now work towards becoming a multinational bank and diversifying into other financial services like AMC, insurance and restructure operations to reflect a modern approach to banking. However, the bank also has a task in its hand to communicate to the customers and public about its nature as having a UTI name prefixed would have implied that it has been a quasigovernment bank. It would also have to educate about its shareholding to further expand itself into the retail business.

PERFORMANCE HIGHLIGHTS Q1 FY07 24

 Net Profit 89 % yoy* Net Interest Income 93 % yoy Fee Income 80 % yoy Operating Revenue 82 % yoy Operating Profit 118 % yoy Net Interest Margin 3.35 % Cost of Funds 6.11 % *The growth in Net Profit was recorded after making a provision of Rs. 225.20 crores on the Depreciation of the Banks investment portfolio, on account of weakening financial markets

INTERPRETATION OF Q1 PERFORMANCE Rapid Growth in the Banks core businesses Total Net Advances grow 48% yoy to Rs. 61,160 crores Total Investments grow 34% yoy to Rs. 35,718 crores Total Assets register a 44% yoy growth, rising to Rs. 113,660 crores Fees grow by 80% yoy, rising to Rs. 484 crores Share of demand deposits in total deposits at 40% Retail Assets grow by 52% yoy to Rs. 14,638 crores; constitute 24% of total

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Mission And Values

Banks Mission Customer Service and Product Innovation tuned to diverse needs of individual and corporate clientele. Continuous technology up gradation while maintaining human values. Progressive globalization and achieving international standards. Efficiency and effectiveness built on ethical practices.

Core Values Customer Satisfaction through Providing quality service effectively and efficiently "Smile, it enhances your face value" is a service quality stressed on Periodic Customer Service Audits Maximization of Stakeholder value Success through Teamwork, Integrity and People

RESEARCH METHODOLOGY
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 3.1 Title of The Study

The project has been named as Financial Advisory Services In Axis Bank, Jaipur.

3.2 Duration Of The Project

The project study has been completed in a period of two months, specifically the period ranging from 1st July, 2008 to 31st August, 2008.

3.3

Objective Of The Study

The main aim or objective behind undertaking this project was to analyse the financial advisory services provide by the bank and also the behaviour of the customers in relation to the various investment avenues along with the advisory services of the bank.

3.4

Type Of Research
The research was based on a sample survey. The survey was conducted on the customers as well as the noncustomers of the bank.

3.5

Sample Size and Method Of Selecting Sample

The survey comprises of 50 samples. On the basis of the informations as provided by the customers, a

graphical Analysis has been made. The informations or the samples were collected by asking the people to fill up a questionnaire which was prepared by myself as per the guidance provided by my immediate supervisors. The survey was carried in the premises of the bank on its customers as well as non-customers of the bank. The report is preaperd with the help pf the primary and secondary data.

Scope Of The Study

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FINANCIAL ADVISORY SERVICES

Financial advisory services refers to the advices and the help provided to customers by the bank staff and employees regarding safe investment and fund utilization avenues that would help them not only in getting their funds secured but would also yield a desirable and considerable return on the amount invested. Axis Bank provides different financial services to the customers, which includes information about investment & insurance plans. For investments, we promote mutual funds of different companies like ICICI Prudetial, Reliance Capital funds, DSP Meryll Lynch, SBI Mutual Funds, Kotak Group, etc. For insurance we have BAJAJ Allianz & MetLife as channel partners.

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DIFFERENT INVESTMENT AVENUES:

The stock markets have reached dizzying heights. Risk-averse investors are rethinking their investment strategy. Interest rates are increasing and they generally have a negative impact on the stock markets. The days of getting more than 50% returns from the stock markets are over seems to be the unanimous opinion amongst India's leading brokerage houses. Even if one were to get less than 50% returns in today's stock markets the path will be strewn with a lot of volatility they believe. In such a scenario, we all would want to look at safe but decent returns on our investments. And it is an added advantage if these investments help us save on tax. Section 80C and 80CCC provide for tax deduction on certain investments like the Employees' Provident Fund (EPF), Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP), National Savings Certificate (NSC), bank fixed deposit (FD) and Equity Linked Saving Scheme (ELSS). Apart from providing decent and stable returns these savings options also help you plan and save on your tax liabilities. However, the aggregate of deductions under section 80C and 80CCC cannot exceed Rs 100,000. Let's have a look at these avenues, their pros and cons, and what kind of risk-free returns can you get from them.

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Employees' Provident Fund(EPF): This is one of the very safe investment avenues. The current interest rate of EPF is 8.5% per annum. However, this rate is not fixed and the government can modify the same from time to time. The best part of EPF is that the interest earned is exempt from tax under section 10 (12) of the Income Tax Act. That is the entire interest income earned by you goes into your pocket. The taxman gets nothing. Investment in EPF can be made by way of a monthly contribution from your salary. The amount contributed is 12% of the total of your basic salary and dearness allowance. Over and above this 12%, some companies allow their employees, with certain ceilings (a certain amount above which money can't be invested), to contribute an additional amount towards EPF. This is called voluntary provident fund (VPF). VPF is also eligible for tax deduction under section 80C. You will be exempt from tax if withdrawals are done after a continuous contribution for 5 years or more, through one or more employers. However if you withdraw money before five years the entire interest portion and the employer's contribution are taxable in the year of withdrawal. Portion of withdrawal which pertains to employee's own contribution is not taxable. One of problems with EPF investment is that you cannot make lump sum investment into the same. The other problem is that at the time of withdrawal it often takes more than a few months to receive the money from the PF trust.

Public Provident Fund (PPF): PPF is considered yet another safe investment avenue. The current interest rate on PPF is 8% per annum. Again like EPF the rate of interest is not fixed. The government modifies the same from time to time.

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The best part of PPF is that the interest thereon is exempt from tax under section 10(11) of the Income Tax Act. Tax deduction can be claimed on contribution made by an individual into his own PPF account or into the PPF account of his spouse or children. PPF account can be opened in a nationalized bank or a post office. It is a 15-year account. The entire amount including accumulated interest can be withdrawn after 15 years. Partial withdrawals (which are also tax free) are allowed from the 7 th year. The minimum investment amount is Rs 500 per financial year and the maximum is Rs 70,000 per financial year. The amount of investment one can make may vary every year giving you a lot of flexibility in planning your investments. Many of you may not like to invest in PPF due to its very long tenure (15 years). However, you may open an account and contribute only small sums initially; after all minimum annual contribution is just Rs 500. In later years, contributions can be increased.

Life insurance policy (including ULIP & pension plan) There are a variety of insurance products available. The traditional plans such as money back, cash back, endowment, whole life, children plans are considered relatively safe. However, the returns thereon vary between 4% per annum to 6% per annum. For most of these plans premium has to be paid monthly, quarterly, semi-annually or annually during the term of the policy. The risk categorization of ULIPs depends on the type of fund you opt for. The fund that invests its corpus mainly in equity (stocks) is considered riskier while the one investing chiefly in bonds/debentures (government debt akin to banks' fixed deposits) is considered relatively safer. The riskier funds offer potential for high returns while safe funds offer moderate returns. Tax deduction can be claimed on the premium paid in respect of life insurance policy of self, spouse or children.

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If the annual life insurance premium were more than 20% of the sum assured then the deduction would be restricted to 20% of the sum assured. For example, if the sum assured is Rs 1,00,000 then only Rs 20,000 will be available for tax deduction. The death benefits of the life insurance policy are exempt from tax. If the annual insurance premium does not exceed 20% of the sum assured, the survival benefits are also exempt from tax under section 10(10D) of the Income Tax Act. Generally, it is not a good idea to invest in insurance policies. Enough has already been written on this topic and explains how the high selling, distribution and other expenses reduce the investor's returns.

National Savings Certificate (NSC) This is also a very safe investment avenue. The certificate has a maturity period of 6 years. The current interest rate is 8.16% per annum. The interest rate is fixed in a sense that subsequent changes to the interest rates do not affect you. That is, any increase/decrease in interest rates will not have any impact on your investment or interest earned. If you invest Rs 100 in NSC, you will receive Rs 160 after 6 years assuming an interest rate of 8.16% per annum. One major drawback of NSC is that interest is taxable. If you are in the highest tax bracket then the post-tax return for you can be as less as 5.44% per annum instead of 8.16%. NSCs can be purchased at any post office in your locality. Section 80C also allows deduction on earned interest on NSC during the first five years. However, no deduction on accrued interest is available in the year in which the NSC matures. For instance, if you earn Rs 10,000 as interest in the sixth year then it will be taxed. Interest earned during the previous five years will be tax-free.

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Bank fixed deposits (FDs) This is considered as a safe investment avenue. Certain 5-year FDs with Scheduled Banks (Scheduled banks are those that are listed in the 2 nd Schedule to the RBI Act. Most well known banks are scheduled banks) qualify for tax deduction. The interest rates vary from 7.5% per annum to 9% per annum. The interest rate is fixed in a sense that subsequent changes to the interest rates do not affect you. One major drawback of FDs is that interest is taxable. If you are in the highest tax bracket, the post tax return for you can be as less as 5% per annum.

Equity Linked Savings Scheme (ELSS) These are also known as tax saving mutual funds. Since ELSSs invest their corpus mainly in stock markets, these investments are considered relatively risky. However, they offer potential for high returns. In fact, thanks to a booming Indian economy, some of the ELSSs have given over 50% annual compounded returns over the last 3 or even 5 years. In our view, for the new investors the realistic expectations should, however, be around 15% per annum. Investment in ELSS has a lock-in period of 3 years. After 3 years, you can encash the investments at any time you want. The returns from ELSSs are in the form of dividends and/or capital gains and are exempt from tax. Now here are a few options that may not help you get tangible returns but can surely help you in claiming tax deductions, and of course, some intangible ones. Repayment of home loan, payment of stamp duty and registration fee and your child's tuition fee may not bring any tangible returns in the short term, but they can surely help you save on tax.

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A child's education, on the other hand, will bring intangible returns when your child grows up to be a good educated person. Repayment of home loan Repayment of loan taken from certain agencies such as banks, home finance companies, etc. for purchase or construction of residential house or property is allowed as deduction. Tax deduction can also be claimed on prepayments and payments. Foreclosure is premature repayment of entire outstanding loan. Suppose you get a one-time bonus or an ESOP payment of Rs 3,00,000 and your outstanding home loan is Rs 2,50,000. And you still have two years to repay your loan. However, if you repay this loan before that then it is a foreclosure payment or you have foreclosed your housing loan. Deduction under section 80C is not available in respect of repayment of refinanced home loan.

Mutual fund: Mutual fund is a mechanism for pooling resources by issuing units to the investors and investing funds in securities in accordance with the objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.

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The investors in proportion to their investments share the profits or losses. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund is required to be registered with the Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public. What is the history of mutual funds in India and role of SEBI in mutual funds industry? Unit Trust of India was the first mutual fund set up in India in 1963. In the early 1990s, the Government allowed public sector banks and institutions to set up mutual funds. In 1992, the Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are - to protect the interest of investors in securities and to promote the development of and to regulate the securities market. As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by mutual funds sponsored by these entities are of similar type.

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How is a mutual fund set up? A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management Company and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. AMC approved by SEBI manages the funds by making investments in various types of securities. Custodian who is registered with SEBI holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund. SEBI regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50 per cent of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

What is net asset value (NAV) of a scheme? Net asset value denotes the performance of a particular scheme of a mutual fund. Mutual funds invest the money collected from the investors in securities markets. In simple terms, NAV is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on a day-to-day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakh units of Rs 10 each to the investors, then the NAV per unit of the fund is Rs 20. NAV is required to be disclosed by the mutual funds on a regular basis daily or weekly depending on the type of scheme.

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SYSTEMATIC INVESTMENT PLAN (SIP) The Systematic Investment Plan (SIP) is a simple and time-honored investment strategy for accumulation of wealth in a disciplined manner over long term period. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a onetime investor.

What is Systematic Investment Plan? A specific amount should be invested for a continuous period at regular intervals under this plan. SIP is similar to a regular saving scheme like a recurring deposit. It is a method of investing a fixed sum regularly in a mutual fund. SIP allows the investor to buy units on a given date every month. The investor decides the amount and also the mutual fund scheme. While the investor's investment remains the same, more number of units can be bought in a declining market and less number of units in a rising market. The investor automatically participates in the market swings once the option for SIP is made. SIP ensures averaging of rupee cost as consistent investment ensures that average cost per unit fits in the lower range of average market price. An investor can either give post dated cheques or ECS instruction and the investment will be made regularly in the mutual fund desired for the required amount. SIP generally starts at minimum amounts of Rs.1000/- per

month and upper limit for using an ECS is Rs.25000/- per instruction. For instance, if one wishes to invest Rs.1, 00,000/- per month, then they need to do it on four different dates.

INSURANCE
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Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. An insurer is a company selling the insurance. The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. TYPES OF INSURANCE: 1. HEALTH INSURANCE Don't go without this. Most people have it at work, but if you don't you will really save big by going for a group policy. When comparing policies, consider deductibles and what is or isn't covered. When given a choice, choose one that covers the huge, debilitating conditions over one that is good about routine immunization, but that balks at the larger, more expensive claims. Health insurance comes in three types, though many policies mix and match traits of the three. Fee for service, the most expensive, allows you to go to almost any provider and covers almost anything that is medically necessary. You don't have a primary care physician who has to approve visits to specialists. Preferred provider options (PPO's) allow you to self-refer to any provider in the PPO's list and generally cover a wide variety of services recommenced by those providers. Some PPO's cover other providers, but with a larger co-payment. Health maintenance organizations (HMO's) are the least costly, but the most restrictive. They assign you (or let you select) a primary care physician. That physician acts as a gatekeeper in that (s)he decides what is medically necessary and when you may see a specialist. Often the HMO itself has to permit certain treatment and can rule against your doctor if it thinks the treatment is too costly.

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2. LIFE INSURANCE For most people, the purpose of life insurance should be to replace the financial contribution made by a family member. Life insurance can be pure insurance, which pays only on the death of the insured, or cash value insurance, which also has a savings vehicle. Most people who need life insurance are better off with pure insurance and saving for retirement through other vehicles. Proceeds from life insurance cover three types of expenses: replacement of the policyholder's income or work, estate taxes, and burial costs. When you consider the amount of insurance to buy, consider the following: 1. Most of the life insurance should be on a family member whose salary is important to the family budget. 2. Consider a relatively small life insurance policy on a stay-at-home parent to cover child care and other expenses. 3. Don't buy life insurance on children. Instead, buy life insurance on other family members for the benefit of children. 4. Consider reducing the amount of life insurance you have as you build more financial assets. 5. Pass on credit life insurance and mortgage life insurance if you can. These plans are restrictive and expensive. Buy more general life insurance instead if you feel a need. 6. Pass on life insurance altogether if you are single and don't have anyone depending on you. At most, get a small policy to spare your family burial expenses. You should buy about 12 times the amount of money you would need annually to replace what the family member is contributing. For example, if you would need $40,000 a year to replace the death of an employed member, you would need a $480,000 (rounded to $500,000) policy. 39

Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise. As with most insurance policies, life insurance is a contract between the insurer and the policy owner (policyholder) whereby a benefit is paid to the designated Beneficiary (or Beneficiaries) if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon life (or lives) of the people named in the policy. Insured events that may be covered include:

Serious illness

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion. Life-based contracts tend to fall into two major categories:

Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.

TYPES OF LIFE INSURANCE

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Life insurance may be divided into two basic classes temporary and permanent or following subclasses - term, universal, whole life, variable, variable universal and endowment life insurance. TEMPORARY (TERM) Term life insurance or 'term assurance' provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. (See Theory of Decreasing Responsibility and buy term and invest the difference.

The three key factors to be considered in term insurance are: face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term). Various (U.S.) insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. A common type of term is called annual renewable term. It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owners residence so the mortgage will be paid if the insured dies. A policy holder insures his life for a specified term. If he dies before that specified term is up, his estate or named beneficiary(ies) receive(s) a payout. If he does not die before the term is up, he receives nothing. In the past these policies would almost always exclude suicide. However, after a number of court judgments against the industry, payouts do occur on death by suicide (presumably except for in the unlikely case that it can be shown that the suicide was just to benefit from the policy). Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period. 41

PERMANENT Permanent life insurance is life insurance that remains in force (in-line) until the policy matures (pays out), unless the owner fails to pay the premium when due (the policy expires OR policies lapse). The policy cannot be canceled by the insurer for any reason except fraud in the application, and that cancellation must occur within a period of time defined by law (usually two years). Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time. This means that a policy with a million dollars face value can be relatively expensive to a 70 year old. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. The three basic types of permanent insurance are whole life, universal life, and endowment.

WHOLE LIFE COVERAGE Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. The primary disadvantages of whole life are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives. Riders are available that can allow one

to increase the death benefit by paying additional premium. The death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are much higher than term insurance in the short-term, but cumulative premiums are roughly equal if policies are kept in force until average life expectancy.

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Cash value can be accessed at any time through policy "loans". Since these loans decrease the death benefit if not paid back, payback is optional. Cash values are not paid to the beneficiary upon the death of the insured; the beneficiary receives the death benefit only. If the dividend option: Paid up additions is elected, dividend cash values will purchase additional death benefit which will increase the death benefit of the policy to the named beneficiary.

UNIVERSAL LIFE COVERAGE Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the account at a rate specified by the company. This rate has a guaranteed minimum but usually is higher than that minimum. Mortality charges and administrative costs are charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any. With all life insurance, there are basically two functions that make it work. There's a mortality function and a cash function. The mortality function would be the classical notion of pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die for a given period of time. The cash function inherent in all life insurance says that if a person is to reach age 95 to 100 (the age varies depending on state and company), then the policy matures and endows the face value of the policy. Actuarially, it is reasoned that out of a group of 1000 people, if even 10 of them live to age 95, then the mortality function alone will not be able to cover the cash function. So in order to cover the cash function, a minimum rate of investment return on the premiums will be required in the event that a policy matures. Universal life policies guarantee, to some extent, the death proceeds, but not the cash function - thus the flexible premiums and interest returns. If interest rates are high, then the investment returns help reduce premiums. If interest rates are low, then the customer would 43

have to pay additional premiums in order to keep the policy in force. When interest rates are above the minimum required, then the customer has the flexibility to pay less as investment returns cover the remainder to keep the policy in force. The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return is usually higher because it moves with the financial markets.

Mortality costs and administrative charges are known. And cash value may be considered more easily attainable because the owner can discontinue premiums if the cash value allows it. And universal life has a more flexible death benefit because the owner can select one of two death benefit options, Option A and Option B. Option A pays the face amount at death as it's designed to have the cash value equal the death benefit at age 95. Option B pays the face amount plus the cash value, as it's designed to increase the net death benefit as cash values accumulate. Option B does carry with it a caveat. This caveat is that in order for the policy to keep its tax favored life insurance status, it must stay within a corridor specified by state and federal laws that prevent abuses such as attaching a million dollars in cash value to a two dollar insurance policy. The interesting part about this corridor is that for those people who can make it to age 95-100, this corridor requirement goes away and your cash value can equal exactly the face amount of insurance. If this corridor is ever violated, then the universal life policy will be treated as, and in effect turn into, a Modified Endowment Contract (or more commonly referred to as a MEC). But universal life has its own disadvantages which stem primarily from this flexibility. The policy lacks the fundamental guarantee that the policy will be in force unless sufficient premiums have been paid and cash values are not guaranteed. Universal life policies are sometimes erroneously referred to as self-sustaining policies. In the 1980s, when interest rates were high, the cash value accumulated at a more accelerated rate, and universal life coverage was often sold by agents as a policy that could be selfpaying. Many policies did sustain themselves for a prolonged period, but the combination of 44

lower interest rates and an increasing cost of insurance as the insured ages meant that for many policies, the cash option was diminished or depleted. Variable universal life Insurance (VUL) is not the same as universal life, even though they both have cash values attached to them. These differences are in how the cash accounts are managed. The cash account within a VUL is held in the insurer's "separate account" (generally in mutual funds, managed by a fund manager) LIMITED PAY Another type of permanent insurance is Limited-pay life insurance, in which all the premiums are paid over a specified period after which no additional premiums are due to keep the policy in force. Common limited pay periods include 10-year, 20year, and paid-up at age of 65. ENDOWMENTS Endowments are policies in which the cash value built up inside the policy, equals the death benefit (face amount) at a certain age. The age this commences is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier. In the United States, the Technical Corrections Act of 1988 tightened the rules on tax shelters (creating modified endowments). These follow tax rules as annuities and IRAs do. Endowment Insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a specific age (e.g. 65). ACCIDENTAL DEATH Accidental death is a limited life insurance that is designed to cover the insured when they pass away due to an accident. Accidents include anything from an injury, but do not typically cover any deaths resulting from health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurances. 45

It is also very commonly offered as "accidental death and dismemberment insurance", also known as an AD&D policy. In an AD&D policy, benefits are available not only for accidental death, but also for loss of limbs or bodily functions such as sight and hearing, etc. Accidental death and AD&D policies very rarely pay a benefit; either the cause of death is not covered, or the coverage is not maintained after the accident until death occurs. To be aware of what coverage they have, an insured should always review their policy for what it covers and what it excludes. Often, it does not cover an insured who puts themselves at risk in activities such as: parachuting, flying an airplane, professional sports, or involvement in a war (military or not). Also, some insurers will exclude death and injury caused by proximate causes due to (but not limited to) racing on wheels and mountaineering. Accidental death benefits can also be added to a standard life insurance policy as a rider. If this rider is purchased, the policy will generally pay double the face amount if the insured dies due to an accident. This used to be commonly referred to as a double indemnity coverage. In some cases, some companies may even offer a triple indemnity cover.

RELATED LIFE INSURANCE PRODUCTS Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. A common rider is accidental death, which used to be commonly referred to as "double indemnity", which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured. Another common rider is premium waiver, which waives future premiums if the insured becomes disabled. Joint life insurance is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death. Survivorship life or second-to-die life is a whole life policy insuring two lives with the proceeds payable on the second (later) death.

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Single premium whole life is a policy with only one premium which is payable at the time the policy is issued. Modified whole life is a whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the remainder of the policy. Group life insurance is term insurance covering a group of people, usually employees of a company or members of a union or association. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size and turnover of the group, and the financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often has a provision that a member exiting the group has the right to buy individual insurance coverage.

3. GENERAL INSURANCE: What is General Insurance? Insurance other than Life Insurance falls under the category of General Insurance. General Insurance comprises of insurance of property against fire, burglary etc, personal insurance such as Accident and Health Insurance, and liability insurance which covers legal liabilities. There are also other covers such as Errors and Omissions insurance for professionals, credit insurance etc. Non-life insurance companies have products that cover property against Fire and allied perils, flood storm and inundation, earthquake and so on. There are products that cover property against burglary, theft etc. The non-life companies also offer policies covering machinery against breakdown, there are policies that cover the hull of ships and so on. A Marine Cargo policy covers goods in transit including by sea, air and road. Further, insurance of motor vehicles against damages and theft forms a major chunk of non-life insurance business. In respect of insurance of property, it is important that the cover is taken for the actual value of the property to avoid being imposed a penalty should there be a claim. Where a property is undervalued for the purposes of insurance, the insured will have to bear a rateable proportion 47

of the loss. For instance if the value of a property is Rs.100 and it is insured for Rs.50/-, in the event of a loss to the extent of say Rs.50/-, the maximum claim amount payable would be Rs.25/- ( 50% of the loss being borne by the insured for underinsuring the property by 50% ). This concept is quite often not understood by most insureds. Personal insurance covers include policies for Accident, Health etc. Products offering Personal Accident cover are benefit policies. Health insurance covers offered by non-life insurers are mainly hospitalization covers either on reimbursement or cashless basis. The cashless service is offered through Third Party Administrators who have arrangements with various service providers, i.e., hospitals. The Third Party Administrators also provide service for reimbursement claims. Sometimes the insurers themselves process reimbursement claims. Accident and health insurance policies are available for individuals as well as groups. A group could be a group of employees of an organization or holders of credit cards or deposit holders in a bank etc. Normally when a group is covered, insurers offer group discounts. Liability insurance covers such as Motor Third Party Liability Insurance, Workmens Compensation Policy etc offer cover against legal liabilities that may arise under the respective statutes Motor Vehicles Act, The Workmens Compensation Act etc. Some of the covers such as the foregoing (Motor Third Party and Workmens Compensation policy ) are compulsory by statute. Liability Insurance not compulsory by statute is also gaining popularity these days. Many industries insure against Public liability. There are liability covers available for Products as well.

There are general insurance products that are in the nature of package policies offering a combination of the covers mentioned above. For instance, there are package policies available for householders, shop keepers and also for professionals such as doctors, chartered accountants etc. Apart from offering standard covers, insurers also offer customized or tailor-made ones. Suitable general Insurance covers are necessary for every family. It is important to protect ones property, which one might have acquired from ones hard earned income. A loss or 48

damage to ones property can leave one shattered. Losses created by catastrophes such as the tsunami, earthquakes, cyclones etc have left many homeless and penniless. Such losses can be devastating but insurance could help mitigate them. Property can be covered, so also the people against Personal Accident. A Health Insurance policy can provide financial relief to a person undergoing medical treatment whether due to a disease or an injury. Industries also need to protect themselves by obtaining insurance covers to protect their building, machinery, stocks etc. They need to cover their liabilities as well. Financiers insist on insurance. So, most industries or businesses that are financed by banks and other institutions do obtain covers. But are they obtaining the right covers? And are they insuring adequately are questions that need to be given some thought. Also organizations or industries that are self-financed should ensure that they are protected by insurance. Most general insurance covers are annual contracts. However, there are few products that are long-term. It is important for proposers to read and understand the terms and conditions of a policy before they enter into an insurance contract. The proposal form needs to be filled in completely and correctly by a proposer to ensure that the cover is adequate and the right one.

4. AUTO INSURANCE In most states you are required to have auto insurance and you don't want to be without it. Basically, you buy auto insurance for two purposes: to insure against liability you have to others and to insure against damage that others do to you or your car.

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You need to have liability insurance. How much you need depends on how much you have in assets. Whether you need insurance to protect your own car depends on your car and how detesting it would be to replace it. If your car is expensive and if buying another one would wipe you out financially, consider buying comprehensive and collision. If you have an older car and wouldn't get much from the insurance company if it were totaled, don't bother. Instead, put the money you would have paid for comprehensive and collision toward saving for your next car.

5.HOMEOWNERS' INSURANCE The purpose of homeowners' insurance is to protect you against damage to your home and property from natural disasters. Insurance companies offer different ratings of insurance and assign these ratings with codes starting with the letters "HO". While these ratings are fairly standard, they do vary a little with companies, so check with the company to see what policies cover. When comparing policies, consider differences among deductible, coverage of property other than the house (sheds, garages, etc.), and percent of loss covered. Consider also whether the policy covers resale cost or rebuilding cost. Rebuilding usually provides better coverage, but is more expensive. Basic homeowner's insurance does not cover the contents, though you can often add it for an additional fee or buy it separately. When buying contents insurance, consider whether it covers replacement value or fair market value. Replacement value is a better buy because it pays to buy a new piece of furniture or appliance, not what your old one is worth.

MORE ABOUT MUTUAL FUNDS

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Some high-growth mutual funds will consist of high-risk stocks; others may consist of more stable stocks, as well as bonds in an attempt to beat inflation.

Always check the objective of the mutual fund and read the fund's prospectus to make sure its consistent with your goals. A good place to get independent information on a mutual fund, including its performance history is through Morningstar , an independent fund rating service. Morningstar materials can be found on the internet and at your local library. * An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the money market. Investing may involve market risk, including possible loss of principal. A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations 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.

TYPES OF MUTUAL FUNDS

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OPEN-END FUNDS

The term mutual fund is the common name for what is classified as an open-end investment company by the SEC. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds must be structured as corporations or trusts, such as business trusts, and any corporation or trust will be classified by the SEC as an investment company if it issues securities and primarily invests in non-government securities. An investment company will be classified by the SEC as an open-end investment company if they do not issue undivided interests in specified securities (the defining characteristic of unit investment trusts or UITs) and if they issue redeemable securities. Registered investment companies that are not UITs or open-end investment companies are closed-end funds. Neither UITs nor closed-end funds are mutual funds (as that term is used in the US).

EXCHANGE-TRADED FUNDS

A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closed-end funds. ETFs are traded throughout the day on a stock exchange, just like closedend funds, but at prices generally approximating the ETF's net asset value. Most ETFs are index funds and track stock market indexes. Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have lower expenses. Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are limited in their ability to participate in traditional U.S. mutual funds. 52

EQUITY FUNDS

Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States.
[6]

Often equity funds focus investments on particular strategies and certain

types of issuers. CAPITALISATION Fund managers and other investment professionals have varying definitions of mid-cap, and large-cap ranges. The following ranges are used by Russell Indexes: Russell Microcap Index - micro-cap ($54.8 - 539.5 million) Russell 2000 Index - small-cap ($182.6 million - 1.8 billion) Russell Midcap Index - mid-cap ($1.8 - 13.7 billion) Russell 1000 Index - large-cap ($1.8 - 386.9 billion) GROWTH FUNDS VS. VALUE FUNDS Another distinction is made between growth funds, which invest in stocks of companies that have the potential for large capital gains, and value funds, which concentrate on stocks that are undervalued. Value stocks have historically produced higher returns; however, financial theory states this is compensation for their greater risk. Growth funds tend not to pay regular dividends. Income funds tend to be more conservative investments, with a focus on stocks that pay dividends. A balanced fund may use a combination of strategies, typically including some level of investment in bonds, to stay more conservative when it comes to risk, yet aim for some growth.

INDEX FUNDS VS. MANAGEMET FUNDS

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An index fund maintains investments in companies that are part of major stock (or bond) indices, such as the S&P 500, while an actively managed fund attempts to outperform a relevant index through superior stock-picking techniques. The assets of an index fund are managed to closely approximate the performance of a particular published index. Since the composition of an index changes infrequently, an index fund manager makes fewer trades, on average, than does an active fund manager. For this reason, index funds generally have lower trading expenses than actively managed funds, and typically incur fewer short-term capital gains which must be passed on to shareholders. Additionally, index funds do not incur expenses to pay for selection of individual stocks (proprietary selection techniques, research, etc.) and deciding when to buy, hold or sell individual holdings. Instead, a fairly simple computer model can identify whatever changes are needed to bring the fund back into agreement with its target index. Certain empirical evidence seems to illustrate that mutual funds do not beat the market and actively managed mutual funds under-perform other broad-based portfolios with similar characteristics. One study found that nearly 1,500 U.S. mutual funds under-performed the market in approximately half of the years between 1962 and 1992. Moreover, funds that performed well in the past are not able to beat the market again in the future

BOND FUNDS
[10]

Bond funds account for 18% of mutual fund assets.

Types of bond funds include term

funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.

MONEY MARKET FUNDS

54

Money market funds hold 26% of mutual fund assets in the United States. (CDs), money market shares are liquid and redeemable at any time.

[11]

Money market

funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit

FUNDS OF FUNDS Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and Fidelity have also entered this market to provide investors with these options

55

and take the "guess work" out of selecting funds. The allocation mixes usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix.

HEDGE FUNDS

Hedge funds in the United States are pooled investment funds with loose SEC regulation and should not be confused with mutual funds. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act.
[12]

The Act

does not require an adviser to follow or avoid any particular investment strategies, nor does it require or prohibit specific investments. Hedge funds typically charge a management fee of 1% or more, plus a "performance fee" of 20% of the hedge fund's profits. There may be a "lock-up" period, during which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual investors. MUTUAL FUNDS VS. OTHER INVESTMENTS Mutual funds offer several advantages over investing in individual stocks. For example, the transaction costs are divided among all the mutual fund shareholders, which allows for costeffective diversification. Investors may also benefit by having a third party (professional fund managers) apply expertise and dedicate time to manage and research investment options, although there is dispute over whether professional fund managers can, on average, outperform simple index funds that mimic public indexes. Whether actively managed or passively indexed, mutual funds are not immune to risks. They share the same risks associated with the investments made. If the fund invests primarily in stocks, it is usually subject to the same ups and downs and risks as the stock market.

SHARE CLASSES Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool (or 56

investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses. These differences are supposed to reflect different costs involved in servicing investors in various classes; for example, one class may be sold through brokers with a front-end load, and another class may be sold direct to the public with no load but a "12b-1 fee" included in the class's expenses (sometimes referred to as "Class C" shares). Still a third class might have a minimum investment of $10,000,000 and be available only to financial institutions (a so-called "institutional" share class). In some cases, by aggregating regular investments made by many individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase "institutional" shares (and gain the benefit of their typically lower expense ratios) even though no members of the plan would qualify individually. As a result, each class will likely have different performance results. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the length of time that they expect to remain invested in the fund).

LOADS AND EXPENSES A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased, taken as a percentage of funds invested. The value of the investment is reduced by the amount of the load. Some funds have a deferred sales charge or back-end load. In this type of fund an investor pays no sales charge when purchasing shares, but will pay a commission out of the proceeds when shares are redeemed depending on how long they are held. Another derivative structure is a level-load fund, in which no sales charge is paid when buying the fund, but a back-end load may be charged if the shares purchased are sold within a year. Load funds are sold through financial intermediaries such as brokers, financial planners, and other types of registered representatives who charge a commission for their services. Shares of front-end load funds are frequently eligible for breakpoints (i.e., a reduction in the commission paid) based on a number of variables. These include other accounts in the

57

same fund family held by the investor or various family members, or committing to buy more of the fund within a set period of time in return for a lower commission "today". It is possible to buy many mutual funds without paying a sales charge. These are called noload funds. In addition to being available from the fund company itself, no-load funds may be sold by some discount brokers for a flat transaction fee or even no fee at all. (This does not necessarily mean that the broker is not compensated for the transaction; in such cases, the fund may pay brokers' commissions out of "distribution and marketing" expenses rather than a specific sales charge. The purchaser is therefore paying the fee indirectly through the fund's expenses deducted from profits.) No-load funds include both index funds and actively managed funds. The largest mutual fund families selling no-load index funds are Vanguard and Fidelity, though there are a number of smaller mutual fund families with no-load funds as well. Expense ratios in some no-load index funds are less than 0.2% per year versus the typical actively managed fund's expense ratio of about 1.5% per year. Load funds usually have even higher expense ratios when the load is considered. The expense ratio is the anticipated annual cost to the investor of holding shares of the fund. For example, on a $100,000 investment, an expense ratio of 0.2% means $200 of annual expense, while a 1.5% expense ratio would result in $1,500 of annual expense. These expenses are before any sales commissions paid to purchase the mutual fund. Many fee-only financial advisors strongly suggest no-load funds such as index funds. If the advisor is not of the fee-only type but is instead compensated by commissions, the advisor may have a conflict of interest in selling high-commission load funds.

58

HOW TO IDENTIFY INVESTMENT AVENUES

Though investment opportunities abound all the time and in almost all situations, often they may not be very easy to identify. A shrewd and discerning investor will usually find opportunities for making money in places, and in situations, where a less discerning one will not. The best investment opportunities are often found in the most unlikely places and situations. For example, in the beginning of 1994 few could have predicted that the shares of the then relatively unknown company like Infosys Technologies, focusing primarily on Y2K software projects, would provide one of the best investment opportunities of the last decade. Let us consider some typical situations, which provide excellent investment opportunities. 1. CHANGES IN GOVERNMENT POLICIES Major changes in government policies often benefit some companies by opening up new avenues for growth and higher profits and such companies provide excellent investment opportunities for investors who are quick in recognizing the implications of such policy changes. In the early 1980s, removal of price controls over cement ushered in a period of high growth for ACC and other cement companies. In 1988, the lifting of price controls over aluminum boosted the profits of companies, like Hindustan Aluminium and Indian Aluminum. Later, the strong package of financial incentives and disincentives contained in the budgets for 1993-94 and 1994-95 ushered in a period of high growth for computer software companies, like Infosys Technologies, Wipro, Satyam Computers, I-flex and Rolta; hotel companies, such as Indian Hotels, East India Hotels and Asian Hotel, and power sector companies, like Tata Power and BSES (now called Reliance Energy). Changes in government policy can also sometimes affect a company adversely. If you are a shareholder and are quick to foresee the implication of such a change, you can sell your shares before their prices begin to fall. For example, the cuts in customs duties on imported steel items in 2004 made it more difficult for Indian steel companies, like SAIL, TISCO and 59

Essar Gujarat to compete with cheap steel imports. Shrewd investors reacted quickly to these disadvantageous budgetary provisions and immediately offloaded their steel shares. However, these detrimental changes in excise and customs duties did not necessarily imply the death-knell of the steel industry. The long-term prospects of wellmanaged steel companies continue to be bright, notwithstanding the inevitable erosion of their profits in the short run due to increased competition from cheaper imports.

2. TECHNOLOGICAL INNOVATIONS We are living in a society, which is being increasingly dominated by technology. Accordingly, alert investors on the lookout for big gains will find suitable investment opportunities in companies, which go in for technological innovations in a big way. For example, IT services companies, bio-technology companies and telecommunication companies are major beneficiaries of technological changes. 3. ANTICIPATING THE FUTURE The best investment opportunities are available to those who can successfully anticipate the future. If you can identify the future areas or directions of growth, you would have identified when and where to invest for maximum returns. Making an accurate assessment of future conditions and future growth areas is not as easy as it sounds it involves a lot of study and analysis. If you want to be a successful investor, such study and analysis are very necessary. Investment is an activity, which by its very nature involves looking into the future. Unless you look into the future and form a personal viewpoint on what it will be like, you will not be able to decide where and when to invest your money. For an investor, anticipating the future is unavoidable. How do you anticipate the future? The best way to do so is to be always alert to what is happening around you. The seeds of the future are present today. For example, if you live in an industrial city or area, you cannot help but notice the steadily deteriorating condition of the environment. Water and air are becoming rapidly polluted. The day is not far off when the pollution levels will become intolerable and will pose a major 60

health hazard to the population. Environmental pollution is becoming an area of serious concern to the public and the government. The Water Pollution and Air Pollution Acts have already been passed by Parliament and the government has established a new department, known as the Department of Environment, for implementing these laws. All these developments are pointers to an emerging high-growth area, namely, the manufacture of air pollution and water pollution control equipment. These developments also point to a high growth in healthcare. 4. INTERNATIONAL TRENDS Globalization is the buzzword since the 1990s. No country in the world can now hope to remain immune from the influence of international economic trends. As a result, it has now become imperative for Indian stock market investors to keep a close watch on international economic developments and to analyze their likely impact on the performance of Indian companies. For example, the signing of the WTO (World Trade Organization) agreement has opened up high growth opportunities for Indian food, pharma Textile and IT exporters. It has also created the conditions required for a sustained long-term growth in the volume of world sea-borne trade, thus significantly improving the prospects of Indian shipping companies, like Great Eastern Shipping and Shipping Corporation of India. In the 21st century, a stock market investor who is aware of what is happening in the larger world beyond Indias borders and who keeps a close tab on major international developments will definitely find himself in a more advantageous position vis-a-vis an inward-looking investor whose awareness is confined only to what happens within the country. 5. SUNRISE INDUSTRIES The term sunrise industries, refers to the new and emerging industries of the future. Early investment made in those companies which have been correctly identified as the future leaders of such nascent industries have always provided and will continue to provide truly attractive returns to patient and farsighted investors.

61

In the 1960s, for example, the sunrise industries in India were scooters, synthetic textiles, and five-star hotel chains. If at that timeyou had bought shares in Bajaj Auto, Indian Hotels, Century Spinning (now known as Century Textiles) or Gwalior Rayon (now renamed Grasim) you could have accumulated a huge fortune in the last 30 years. The sunrise industries of the 21st century are likely to be computer software, computer training, bio-technology, electronic mail, processed foods, telecommunications, corporate hospitals, budget hotels, private airlines, oil exploration, pollution control, diagnostic kits, fast-food chains and departmental stores. If you are serious about making money then you simply cannot afford to ignore these industries. We suggest that you allocate at least onethird of your portfolio to the more promising companies operating in these sunrise industries.

Before you start investing, it is very important that you learn about the different types of investments, and what those investments can do for you. Understand the risks involved, and pay attention to past trends as well. History does indeed repeat itself, and investors know this first hand! Overall, there are three different kinds OF investments. These include stocks, bonds, and cash. Sounds simple, right? Well, unfortunately, it gets very complicated from there. You see, each type of investment has numerous types of investments that fall under it. There is quite a bit to learn about each different investment type. The stock market can be a big scary place for those who know little or nothing about investing. Fortunately, the amount of information that you need to learn has a direct relation to the type of investor that you are. There are also three types of investors: conservative, moderate, and aggressive. The different types of investments also cater to the two levels of risk tolerance: high risk and low risk. Conservative investors often invest in cash. THIS means that they put their money in interest bearing savings accounts, money market accounts, mutual funds, US Treasury bills, and Certificates of Deposit. These are very safe investments that grow over a long period of time. These are also low risk investments.

62

Moderate investors often invest in cash and bonds, and may dabble in the stock market. Moderate investing may be low or moderate risks. Moderate investors often also invest in real estate, providing that it is low risk real estate. Aggressive investors commonly do most of their investing in the stock market, which is higher risk bearing. They also tend to invest in business ventures as well as higher risk real estate. For instance, if an aggressive investor puts his or her money into an older apartment building, then invests more money renovating the property, they are running a risk. They expect to be able to rent the apartments out for more money than the apartments are currently worth or to sell the entire property for a profit on their initial investments. In some cases, this works out just fine, and in other cases, it doesn't. It's a risk.

GROWTH IN ASSETS UNDER MANAGEMENT

63

Note:

MAJOR PLAYERS IN INSURANCE:

Life Insurers:
S.No. Registration Date of Name of the Company 64

Number 1 2 3 4 101 104 105 107

Reg. 23.10.2000 15.11.2000 24.11.2000 10.01.2001 HDFC Standard Life Insurance Company Ltd. Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance Company Ltd. Kotak Mahindra Old Mutual Life Insurance Limited

5 6 7 8

109 110 111 114

31.01.2001 12.02.2001 30.03.2001 02.08.2001

Birla Sun Life Insurance Company Ltd. Tata AIG Life Insurance Company Ltd. SBI Life Insurance Company Limited . ING Vysya Life Insurance Company Private Limited

9 10 11

116 117 133

03.08.2001 06.08.2001 04.09.2007

Bajaj Allianz Life Insurance Company Limited Metlife India Insurance Company Ltd. Future Generali India Life Insurance Company Limited

12

135

19.12.2007

IDBI Fortis Life Insurance Company Ltd.

General Insurers
S.No. Registration Number 1 102

:
Date of Registration 23.10.2000 Royal Sundaram Alliance Insurance Company Limited Name of the Company

103

23.10.2000

Reliance General Insurance Company Limited.

106

04.12.2000

IFFCO Tokio General Insurance Co. Ltd 65

108

22.01.2001

TATA AIG General Insurance Company Ltd.

113

02.05.2001

Bajaj Allianz General Insurance Company Limited

115

03.08.2001

ICICI Lombard General Insurance Company Limited.

7 8

131 132

03-08-2007 04-09-2007

Apollo DKV Insurance Company Limited Future Generali India Insurance Company Limited

134

16-11-2007

Universal Sompo General Insurance Company Ltd.

PRODUCTS PROMOTED BY ME AS A BANK REPRESENTATIVE:

Reliance mutual fund

Reliance growth fund Reliance vision fund

ICICI Prudencial mutual fund

ICICI Power fund ICICI infrastructure

66

METLIFE

Met Bhavishya Met Smart Plus

Reliance growth fund-

Performance as on 31/07/2008 Absolute 6 months Reliance Growth Fund - Retail Plan - Growth BSE100 -18.78 -6.4 -20.68 22.45 31.61 12.58 1 Year -2.05 Compound Annualized 3 Years 28.17 5 Years 48.58 Since Inception 30.95

Reliance Growth Fund SIP Return as on March 30, 2007 Period SIP Start Date Current NAV (As on 30/03/2007) Total No. of units accumulated Total Amount Invested Present Value Yield Present Value in invested in Index Yield From Index 1 Year 01/07/06 307.46 47.70 12000.00 14667.34 46.44% 14134.31 36.73% 3 Year 01/07/04 307.46 226.89 36000.00 69758.92 49.03% 61243.34 38.51% 5 Year 01/07/02 307.46 813.34 60000.00 250068.42 61.26% 154930.70 39.50% Since inception 08/10/95 307.46 5971.72 141000.00 1836064.59 40.05% 518565.80 20.68%

67

Reliance vision fundPerformance as on 31/07/2008 Absolute 6 months Reliance Vision Fund - Retail Plan - Growth BSE100 -25.22 -20.68 1 Year -15.9 -6.42 Compound Annualized 3 Years 22.69 22.45 5 Years 37.39 31.61 Since Inception 25.52 12.58

Reliance Vision Fund SIP Return as on June 30, 2007 Period SIP Start Date Current NAV (As on 30/03/2007) Total No. of units accumulated Total Amount Invested Present Value Yield Present Value in invested in Index Yield From Index 1 Year 01/07/06 207.32 70.17 12000.00 14548.29 44.25% 14134.31 36.73% 3 Year 01/07/04 207.32 320.24 36000.00 66391.35 44.98%
61243.34

5 Year 01/07/02 207.32 985.81 60000.00 204315.59 51.89% 154930.70 39.50%

Since inception 10/08/1995 207.32 6940.15 141000.00 1438832.21 36.28% 518565.80 20.68%

38.51%

68

ICICI INFRASTRUCTURE FUND

NAV (Rs) Initial price Min investment Entry load Exit load

25.13
20 Aug, 2008

Rs 10 Rs 5000 2.25 % 1%

ICICI Prudential Power: Invest

Suresh Parthasarathy

69

Metlife Insurance is a prime mover in the India's insurance market. MetLife India Insurance Company Limited is affiliated to the MetLife, Inc. MetLife offers its customers a wide array of value added, innovative financial products. The company operates in over 600 locations in India, via its own offices and its bank partners. MetLife Insurance's client base comprises individual entities as well as customer groups. Over 32,000 financial advisors work under MetLife Insurance. These personnel are engaged in the provision of quality financial advice to customers through out India. It may be noted that MetLife, Inc. serves over 70 million customers around the world, via its affiliates. Services of MetLife companies involve the following areas.

Life insurance Retail banking Annuities Home insurance Automobile insurance

Financial services provided by the company include individual insurance, reinsurance and group insurance. Savings and retirement product services are offered to corporations and various types of other institutions. MetLife India Insurance Company Ltd offer the following services.

Individual plans Micro Finance Employee Benefits

The company provides its customers with a premier Financial Advisor Zone. A new offering from MetLife India Insurance Company Ltd has come in the form of introduction of 'drop box facilities' for premium collection. At present this facility is available at the following metros.

Bangalore Mumbai 70

 3.7 LIMITATIONS OF THE STUDY

The collection of data and its further interpretation faced certain limitations which are the following: Being a trainee cant approach the customers directly to sell the product. Covering only a particular area i.e. Jaipur. Most of the persons relate Mutual funds & investment products with share market. People are more concerned about returns. The details filled by people in the survey cannot be considered as completely true as peoples hesitate disclosing their personal financial details.

71

FACTS AND FINDINGS

Investors are more concerned about steady returns. They are less interested in investing in risky avenues. They associate mutual funds with the market fluctuations. Fixed deposits are the most preferred investment avenue. The services and advice provided by the bank staff are top notch.

72

ANALYSIS AND INTERPRETATION

Q.1:

Your Annual Income

above 10lacs 0% 5-10lacs 8% <2.5lacs 20%

2.5-5lacs 72%

73

Q.2:

What is the ratio of your savings and expenses?

ratio 40:60 20%

ratio 50:50 6%

others 6%

ratio 20:80 68%

74

Q.3:

You bank with

SBBJ 56%

ICICI 4% BOR Ltd. 2% SBI 2% Axis Bank 2%

More than one Bank 34%

Q.4:

What would be your preference while doing investment?

75

Real Estate 3% ELSS 2% Shares 13% MF 15%

SIP 10% NSCs 10%

FD 16% PPF 15% ULIP 5% RD 11%

Q.5:

Have you secured yourself for the following?

76

Life Insurance 39%

Vehicle Insurance 37%

Jewellery Insurance 1% ULIP 8% Family Insurance 7% House Insurance 8%

Q.6:

For what duration would you like to invest?

77

2-5 years 28%

>5 years 18%

1-2 years 42%

<1 year 12%

Q.7:

If you looked at the portfolio of the investment that you have already made, how would you characterize them?

78

Only assured return 64%

United investment in risk product 4% Mostly risky products 8%

Divide between risky and safe products 24%

Q.8:

What rate of return do you expect from the investment you decide to make?

79

20-25% 22%

above 25% 10%

15-20% 32%

10-15% 36%

Q.9:

What is the basic force behind your investment making decision?

80

Past Experience 45%

Bank Staff 0%

Newspapers 13%

Tax/Financial Advisors 22%

Friends 18% Brokers 2%

Q.10:

What kind of services related to account & advisory services you are looking for?
Online A/c and E-Banking facility. 81

 Personal attention and safe investments. Correct and timely information and details of statements on time. Periodically investment related information. Providing information related to new tax saving schemes. Information related to changes in market. Information about launch of any beneficiary schemes for investment. Timely information related to investment avenues. Easily accessible account related formalities. Zero Balance accounts and proper guidance for investment in share market. Advisory Services related to latest trends in Stock Market for short term trading investments. Quick Services.

82

SWOT ANALYSIS
After analyzing the questionnaire a SWOT analysis could be done which is as follows:

STRENGTHS: Axis Bank is a brand in itself. The work culture in the organization is perfectly professional and it helps the employees to grow. Axis Bank is into channel partnership with different mutual funds companies, insurance companies, etc. Axis Bank provides Financial Advisory Services also to their customers. Customers trust the Bank and the advisory services provided to them by the bank.

WEAKNESS: Frequent market fluctuations. Less knowledge about the products. People are less interested in taking risks. They are unaware about the benefits related with different investment avenues. Customers go for steady returns with no risk at all instead of investing in a bit risky securities which may fetch them even higher returns. More than 50% of the customers avoid to invest in mutual funds and ULIP schemes.

83

OPPORTUNITIES: Provides good financial Advisory services which is an emerging concept in the recent era. Promote good products and brand names like prodcts of ICICI Prudential, Bajaj Allianz, Kotak, etc. Axis bank is one among the few institutions which provides in house financial advisory services.

THREATS: Unstable market. Difficulty in selling the products, the reason being the endless and severe fluctuations in the market. Other banks and institutions have also started dealing in the same area and thus the competition has increased for the organization. In the recent scenario of global recession, the organization is finding it difficult to convince the customers to opt for investments which involves risk.

84

CONCLUSION

Axis bank has great goodwill in the market. Services provided by bank are quality and well performing products. In survey, it was found that most of the people invest in fixed deposits where returns are sure. Bank has interested & profitable plans for different age groups. I found that in Financial Advisory Services Sector, a person develops great communication skills and the tact to convince people. In my survey I found that low percentage of people are aware with the investment and insurance benefits. I got the good profile people near my bank and in market. People find it risky to invest in any fund that is directly or indirectly related to the market. Fixed deposits are the most acceptable manner of investment as it confirms sure return and does not involve any kind of risk and uncertainty. People generally get themselves insured i.e. they opt life insurance and vehicle insurance. The other types of insurance schemes are less popular among them.

More than 60% of the people, who filled the questionnaire, were conscious about disclosing their annual incomes.

85

BIBLIOGRAPHY
Websites:www.axisbank.com www.mutualfundindia.com www.amfiindia.com www.google.com www.irdaindia.org

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