Introduction of Company.

We are a one-stop financial services shop, most respected for quality of its advice, personalised service and cutting-edge technology.

Vision.
Our vision is to be the most respected company in the financial services space. India Infoline Group. The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com The company has a network of 976 business locations (branches and sub-brokers) spread across 365 cities and towns. It has more than 800,000 customers. India Infoline Ltd. India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients. India Infoline Media and Research Services Limited. The content services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. Revenue generation is through the sale of content to financial and media houses, Indian as well as global. It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where India Infoline is amongst the most read Indian brokers. India Infoline Commodities Limited. India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us with the requisite skills and technologies to allow us offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. We have a multi-channel delivery model, making it among
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the select few to offer online as well as offline trading facilities. India Infoline Marketing & Services India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited. (a) India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001. (b) India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. We have applied to IRDA for the insurance broking licence and the clearance for the same is awaited. Post the grant of license, we propose to also commence the general insurance distribution business. India Infoline Investment Services Limited Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singaporebased investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries. (a) India Infoline Distribution Company Limited (distribution of retail loan products) (b) Moneyline Credit Limited (consumer finance) (c) India Infoline Housing Finance Limited (housing finance) IIFL (Asia) Pte Limited IIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

The Management Mr. Nirmal Jain Chairman & Managing Director India Infoline Ltd. Nirmal Jain, MBA (IIM, Ahmedabad) and a Chartered and Cost Accountant, founded Indias leading financial services company India Infoline Ltd. in 1995, providing globally acclaimed financial services in equities and commodities broking, life insurance and mutual funds distribution, among others. Mr. Jain began his career in 1989 with Hindustan Levers commodity export business, contributing tremendously to its growth. He was also associated with InquireIndian Equity Research, which he co-founded in 1994 to set new standards in equity research in India. Mr. R Venkataraman Executive Director India Infoline Ltd. R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B. Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined the India Infoline board in July 1999. He previously held senior managerial positions in ICICI Limited, including ICICI Securities Limited, their investment banking joint venture with J P Morgan of USA and with BZW and Taib Capital Corporation Limited. He was also Assistant Vice President with G E Capital Services India Limited in their private equity division, possessing a varied experience of more than 16 years in the financial services sector. The Board of Directors Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. comprises: Mr Nilesh Vikamsey Independent Director India Infoline Ltd.

Mr. Vikamsey, Board member since February 2005 - a practising Chartered Accountant and partner (Khimji Kunverji & Co., Chartered Accountants), a member firm of HLB International, headed the audit department till 1990 and thereafter also handles financial services, consultancy, investigations, mergers and acquisitions, valuations etc; an ICAI study group member for Proposed Accounting Standard 30 on Financial Instruments Recognition and Management, Finance Committee of The Chamber of Tax Consultants (CTC), Law Review, Reforms and Rationalization Committee and Infotainment and Media Committee of Indian Merchants Chamber (IMC) and Insurance Committee and Legal Affairs Committee of Bombay Chamber of Commerce and Industry (BCCI). Mr. Vikamsey is a director of Miloni Consultants Private Limited, HLB Technologies (Mumbai) Private Limited and Chairman of HLB India. Mr Sat Pal Khattar Non Executive Director India Infoline Ltd. Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority Rights member, Chairman of the Board of Trustee of Singapore Business Federation, is also a life trustee of SINDA, a non profit body, helping the under-privileged Indians in Singapore. He joined the India Infoline board in April 2001. Mr Khattar is a Director of public and private companies in Singapore, India and Hong Kong; Chairman of Guocoland Limited listed in Singapore and its parent Guoco Group Ltd listed in Hong Kong, a leading property company of Singapore, China and Malaysia. A Board member of India Infoline Ltd, Gateway Distriparks Ltd both listed and a number of other companies he is also the Chairman of the Khattar Holding Group of Companies with investments in Singapore, India, UK and across the world. Mr Kranti Sinha Independent Director India Infoline Ltd. Mr. Kranti Sinha Board member since January 2005 completed his masters from the Agra University and started his career as a Class I officer with Life Insurance Corporation of India. He served as the Director and Chief Executive of LIC Housing Finance Limited from August 1998 to December 2002 and concurrently as the Managing Director of LICHFL Care Homes (a wholly owned subsidiary of LIC Housing Finance Limited). He retired from the permanent cadre of the Executive Director of LIC; served as the Deputy President of the
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Governing Council of Insurance Institute of India and as a member of the Governing Council of National Insurance Academy, Pune apart from various other such bodies. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen & Toubro Limited, LICHFL Care Homes Limited, Gremach Infrastructure Equipments and Projects Limited and Cinemax (India) Limited. Mr Arun K. Purvar Independent Director India Infoline Ltd. Mr. A.K. Purvar Board member since March 2008 completed his Masters degree in commerce from Allahabad University in 1966 and a diploma in Business Administration in 1967. Mr. Purwar joined the State Bank of India as a probationary officer in 1968, where he held several important and critical positions in retail, corporate and international banking, covering almost the entire range of commercial banking operations in his illustrious career. He also played a key role in co-coordinating the work for the Bank's entry into the field of insurance. After retiring from the Bank at end May 2006, Mr. Purwar is now working as Member of Board of Governors of IIM-Lucknow, joined IIMIndore as a visiting professor, joined as a Hon.-Professor in NMIMS and he is also a member of Advisory Board for Institute of Indian Economic Studies (IIES), Waseda University, Tokyo, Japan. He has now taken over as Chairman of IndiaVenture Advisors Pvt. Ltd., as well as IL & FS Renewable Energy Limited. He is also working as Independent Director in leading companyies in Telecom, Steel, Textiles, Autoparts, Engineering and Consultancy.

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opportunity to indicate whether he or she would like to "opt out" of receiving promotional and/or marketing information about other products, services and offerings from Indiainfoline.com and/or any third parties. Indiainfoline.com reserves the right to perform statistical analyses of user behavior and characteristics in order to measure interest in and use of the various areas of the site and to inform advertisers of such information as well as the number of users that have been exposed to or clicked on their advertising banners. Indiainfoline.com will provide only aggregated data from these analyses to third parties. Also, users should be aware that Indiainfoline.com may sometimes permit third parties to offer subscription and/or registration-based services through a Indiainfoline.com site. Indiainfoline.com is not responsible for any actions or policies of such third parties and users should check the applicable privacy policy of such party when providing personally identifiable information. Users are also being aware that non-personal information and data may be automatically collected through the standard operation of Indiainfoline.com's internet servers or through the use of "cookies." "Cookies" are small text files a web site can use to recognize repeat users, facilitate the user's ongoing access to and use of the site and allow a site to track usage behavior and compile aggregate data that will allow content improvements and targeted advertising. Cookies are not programs that come onto a user's system and damage files. Generally, cookies work by assigning a unique number to the user that has no meaning outside the assigning site. Users are also being made aware that Indiainfoline.com cannot control the use of cookies or the resulting information by advertisers or third parties hosting data for Indiainfoline.com. If a user does not want information collected through the use of cookies, there is a simple procedure in most browsers that allows the user to deny or accept the cookie feature; however, users should note that cookies may be necessary to provide the user with certain features (e.g., customized delivery of information) available from Indiainfoline.com. Indiainfoline.com reserves the right to change this policy at any time by notifying users of the existence of a new privacy statement. This statement and the policies outlined herein are not intended to and do not create any contractual or other legal rights in or on behalf of any party. Third Party Advertising We use MaxOnline and other third-party advertising companies to serve ads when you visit our Web site. These companies may use information (not including your
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name, address, email address or telephone number) about your visits to this and other Web sites in order to provide advertisements on this site and other sites about goods and services that may be of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, please click here. Third Party Cookies In the course of serving advertisements to this site, our third-party advertiser may place or recognize a unique cookie on your browser.

Products and Services We are a one-stop financial services shop, most respected for quality of its advice, personalised service and cutting-edge technology. Equities Indiainfoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to Indiainfoline. Indiainfoline leveraged technology to bring the convenience of trading to the investors location of preference (residence or office) through computerised access. Indiainfoline made it possible for clients to view transaction costs and ledger updates in real time. click for more PMS Our Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at Indiainfoline invest your resources into stocks from different sectors, depending on your riskreturn profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio. click for more Research Sound investment decisions depend upon reliable fundamental data and stock selection techniques. Indiainfoline Equity Research is proud of its reputation for, and we want you to find the facts that you need. Equity investment professionals routinely use our research and models as integral tools in their work. They choose Ford Equity Research when they can clear your doubts.
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click for more Commodities Indiainfolines extension into commodities trading reconciles its strategic intent to emerge as a one-stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Companys commodities business provides a contra-cyclical alternative to equities broking. The Company was among the first to offer the facility of commodities trading in Indias young commodities market (the MCX commenced operations only in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn. The commodities market has several products with different and non-correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations in the business. click for more Mortgages During the year under review, Indiainfoline acquired a 75% stake in Moneytree Consultancy Services to mark its foray into the business of mortgages and other loan products distribution. The business is still in the investing phase and at the time of the acquisition was present only in the cities of Mumbai and Pune. The Company brings on board expertise in the loans business coupled with existing relationships across a number of principals in the mortgage and personal loans businesses. Indiainfoline now has plans to roll the business out across its panIndian network to provide it with a truly national scale in operations. click for more Home Loans Get expert advice that suits your Personal Loans needs Freedom to choose from 4 flexible options to repay Loan against residential and commercial property Expert recommendations Expert recommendations Easy documentation Easy documentation Quick processing and disbursal Quick processing and disbursal No guarantor requirement No guarantor requirement click for more click for more Invest Online Indiainfoline has made investing in Mutual funds and primary market so effortless.

All you have to do is register with us and thats all. No paperwork no queues and No registration charges. INVEST IN MF Indiainfoline offers you a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly. APPLY IN IPOs You could also invest in Initial Public Offers (IPOs) online without going through the hassles of filling ANY application form/ paperwork. click for more SMS Stay connected to the market The trader of today, you are constantly on the move. But how do you stay connected to the market while on the move? Simple, subscribe to India Infoline's Stock Messaging Service and get Market on your Mobile! There are three products under SMS Service:

click for more Insurance An entry into this segment helped complete the clients product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, we have employed a multi pronged approach and reach out to customers via our Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market. The Companys entry into the insurance sector derisked the Company from a predominant dependence on broking and equity-linked revenues. The annuity based income generated from insurance intermediation result in solid core revenues across the tenure of the policy. click for more Wealth Mangement Service
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Imagine a financial firm with the heart and soul of a two-person organization. A world-leading wealth management company that sits down with you to understand your needs and goals. We offer you a dedicated group for giving you the most personal attention at every level. click for more Newsletters The Daily Market Strategy is your morning dose on the health of the markets. Five intra-day ideas, unless the markets are really choppy coupled with a brief on the global markets and any other cues, which could impact the market. Ocassionally an investment idea from the research team and a crisp round up of the previous day's top stories. That's not all. As a subscriber to the Daily Market Strategy, you even get research reports of India Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is your flashback for the week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in your inbox every Friday evening. click for more

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BANGALORE (2008 2010)

IBMR IBS HOUSUR ROAD Bangalore. Karnataka.

CERTIFICATE

This is to certify that Ms.PRATIKSHA SINGH is a bonafide student of IBMR-IBS, Bangalore and has completed her Final Report on Executive Training undertaken at INDIA INFOLINE PUBLIC LTD COMPONY Bangalore. He has submitted the report assigned to his under my guidance.

Shivkanth Shetty IBMR-IBS Faculty Guide

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PROJECT REPORT ON Investment Pattern & Portfolio Management BY

Pratiksha Singh
Submitted in partial fulfillment of the requirements for the degree of Master of Business Administration of Sikkim Manipal University, India is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes. Place: Bangalore PRATIKSHA SINGH

Date: 16-09-2009

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1. Project proposed

Study on Investment Pattern &Portfolio Management

1.1 Objective of the project: - Main objective of the project is

To understand the optimal portfolio and correlation between portfolio risk and investment process. Various risk perception of investors. Building optimal portfolio according to risk perception.

The economy is highly influenced by the Financial System of the country. The Indian financial System has been broadly divided into two segments: the organized and unorganized. An investor has a wide array of investment avenues available. Economic well being in the long run depends significantly on how wise he invests.

In present financial scenario where the economy is poised to grow at 9% ,as stated by our finance minister P Chidambaram, and the present bulls run in the capital market, where lot of money is being pumped into the economy by FII, and increasing disposable income with the generation next has created a problem of

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investment because there is lot money on hand but they dont know where to invest as there is no attractive return in the bank FD, PPF, KVP, NSC, MIS, and other Post saving scheme.

All investments involve risk in varying degrees, and hence it is necessary to understand risk profile of each investment avenues and know how it can affect your investments. There should be trade off between risk and return. There are also risks that are not in our control like inflation risk, credit risk, risk of sudden rise in oil prices, risk pertaining to political environment for instance. In present financial system, investment has lost their potential to earn additional income, which can help for growth of their capital because the interest return which varies from approx 4% to 8% and the inflation rate hovering in and around 5%-6% so the real return is varying between (-)2% to 2% so this is the real return what a investor gets by investing in FIXED DEPOSIT, GOVERNMENT SECURITY

,KVP,NSC,PPF,MIS and also blocking there money for min of 2-5 years ,in these instruments ,which is not very encouraging for an investor to invest in these instruments .So the investor is likely to spend his earnings than invest(save), which is happening in our country.

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1.2 Methodology:
Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by meeting with the customers in Bangalore. Data collection has been done through by giving structured questioner. Research has been done after meeting 62 customers. This study will be based on judgment sampling and this research is skewed to organization level. This is an exploratory type of research. And this research needs further study. This Research is a kind of pilot study.

1.3 Sampling Analysis:

Sample size has been taken by judgment sampling. Judgment sampling is a process in which the selection of a unit, from the population is based on the pre judgment. This research requires the survey of different class of customers in Bangalore city. So the selection of unit for this research has been judged by the researcher. Sample size for this research is 62.

1.4 Limitations:
Time limitation:

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Research has been done only in Bangalore. Customers did not show interest in disclosing their portfolio. Possibility of Error in data collection. Possibility of Error in analysis of data due to small sample size.

Acknowledgements
A summer project is a golden opportunity for learning and self development. I consider myself very lucky and honored to have so many wonderful people lead me through in completion of this project. My grateful thanks to Mr.ARUN SREENIVAS who in spite of being extraordinarily busy with his duties, took time out to hear, guide and keep me on the correct path. I do not know where I would have been without him. A humble thAnk you Sir MS.ATHIYA KHANAM HR Department monitored my progress and arranged all facilities life easier. I choose this moment to acknowledge her contribution gratefully. Dr.nandeesh whose patience I have probably tested to the limit. He was always so involved in the entire process, shared his knowledge, and encouraged me to think. Thank you, Dear Sir I would like to thanks Mr.SHASHIDHAR, College for her/his efforts and help provided to me to get such an excellent opportunity Last but not the least there were so many who shared valuable information that helped in the successful completion of this project. Pratiksha singh

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2. Introduction:
2.1 MEANING OF INVESTMENT:
An investment is the choice by the individual, after thorough analysis, to place or lend money in a vehicle (e.g. property, stock securities, bonds) that has sufficiently low risk and provides the possibility of generating returns over a period of time.[3] Placing or lending money in a vehicle that risks the loss of the principal sum or that has not been thoroughly analyzed is, by definition speculation, not investment.

Economic meaning:
In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training). In measures of national income and output, gross investment (represented by the variable I) is also a component of Gross domestic product (GDP), given in the formula GDP = C + I + G + NX, where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted.

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Financial meaning:
In finance, investment is the commitment of funds by buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price. Returns on investments will follow the risk-return spectrum. Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.

2.2 Investment and Gambling:

Gambling and investing are both games of chance. Both involve probabilities where you put money at risk with the hope of a return, and both can make your hard earned savings vanish when you bet wrong. So what is the difference between gambling and investing, and why should you care? Time: Investing is long term. Gambling is short term. Thats a common position held by those who dont think the two pursuits share a great deal in common.

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The central idea that separates gambling from serious investing or trading can be discovered in the old saying, Id rather be lucky than smart. The essential distinction is that gambling isnt smart, and depends entirely on being lucky while investing depends on being smart (but being lucky never hurts).

Investment management is the professional management of various securities (shares, bonds etc.) and assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or Exchange Traded Funds) .

2.3 The Investment Process:

As investors, we would all like to beat the market handily, and we would all like to pick "great" investments on instinct. However, while intuition is undoubtedly a part of the process of investing, it is just part of the process. As investors, it is not surprising that we focus so much of our energy and efforts on investment philosophies and strategies, and so little on the investment process. It is far more

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interesting to read about how Peter Lynch picks stocks and what makes Warren Buffet a valuable investor, than it is to talk about the steps involved in creating a portfolio or in executing trades. Though it does not get sufficient attention, understanding the investment process is critical for every investor for several reasons: The investment process outlines the steps in creating a portfolio, and emphasizes the sequence of actions involved from understanding the investors risk preferences to asset allocation and selection to performance evaluation. By emphasizing the sequence, it provides for an orderly way in which an investor can create his or her own portfolio or a portfolio for someone else. The investment process provides a structure that allows investors to see the source of different investment strategies and philosophies. By so doing, it allows investors to take the hundreds of strategies that they see described in the common press and in investment newsletters and to trace them to their common roots. The investment process emphasizes the different components that are needed for an investment strategy to by successful, and by so doing explain why so many strategies that look good on paper never work for those who use them. The best way of describing this book is by noting what it does not do. It does not emphasize individual investors or push an investment philosophy. It does not focus heavily on coming up with strategies that beat the market, though there is reference

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to some of them in the course of the book. Instead, it talks about the process of investing and how this process is the same no matter what investment philosophy one might have. The final component is execution, where the portfolio is actually put together, where investors have to trade off transactions cost against transactions speed. While the importance of execution will vary across investment strategies, there are many investors who have failed at this stage in the process. The final part of the process, and often the most painful one for professional money managers, is the performance evaluation. Investing is after all focused on one objective and one objective alone, which is to make the most money you can, given the risk constraints you operate under. Investors are not forgiving of failure and unwilling to accept even the best of excuses, and loyalty to money managers is not a commonly found trait. By the same token, performance evaluation is just as important to the individual investor who constructs his or her own portfolio, since the feedback from it should largely determine how that investor approaches investing in the future. These parts of the process are summarized in Figure 1, and we will return to this figure to emphasize the steps in the process as we move through the book. The book is built around the same structure. It begins with a chapter that provides an overview of investment management as a business. The first major section is on

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understanding client needs and preferences, where we look at not only how to think about risk in investing but also at how to measure an investor?s willingness to take risk. The second section looks at the asset allocation decision, while the third section examines different approaches to selecting assets. The fourth section takes a brief look at the execution decision, and the fifth section develops different approaches to evaluating performance.

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3. RISK OF INVESTMENT:
Risk is the likelihood that your investment will either earn money or lose money. It is the degree of uncertainty about your expected return from an investment, including the possibility that some or all of your investment may be lost.

Credit risk:
Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both).

Counterparty risk:
Counterparty risk, otherwise known as default risk, is the risk that an organization does not pay out on a credit derivative, credit default swap, credit insurance contract, or other trade or transaction when it is supposed to. Even organizations who think that they have hedged their bets by buying credit insurance of some sort still face the risk that the insurer will be unable to pay, either due to temporary liquidity issues or longer term systemic issues.

Sovereign risk:
Sovereign risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees. The existence of sovereign

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risk means that creditors should take a two-stage decision process when deciding to lend to a firm based in a foreign country. Firstly one should consider the sovereign risk quality of the country and then consider the firm's credit quality. Five macroeconomic variables that affect the probability of sovereign debt rescheduling are: Debt service ratio Import ratio Investment ratio Variance of export revenue Domestic money supply growth The probability of rescheduling is an increasing function of debt service ratio, import ratio, variance of export revenue and domestic money supply growth. Frenkel, Karmann and Scholtens also argue that the likelihood of rescheduling is a decreasing function of investment ratio due to future economic productivity gains. Saunders argues that rescheduling can become more likely if the investment ratio rises as the foreign country could become less dependent on its external creditors and so be less concerned about receiving credit from these countries/investors.

Interest rate risk:

Interest rate risk is the risk (variability in value) borne by an interest-bearing asset, such as a loan or a bond, due to variability of interest rates. In general, as rates rise,
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the price of a fixed rate bond will fall, and vice versa. Interest rate risk is commonly measured by the bond's duration.

3.1 Banks and interest rate risk:

Banks face four types of interest rate risk:

Basis risk
The risk presented when yields on assets and costs on liabilities are based on different bases, such as the London Interbank Offered Rate (LIBOR) versus the U.S. prime rate. In some circumstances different bases will move at different rates or in different directions, which can cause erratic changes in revenues and expenses.

Yield curve risk:

The risk presented by differences between short-term and long-term interest rates. Short-term rates are normally lower than long-term rates, and banks earn profits by borrowing short-term money (at lower rates) and investing in long-term assets (at higher rates). But the relationship between short-term and long-term rates can shift quickly and dramatically, which can cause erratic changes in revenues and expenses.

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Repricing risk:The risk presented by assets and liabilities that reprice at

different times and rates. For instance, a loan with a variable rate will generate more interest income when rates rise and less interest income when rates fall. If the loan is funded with fixed rated deposits, the bank's interest margin will fluctuate.

Option risk:
It is presented by optionality that is embedded in some assets and liabilities. For instance, mortgage loans present significant option risk due to prepayment speeds that change dramatically when interest rates rise and fall. Falling interest rates will cause many borrowers to refinance and repay their loans, leaving the bank with uninvested cash when interest rates have declined. Alternately, rising interest rates cause mortgage borrowers to repay slower, leaving the bank with relatively more loans based on prior, lower interest rates. Option risk is difficult to measure and control. Most banks are asset sensitive, meaning interest rate changes impact asset yields more than they impact liability costs. This is because substantial amounts of bank funding are not affected, or are just minimally affected, by changes in interest rates. The average checking account pays no interest, or very little interest, so changes in interest rates do not produce notable changes in interest expense. However, banks have large concentrations of short-term and/or variable rate loans,

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so changes in interest rates significantly impact interest income. In general, banks earn more money when interest rates are high, and they earn less money when interest rates are low. This relationship often breaks down in very large banks that rely significantly on funding sources other than traditional bank deposits. Large banks are often liability sensitive because they depend on large concentrations of funding that are highly interest rate sensitive. Large bank also tend to maintain large concentrations of fixed rate loans, which further increases liability sensitivity. Therefore, large banks will often earn more net interest income when interest rates are low.

Hedging interest rate risk:

Interest rate risks can be hedged using fixed income instruments or interest rate swaps. Interest rate risk can be reduced by buying bonds with shorter duration, or by entering into a fixed-for-floating interest rate swap.

3.2 Investment Risks in India: Sovereign Risk:

India is an effervescent parliamentary democracy since its political freedom from British rule more than 50 years ago. The country does not face any real threat of a serious revolutionary movement which might lead to a collapse of state machinery.
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Sovereign risk in India is hence nil for both "foreign direct investment" and "foreign portfolio investment." Many Industrial and Business houses have restrained themselves from investing in the North-eastern part of the country due to unstable conditions. Nonetheless investing in these parts is lucrative due to the rich mineral reserves here and high level of literacy. Kashmir on the northern tip is a militancy affected area and hence investment in the state of Kashmir are restricted by law.

Political Risk:
India has enjoyed successive years of elected representative government at the Union as well as federal level. India suffered political instability for a few years in the sense there was no single party which won clear majority and hence it led to the formation of coalition governments. However, political stability has firmly returned since the previous general elections in 1999, with strong and healthy coalition governments emerging. Nonetheless, political instability did not change India's bright economic course though it delayed certain decisions relating to the economy. Economic liberalization which mostly interested foreign investors has been accepted as essential by all political parties including the Communist Party of India (Marxist) which is dead against free economic world.

Political instability in India, in terms of different ideologies of political parties

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hence posed no real risk to foreign direct investors as no policy framed by a past government has been upturned by any successive government so far. Though there are bleak chances of political instability in the future, even if such a situation arises the economic policy of India would hardly be affected. As far as terrorism is concerned no terrorist threat has been so far able to jeopardize the state economy. Except for Kashmir in the north and few parts of the north-east, terrorist activity is either non-existent or too weak to cause any repercussions. Being a strong democratic nation the chances of an army coup or foreign dictatorship are minimal. Hence, political risk in India is practically absent.

Commercial Risk:
Commercial risk exists in any business ventures of a country. Not each and every product or service is profitably accepted in the market. Hence it is advisable to study the demand / supply condition for a particular product or service before making any major investment. In India one can avail the facilities of a large number of market research firms in exchange of a professional fee to study the state of demand / supply for any product. As it is entering the consumer market involves some kind of gamble and hence involves commercial risk.

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Risk of Foreign Sanctions : Due to the nuclear economic policy of

India and its Missile Development programme, India did not enjoy a favorable economic position in the eyes of America. America's soft policy towards Pakistan in times of wars fought between India and the neighboring nation was also a reason for the strained relations between the two nations. In the cold-war era India's closeness to the Soviet nation also harmed the relationship between the two great democracies of the world. However, US President Bill Clinton's state visit to India in 2000 was a turning point which did wonders in reframing the economic policy of America towards India. Subsequent to the visit by President Bill Clinton, visits between the two countries at different levels took place, and the US government has come to terms with the truth of a nuclear-armed India.

3.3 Diversification of risk:

Diversification in finance is a risk management technique, related to hedging, that mixes a wide variety of investments within a portfolio. It is the spreading out investments to reduce risks. Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment.

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A simple example of diversification is the following: On a particular island the entire economy consists of two companies: one that sells umbrellas and another that sells sunscreen. If a portfolio is completely invested in the company that sells umbrellas, it will have strong performance during the rainy season, but poor performance when the weather is sunny. The reverse occurs if the portfolio is only invested in the sunscreen company, the alternative investment: the portfolio will be high performance when the sun is out, but will tank when clouds roll in. To minimize the weather-dependent risk in the example portfolio, the investment should be split between the companies. With this diversified portfolio, returns are decent no matter the weather, rather than alternating between excellent and terrible. There are three primary strategies used in improving diversification: Spread the portfolio among multiple investment vehicles, such as stocks, mutual funds, bonds, and cash. Vary the risk in the securities. A portfolio can also be diversified into different mutual fund investment strategies, including growth funds, balanced funds, index funds, small cap, and large cap funds. When a portfolio includes investments with varied risk levels, large losses in one area are offset by other areas. Vary your securities by industry, or by geography. This will minimize the impact of industry- or location-specific risks. The example portfolio above was diversified by investing in both umbrellas and sunscreen. Another practical application of this

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kind of diversification is mixing investments between domestic and international funds. By choosing funds in many countries, events within any one country's economy have less effect on the overall portfolio. Diversification reduces the risk of a portfolio, and consequently it can reduce the returns. However, since diversification reduces the risk of an entire portfolio being diminished by a single investment's loss, it is referred to as "the only free lunch in finance." Statistical analysis shows that there may be some validity to this claim.

3.4 Common errors in investment management:

1. Not having a clearly defined investment plan. 2. Investors become bored with their plan. 3. Investors tend to fall in love with securities that rise in price and forget to book their profits. 4. investors often overdose themselves on information, leading to paralysis By Analysis. 5. Investors are constantly in search of a shortcut or gimmick.

3.5 Qualities of smart investors:

1.smart investors have a plan for investing and they stick to it.

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2.smart investors invest consistently. 3. smart investors are patient. 4. smart investors are not emotionally tied to their investment positions.

4. Investment environment:
There are different types of investment techniques. Here we discuss only stock market, insurance sector and mutual funds.

4.1 Financial markets:

financial markets facilitate The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); International trade (in the currency markets) and are used to match those who want capital to those who have it.

Types of financial markets:

The financial markets can be divided into different subtypes: Capital markets which consist of:

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Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment. Derivatives markets, which provide instruments for the management of financial risk. Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. Insurance markets, which facilitate the redistribution of various risks. Foreign exchange markets, which facilitate the trading of foreign exchange. The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities

Raising capital:
To understand financial markets, let us look at what they are used for, i.e. what is their purpose?

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Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold.

4.2 STOCK EXCHANGE:

A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least
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for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).

The First Stock Exchanges:

In 11th century France the courtiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers.

4.3 The role of stock exchanges:

Stock exchanges have multiple roles in the economy, this may include the following: Raising capital for businesses: The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.

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Mobilizing savings for investment: When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms. Facilitating company growth: Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion. Redistribution of wealth: Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses. Corporate governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the

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demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized by the media. Creating investment opportunities for small investors: As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the

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opportunity for small investors to own shares of the same companies as large investors. Government capital-raising for development projects: Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. Barometer of the economy: At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

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Primary market:
The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Features of primary markets are: This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy.
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The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder.

Secondary market:
The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold.[1]. The term "secondary market" is also used refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a second- or third- market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.
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5. Introduction of insurance:
The story of insurance is probably as old as the story of mankind. Tendency of a human being to secure themselves against loss and disaster has been from the starting of world. They sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era past few centuries yet its beginnings date back almost 6000 years as per records.

Insurance business is divided into four classes: Life Insurance Fire Marine Miscellaneous Insurance.

Insurance provides: Protection to investor. Accumulation of savings.

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Channeling these savings into sectors needing huge long term investment.

Functions of insurance:
Provide protection: The primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for the losses of risk. Insurance is actually a protection against economic loss, by sharing the risk with others.

Collective bearing of risk: Insurance is an instrument to share the financial loss of few among many others. Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons exposed to a particular risk is paid.

Assessment of risk:

Insurance determines the probable volume of risk by

evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also.

Provide certainty: Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.
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Small capital to cover larger risk:

Insurance relieves the businessmen from

security investments, by paying small amount of premium against larger risks and uncertainty.

Contributes towards the development of industries: Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.

Means of savings and investment: Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insured's For the purpose of availing income-tax exemptions also, people invest in insurance.

Source of earning foreign exchange: Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.

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Risk free trade: Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.

5.1 Agency business model:

In India insurance is sold through mainly four channels. Through branch Through agency Through financial institution Through banks

Independent agency system means of selling and servicing property and casualty insurance through agents who represent different companies. The agents own the records of the policies they sell. Insurance is now governed by a blend of statutes, administrative agency regulations, and court decisions. State statutes often control premium rates, prevent unfair practices by insurers, and guard against the financial insolvency of insurers to protect insureds. In most states, an administrative agency created by the state legislature devises rules to cover procedural details that are missing from the statutory framework. To
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do business in a state, an insurer must obtain a license through a registration process. This process is usually managed by the state administrative agency. The same state agency may also be charged with the enforcement of insurance regulations and statutes. Administrative agency regulations are many and varied. Insurance companies must submit to the governing agency yearly financial reports regarding their economic stability. This requirement allows the agency to anticipate potential insolvency and to protect the interests of insureds. Agency regulations may specify the types of insurance policies that are acceptable in the state, although many states make these declarations in statutes. The administrative agency is also responsible for reviewing the competence and ethics of insurance company employees.

Insurance agencies:
Insurance agency can be defined as a group of insurance agents or advisor. These agents or advisors create a distribution channel to sell the different insurance products. These advisors are the strongest distribution channel for an insurance agency. An advisor or agent works as a third party or intermediate between insurance company and customers. All the advisors in an agency work as a team. Main work of insurance advisor or agent is to promote and sell different insurance products of company.
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Functions of agency manager:

a person who governs a group of insurance advisors is known as agency manager. Success of an agency manager depends on the success of their advisors. work of agency manager is to control the advisors in an efficient way. Agency manager is like a creature of two wings. He has to recruit advisors as well as to give sales to the insurance company. To recruit advisors. Make them aware of different insurance products. To give them training session. To motivate them for efficient work. To get maximum and efficient work from their advisors.

5.2 Indian insurance industry:

Changing perception of Indian customers:
Indian Insurance consumers are like Indian Voters, they are soft but when time is right and ripe, they demand and seek necessary changes. De-tariff of many

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Insurance Products are the reflection of changing aspirations and growing demand of Indian consumers.

For historical years, Indian consumers were at receiving end. Insurance Product was underwritten and was practically forced onto consumers on a Take-it-As-itbasis. All that got changed with passage of IRDA act in 1999. New insurance companies have come into existence leading to open competition and hence better products for customers.

Indian customers have become very sensitive to Coverage / Premium as well as the Products (read Risk Solution), that is given to them. There are not ready to accept any product, no matter even if that is coming from the market leader, should that product is not serving the purpose. A case in point is ULIP Product / Group Life and Credit Life in Life Insurance segment and Travel / Family Floater Health and Liability Insurance in the Non-life segment are new age Avatar. The new products are constantly being demanded by Indian consumers, which is putting huge pressures on Insurance companies (Read Risk Under-writers) and Brokers to respond.

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Customers are looking at Insurance for covering Pure Risk now. Another good reason why we are seeing quick changes in the buying behavior of Insurance from mere Investment to risk mitigation is the cost of Replacement of Goods (ROG) or Cost of Services (COS). Now Indian customers are aware of insurance industry and insurance products provided by companies. They have become more sensitive. They would not accept any type of insurance product unless it fulfills their requirements and needs. In historic days customers looking at insurance products as a life cover which can provide security against any unacceptable events, but now customers look at insurance products as an investment as well as life cover. So todays customers wants good return from the insurance companies. The Indian customers forms the pivot of each companys strategy.

Investment of Indian household savings (as a % in different sector) BANK DEPOSITS CORP. BANKS SHARES AND DEBENTURES MUTUAL FUNDS 39% 2% 1% 2%

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NBFCS GOVT. BONDS INSURANCE PF/ RETIRE FUNDS CURRENCY

3% 13% 13% 21% 6%

Source: - www. avivaindia.com

Changing face of Indian insurance industry:

After the Insurance Regulatory and Development Authority Act have been passed there has been establishment of many private insurance companies in India. Previously there was a monopoly business for Life Insurance Corporation of India (L.I.C.) who was the only life-insurance company for the people till 2000. L.I.C. still holds 71.4% of the market share in 2006. But after the introduction of private life insurance companies there is a great competition in Indian market now. Everyone is trying to capture the fresh market here and penetrate it with aggressive marketing strategies. Today life-insurance is not only limited up to just life risk cover and maturity period bonuses but changed to greater return from the

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investments. With the introduction of the unit linked insurance policies these companies are investing the money in different investment instruments like shares, bonds, debentures, government and other securities. People are demanding for higher returns with the life risk cover and private companies are giving 30-40% average growth per annum. These life-insurance companies have every kind of policies suiting every need right from financial needs of, marriage, giving birth and rearing up a child, his education, meeting daily financial needs of life, pension solutions after retirement. These companies have every aspects and needs of our life covered along with the death-benefit. In India only 25% of the population has life insurance. So Indian life-insurance market is the target market of all the companies who either want to extend or diversify their business. To tap the Indian market there has been tie-ups between the major Indian companies with other International insurance companies to start up their business. The government of India has set up rules that no foreign insurance company can set up their business individually here and they have to tie up with an Indian company and this foreign insurance company can have an investment of only 24% of the total start-up investment. Indian insurance industry can be featured by: Low market penetration. Ever growing middle class component in population.

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Growth of customers interest with an increasing demand for better insurance products. Application of information technology for business Rebate from government in the form of tax incentives to be insured. Today, the Indian life insurance industry has a dozen private players, each of which are making strides in raising awareness levels, introducing innovative products and increasing the penetration of life insurance in the vastly underinsured country. Several of private insurers have introduced attractive products to meet the needs of their target customers and in line with their business objectives. The success of their effort is that they have captured over 28% of premium income in five years. The biggest beneficiary of the competition among life insurers has been the customer. A wide range of products, customer focused service and professional advice has become the mainstay of the industry, and the Indian customers forms the pivot of each companys strategy. Penetration of life insurance is beginning to cut across socio-economic classes and attract people who have never purchased insurance before. Life insurance is also now being regarded as a versatile financial planning tool. Apart from the traditional term and saving insurance policies, industry has seen the entry and growth of unit linked products. This provides market linked returns and

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is among the most flexible policies available today for investment. Now products are priced, flexible, and realistic and sustain so people in better position to understand the risk and benefits of the product and they are accepting these innovative products. So it is clear that the face of life insurance in India is changing, but with the changes come a host of challenges and it is only the credible players with a long term vision and a robust business strategy that will survive. Whatever the developments, the future and the opportunities in this industry will surely be exciting.

There are 12 private players in Indian life insurance market. 6 bank owned insurers: - HDFC standard life, ICICI prudential, ING Vysya, MetLife, OM Kotak, SBI life. 6 independent insurers: - Aviva, ANP sanmar, Birla sun life, Bajaj Allianz, Max New York life, Tata AIG. Major international insurers are- Prudential and Standard life from UK, Sun life of Canada, AIG, MetLife and New York life of the US. Increasing growth since liberalization:

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YEAR FY03 FY04 FY05 FY06 FY07

LIC (in bn rs.) 110 120 130 140 240

PRIVATE PLAYER 10 20 40 60 160

Source: - Insurance Industry (ICFAI publication book)

Possibilities for insurance companies in India:

Further deregulation of the market. Greater concern for the customers. Newer products and services. Competition and quality consciousness. Cost effective operations. Restructuring of the public sector. Consolidation of domestic insurance markets. Technology driven shift in product design. Actual operations and distribution. Convergence of financial services.

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Life insurance penetration as a % of GDP United kingdom Japan Korea United states Malaysia India China Brazil 8.9% 8.3% 7.3% 4.1% 3.6% 3.0% 1.8% 1.3%

Source: - www.indianinsuranceresearch.com

5.3 Investment management:

Investment operations are often considered incidental to the business of insurance, and have traditionally viewed as secondary to underwriting. In the past risk management was the most important part of business, whereas today the focus has

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shifted to fund management. Investment income is a large component of insurance revenues, skilful and careful management of funds. Insurance is a business of large numbers and generates huge amount of funds over time. These funds arise out of policyholder funds in the case of life insurance, and technical and free reserves in the non-life segments. Time lag between the procurement of premium and the payment of claim provides an interval during which the funds can be deployed to generate income. Insurance companies are among the largest institutional investors in the world. Assets managed by insurance companies are estimated to account for over 40% of the worlds top ten asset managers. Returns on investments influence the premium rates and bonuses and hence investment income will continue to be an important component of insurance company profits. In life insurance, benefits from insurance profits accrue directly to policy holders when it is passed on to him in the form of a bonus. In non life insurance the benefits are indirect and mostly by the creation of an investment portfolio. Investment income has to compensate for underwriting results which are increasingly under pressure. In the case of insurance, the difference between revenue and the expenses is known as operating surplus.

Revenue =premium.

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Expenses =sum of claims + commission payable on procurement of business + operating expenses. Operating surplus =revenue-expenses.

Net investment income includes income from trading in and holding stock market securities including government securities, special deposits with the central government, loans to several public utilities and service providers in state government. Insurance premium collected is converted in a pool of fund then divided in to four expenses. To pay the expenses of the management. To pay agency commission. To pay for the claims. Surplus money will be invested in govt. securities.

Requirements of an insurance risk

Insurance normally insure only pure risks .However, not all pure risk is insurable .certain requirements usually must be fulfilled before a pure risk can be privately insured .From the view point of the insurer, there are ideally six requirement of an insurable risk
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There must be a large number of exposure units The loss must be accidental and unintentional. The loss must be determinable and measurable. The loss should not be catastrophic. The chance of loss must be calculable. The premium must be economically feasible

5.4 Comparison of Insurance with other Similar Factors: Insurance and gambling compared:
Insurance is often erroneously confused with gambling .There are two important differences between them .First ,gambling creates a new speculative risk ,while insurance is a technique for handling an already existing pure risk .thus ,if you bet Rs 300 on a horse ,a new speculative technique is created ,but if you pay Rs 300 to an insurer for fire insurance ,the risk of fire is already present and is transferred to the insurer by a contract. No new risk is created by the transaction. The second difference between insurance and gambling is that gambling is socially unproductive, because the winners gain comes at the expense of the loser .In

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contract; insurance is always socially productive, because neither the insurer nor the insured is placed in a position where the gain of the winner comes at the expense of the loser. The insurer and the insured have a common interest in the prevention of a loss. Both parties win if the loss does occur .Moreover, consistent gambling transaction generally never restore the losers to their former financial position .In contract ,insurance contracts restore the insureds financially in whole or in part if a loss occurs.

Insurance and hedging compared

The concept of hedging is to transferring the risk to the speculator through purchase of future contracts .An insurance contract, however, is not the same thing as hedging .Although both technique are similar in that risk is transferred by a contract, and no new risk is created, there are some important difference between them. First, an insurance transaction involves the transfer of insurable risks, because the requirement of an insurable risk generally can be met .However, hedging is a technique for handling risks that are typically uninsurable ,such as protection against a decline in the price agriculture products and raw materials. A second difference between insurance and hedging is that insurance and hedging is that insurance can reduce the objective risk of an insurer by application of the law of large numbers. As the number of exposure units increases, the insurers prediction of future losses improves, because the relative variation of actual loss
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from expected loss will decline .thus, many insurance transactions reduce objective risk. In contract, hedging typically involves only risk transfer , not risk reduction .The risk of adverse price fluctuation is transferred because of superior knowledge of market conditions .The risk is transferred, not reduced, and prediction of loss generally is not based on the law of large numbers.

Insurance and economy

Indian economy is growing in reference to global market. Business of insurance with its unique features has a special place in Indian economy. It is a highly specialized technical business and customer is the most concern people in this business, therefore this business is able to spur the growth of infrastructure and act as a catalyst in the overall development of Indian economy. The high volumes in the insurance business help spread risk wider, allowing a lowering of the rates of the premium to be charged and in turn, raising profits. When there is a bigger base, the probabilities become more predictable, and with system wide risks balanced out, profits improve. This explains the current scenario of mergers, acquisitions, and globalization of insurance. Insurance is a type of savings. Insurance is not only important for tax benefits, but also for savings and for providing security. It can be serving as an essential service which a welfare state must make available to its people.
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Insurance play a crucial role in the commercial lives of nations and act as the lubricants of economic activities. Insurance firms help to spread the potentially financial consequences of risk among the large number of entities, to mobilize and distribute savings for productive use, facilitate investment, support and encourage external trade, and protect economic entities against external risk.

Insurance and economic growth mutually influences each other. As the economy grows, the living standards of people increase. As a consequence, the demand for life insurance increases. As the assets of people and of business enterprises

increase in the growth process, the demand for general insurance also increases. In fact, as the economy widens the demand for new types of insurance products emerges. Insurance is no longer confined to product markets; they also cover service industries. It is equally true that growth itself is facilitated by insurance. A well-developed insurance sector promotes economic growth by encouraging risktaking. Risk is inherent in all economic activities. Without some kind of cover against risk, some of these activities will not be carried out at all. Also insurance and more particularly life insurance is a mobilizer of long term savings and life insurance companies are thus able to support infrastructure projects which require long term funds. There is thus a mutually beneficial interaction between insurance and economic growth. The low income levels of the vast majority of population

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have been one of the factors inhibiting a faster growth of insurance in India. To some extent this is also compounded by certain attitudes to life. The economy has moved on to a higher growth path. The average rate of growth of the economy in the last three years was 8.1 per cent. This strong growth will bring about

significant changes in the insurance industry.

At this point, it is important to note that not all activities can be insured. If that were possible, it would completely negate entrepreneurship. Professor Frank

Knight in his celebrated book Risk Uncertainty and Profit emphasized that profit is a consequence of uncertainty. He made a distinction between quantifiable risk and non-quantifiable risk. According to him, it is non-quantifiable risk that leads to profit. He wrote It is a world of change in which we live, and a world of uncertainty. We live only by knowing something about the future; while the problems of life or of conduct at least, arise from the fact that we know so little. This is as true of business as of other spheres of activity. The real management challenges are uninsurable risks. In the case of insurable risks, risk is avoided at a cost.

6. MUTUAL FUNDS:
The economy is highly influenced by the Financial System of the country. The Indian Financial System has been broadly divided into two segments: the
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organized and unorganized. An investor has a wide array of investment avenues available. Economic well being in the long run depends significantly on how wise he invests. In present financial scenario where the economy is poised to grow at 9% ,as stated by our finance minister P Chidambaram, and the present bulls run in the capital market ,where lot of money is being pumped into the economy by FII, and increasing disposable income with the generation next has created a problem of investment because there is lot money on hand but they dont know where to invest as there is no attractive return in the bank FD, PPF, KVP, NSC, MIS, and other Post saving scheme. Due to uncertainty in share market and low returns due to low interest a rate has left investor are puzzled, i.e. to spend the money or save the money. If, to save the money then where to save it,so that they can get better return with flexibility, tax benefit and as well as capital appreciation. It is necessary for investor to find the answer and way of capital growth with better return rather than uncertain share market and other low yield investment avenues. All investments involve risk in varying degrees, and hence it is necessary to understand risk profile of each investment avenues and know how it can affect your investments. There should be trade off between risk and return. There are also risks that are not in our control like inflation risk, credit risk, risk of sudden rise in

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oil prices, risk pertaining to political environment for instance. In present financial system, investment has lost their potential to earn additional income, which can help for growth of their capital because the interest return which varies from approx 4% to 8% and the inflation rate hovering in and around 5%-6% so the real return is varying between (-)2% to 2% so this is the real return what a investor gets by investing in FIXED DEPOSIT, GOVERNMENT SECURITY,KVP,NSC,PPF,MIS and also blocking there money for min of 2-5 years ,in these instruments ,which is not very encouraging for an investor to invest in these instruments .So the investor is likely to spend his earnings than invest(save), which what is happening in our country. Mutual fund is indeed of great benefit in this respect. They provide the services of experienced and skilled professionals who determine this risk and monitor them on going basis they are also backed up by research, done by individual asset Management Company based on the fund objectives. When investors are confronted with an outstanding range of products, form traditional bank deposits to downright shady money-multiples schemes, it has to be judged on the yardsticks of returns, liquidity, safety, convenience and tax efficiency. An important question facing many investors across the country today is whether one should invest in a bank fixed deposit or in a debt-oriented Mutual Fund. Mutual fund gives an opportunity to the IFAs to select from different

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investment options ranging from liquid funds to diversified equity ,based on there clients appetite for risk and the return they want . The data is collected from different customers, so the basic objective of the study was to test the potentiality of customer to invest in mutual funds and develop the business of mutual funds by obtaining the data from different types of customers. On the whole if I have to conclude my survey I would like to say that if we have to create awareness about diversified portfolio, professional management and benefits it offers to IFAs and there clients and also we have to clear few misconception which IFAs have, to tap the huge potential which mutual fund market has to offer.

6.1 THE CONCEPT OF MUTUAL FUND IN DETAIL:

A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual, fund belongs to all investors. The

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word Mutual means a vehicle wherein the benefits of a certain investment are reaped by investors in proportion to their investment. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective. Thus, an equity fund would buy equity assets ordinary shares, preference shares, warrants etc. A bond fund would buy debt instruments such as debentures, bonds or government securities. These assets are owned by the investors in the same proportion as their contribution bears to the total contributions of all investors put together. When an investor subscribes to a mutual fund, he or she buys a part of the assets or the pool of funds that are outstanding at that time. It is no different from buying shares of joint stock Company, in which case the purchase makes the investor a partly owner of the company and its assets. In fact, in the USA, a mutual fund is constituted as an investment company and an investor buys in to the fund, means he buys the shares of the fund. In India, a mutual fund is constituted as a Trust and the investor subscribes to the units issued by the fund, which is where the term Unit Trust comes From. However, whether the investor gets fund shares or units is only a matter of legal distinction. In any case, a mutual fund shareholder or unit-holder is a part owner of the funds assets. The term unit-holder includes the mutual fund accountholder or close-end fund shareholder.

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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 appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus Mutual fund is 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.

6.2

WHY

INVESTORS

NEED

MUTUAL

FUNDS?
Mutual Funds offer benefits, which are too significant to miss out. Any investment has to be judged on the yardsticks of return, liquidity and safety. Convenience and Tax efficiency are the other benchmark relevant in Mutual Fund investments. In the wonderful game of finance safety and return are two opposite goals and investor cannot be nearer to both at the same time. Mutual Funds are pooled resources that get invested in a diversified portfolio. The crux of Mutual Fund investing is averaging the risk. When risk is equalized so are the returns.

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Many investors possibly dont know that considering returns alone, many Mutual Funds have outperformed a host of other investment products. Mutual Funds have historically delivered yields averaging between 9% to 25% over a medium to long time frame(source: www.moneycontrol.com). The duration is important because like wise, Mutual Fund returns taste better with the passage of time. Investor should be prepared to lock in your investments preferably for 3 years in an income fund and 5 years in an equity fund. Liquid Funds of course, generate returns even in a very short term. Performance analysis of several funds shows that depending on the scheme and the duration returns from funds average between 9% to 25%. Such average may be misleading, as some would have fared poorly while others would have posted phenomenally high returns. The burden of intelligent choice therefore rests on investor. As the market matures and funds develop equal capabilities returns may however level out.

TYPES OF MUTUAL FUNDS:

There are two BASIC TYPES of mutual funds. "Open-ended" or "Open" mutual funds are the most common type of mutual funds. Investors may purchase units from the fund sponsor or redeem units at the valuation promised in the fund documents, usually on a daily basis. "Closed-ended" or "Closed" mutual funds are
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traded as financial securities, once they are issued, and holders must sell their units on the stock market to receive their funds back.

1. AS PER INVESTMENT OBJECTIVE Schemes can be classified by the way of their stated investment objective such as Growth Fund, Balanced Fund and Income Fund etc

1) EQUITY ORIENTED SCHEMES

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These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. Equity schemes are hence not suitable for investors seeking regular income or needing to use their investments in the short term. They are ideal for investors who have a long term investment horizon.

General Purpose:
The investment objectives of general-purpose equity schemes do not restrict them to invest in specific industries or sectors. They thus have a diversified portfolio of companies across a large spectrum of industries. While they are exposed to equity price risks, diversified general purpose equity funds seek to reduce the sector or stock specific risks through diversification. They mainly have market risk exposure. HDFC Growth Fund is a general purpose equity scheme.

Sector Specific:
The schemes restrict their investing to one or more pre-defined sectors, e.g.

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technology sector. Since they depend upon the performance of select sectors only, these schemes are inherently more risky than general purpose schemes. They are suited for informed investors who wish to take a view and risk on the concerned sector.

Special Schemes:
I. Index Schemes The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors.

II. Tax Saving Schemes:

Investors (individuals and Hindu Undivided Families (HUFs)) are being encouraged to invest in equity market through Equity Linked Savings Scheme (ELSS) by offering them a tax rebate. Units purchased cannot be assigned/

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transferred/ pledged/ redeemed/ switched out until completion of 3years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS.

III. Real Estate funds:

Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing of finance companies or may even buy their securitized assets.

2) DEBT BASED SCHEME:

These schemes are commonly called Income Schemes; invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with the equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk.

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I. Income Schemes
These schemes invest in money markets, bonds and debentures of corporate with medium and long term maturities. These schemes primarily target current income instead of capital appreciation. They therefore distribute a substantial part of their distributable surplus to the investor by way of dividend distribution. Such schemes usually declare quarterly dividends and are suitable for conservative investors who have medium to long term investment horizon and are looking for regular income through dividend or steady capital appreciation.

Liquid Income Schemes

Similar to the Income scheme but with a shorter maturity than Income schemes.

II. Money Market Schemes

These schemes invest in short term instruments such as commercial paper (CP), certificates of deposit (CD), treasury bills (T-Bill) and overnight money (Call). The schemes are the least volatile of all the types of schemes because of their investments in money market instrument with short term maturities. These schemes have become popular with institutional investors and high net worth individuals having short term surplus funds.

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III. Gilt fund

This scheme primarily invests in Government Debt. Hence the investor usually does not have to worry about the credit risk since Government Debt is generally credit risk free.

3) HYBRID SCHEMES
These schemes are commonly known as balanced schemes. These schemes invest in both Equity as well as Debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation and are ideal for investors with a conservative, long term orientation.

2. AS PER CONSTITUTION
1) OPEN ENDED MUTUAL FUNDS
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell

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units at NAV-related prices from and to the mutual fund on any business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity, there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not generally listed on any exchange.

2) CLOSE-ENDED MUTUAL FUNDS

Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such schemes can not issue new units except in case of bonus or rights issue. However, after the initial issue, you can buy or sell units of the scheme on the stock exchanges where they are listed. The market price of the units could vary from the NAV of the scheme due to demand and supply factors, investors expectations and other market factors

3) INTERVAL SCHEME
These schemes combine the features of open-ended and close-ended schemes. They

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may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.

THE STRUCTURE CONSISTS OF:

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SPONSOR
Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. The sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting upof the Mutual Fund.

TRUST
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

TRUSTEE
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds)

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Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

ASSET MANAGEMENT COMPANY (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 cores at all times.

REGISTRAR AND TRANSFER AGENT

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer

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Agent to the Mutual Fund. The Registrar processes the application form, redemptionrequests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

THE WAY & TYPE TO INVEST IN MUTUAL FUND:

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in. distribution of mutual funds schemes to the investors. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme.

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On the other hand they must consider the track record of the mutual fund and should take objective decision.

ONE TIME INVESTMENT

The amount that has to be invested in onetime is known as Onetime Investment. The investor has to pay the whole amount at once. The minimum amount is Rs. 5000 and maximum is as per the investors Choice. This investment is generally preferred for the business man who Are able to pay at one time.

SYSTEMATIC INVESTMENT PLAN (SIP)

The amount that has to be invested through same monthly installment is known as Systematic Investment Plan. The investor has to pay the minimum amount Rs.1000 monthly for all equity and balanced schemes like that for 6months. And Rs.500 monthly for Tax Saver scheme like that for 12 months. The minimum amount that the investor has to invest is Rs6000 and maximum as per their choice. This type of investment is generally preferred for the salaried people.

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BENEFITS OF MUTUAL FUND:

There are numerous benefits of investing in mutual funds and one of the key reasons for its phenomenal success in the developed markets like US and UK is the

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range of benefits they offer, which are unmatched by most other investment avenues. We have explained the key benefits in this section. The benefits have been broadly split into universal benefits, applicable to all schemes and benefits applicable specifically to open-ended schemes.

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1. AFFORDABILITY
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

2. DIVERSIFICATION
The nuclear weapon in your arsenal for your fight against Risk. It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns, for example during one period of time equities might under perform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Similarly the information technology sector might be faring poorly but the auto and textile

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sectors might do well and may protect your principal investment as well as help you meet your return objectives.

3. VARIETY
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending on his risk appetite and thus create a balanced portfolio easily or simply just buy a Balanced Scheme.

4. PROFESSIONAL MANAGEMENT
Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. When you buy in to a mutual fund, you are handing your money to an investment professional that has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of

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investments and changes in market conditions and adjust the mix of the portfolio, as and when required.

5. TAX BENEFITS: Any income distributed after March 31, 2002 will
be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open ended equity-oriented funds, income distributions for the year ending March 31,2003, will be taxed at a confessional rate of 10.5%. In case of Individuals and Hindu Undivided Families a deduction unto Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.

6. REGULATIONS
Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

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7. CONVENTIONAL ADMINISTRATION
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term; Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

8. LIQUIDITY
In open-ended mutual funds, you can redeem all or part of your units any time you wish. Some schemes do have a lock-in period where an investor cannot return the units until the completion of such a lock-in period.

9. CONVENIENCE
An investor can purchase or sell fund units directly from a fund, through a broker or a financial planner. The investor may opt for a Systematic Investment Plan (SIP) or a Systematic Withdrawal Advantage Plan (SWAP). In addition to this an investor receives account statements and portfolios of the schemes.

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7. Portfolio Management Questionnaire

Name(s): _________________________________

___________________________

Address: ___________________________________________________ State Telephone: Home _______________Business_________________ Email Address:___________________________________________ Date of Birth: ___________________ __________________ Occupation: ___________________ __________________ Approximate Annual Income ___________________ __________________ Additional Comments/Special Needs _____________________________________________________________ _________________________________________________________

Your Total Investment Assets Please use the table below to outline your total investment assets (Exclude the value of your residence, business or personal property.)

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Total investment assets: 1: Stocks (Individual or Mutual Funds):a) 0-50k b) 50k-1.0L c) 1.0L-5.0L (d) 5.0L-Above

2: Money Market Funds:a) 0-50k 3:Savings:a) 0-50k b) 50k-1.0L c) 1.0L-5.0L (d) 5.0L-Above b) 50k-1.0L c) 1.0L-5.0L (d) 5.0L-Above

4:Life Insurance(cash value):a) 0-50k b) 50k-1.0L c) 1.0L-5.0L (d) 5.0L-Above

5:Other:-(Mention the name)_________________ a) 0-50k b) 50k-1.0L c) 1.0L-5.0L (d) 5.0L-Above

8.CONCLUSION
All Investors Aim to maximize economic utility. Investors are rational risk-averse and are price takers, i.e., they dont influence prices. Investment is related to Income. Higher the income, higher the investment.

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Smart investors have a plan for investing and they stick to it. If investors invest consistently and wait patiently for gains, then they get higher returns. Investment styles: There are a range of different styles of investment that the investor can adopt. For example, growth, value, market neutral, small capitalisation, indexed,etc. The "cheaper is better" mentality weakens decision making capabilities and leads investors to dangerous assumptions and short cuts that only appear to be effective. When cheap is an investor's primary concern, what he gets will generally be worth the price.

9. FINDING
400 investors were interviewed and their portfolio construction pattern was analyzed.

Investment pattern: Saving A/c: 40% Stock (individual and mutual funds): 9% Bond (Individual or Mutual Funds): 18% Insurance : 21%
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Others : 1

10. Recommendations

Spread the portfolio among multiple investment vehicles, such as stocks, mutual funds, bonds, and cash. Vary the risk in the securities. A portfolio can also be diversified into different mutual fund investment strategies, including growth funds, balanced funds, index funds, small cap, and large cap funds. When a portfolio includes investments with varied risk levels, large losses in one area are offset by other areas. Vary your securities by industry, or by geography. This will minimize the impact of industry- or location-specific risks. The practical application of this kind of diversification is mixing investments between domestic and international funds. By choosing funds in many countries, events within any one country's economy have less effect on the overall portfolio. Investors tend to fall in love with securities that rise in price and forget to take profits, particularly when the company was once their employer. The investment decision should be rational. Many investors dont have proper knowledge about the investment option. So they have become risk averse and prefer low return on low risk portfolio.

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11. References

Books Portfolio management Insurance India Insurance industry (ICFAI Publications)

Magazines Business world

News papers The Hindu

Internet IRDA website

in Magazines investment

on Business Line

Google search

Economic Times

Wikipedia

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