“Financial planning ensures efficient

management of
expenses as well as investments, maximizing
one’s ability to meet aspirations and life
goals.”

1
INSURANCE

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

helps create and manage wealth ensuring a good today and a secure
future.”

The service industry is one of the fastest growing sectors in India today.
The upcoming sectors which are really showing the graph towards
upwards are - Telecom, Banking, Mutual fund and Insurance. These
sectors really have a lot of responsibility towards the economy.

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

of life and property. Under the plan of insurance, a large numbers of
people associate themselves by sharing risk, attached to individual. The
risk, which can be insured against include fire, the peril of sea, death,
incident, & burglary. Any risk dependent upon these may be insured
against at a premium proportionately with the risk involved.

Insurance is actually a contract between 2 parties whereby one party

called insurer undertakes in exchange for a fixed sum called premium to
pay the other party happening of a certain event. In return for the
payment of premium by the insured, the insurers pay the financial losses
suffered by the insured as a result of the occurrence of unexpected
events.

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

the insured, the insurers pay the financial losses suffered by the insured
as a result of the occurrence of unforeseen events.

2
With the help of insurance, large number of people exposed to a similar
risk makes contributions to a common fund out of which the losses
suffered by the unfortunate few, due to accidental events, are made good.

History of the Insurance sector

The business of life insurance in India in its existing form started in India
in the year 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta. LIC of India was created by an Act in the Parliament:
Life Insurance Corporation of India Act, 1956. LIC of India was made
merging about 245 insurers in 1956, and became operational with effect
from 1st September 1956.

Some of the important milestones in the life insurance business in India

are:

1912: The Indian Life Assurance Companies Act enacted as the first
statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and non-life
insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance

Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over
by the central government and nationalized. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore
from the Government of India.

3
The General insurance business in India, on the other hand, can trace its
roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in

India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.

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

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

1968: The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set up.

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

nationalized the general insurance business in India with effect from 1st
January 1973.

107 insurers amalgamated and grouped into four companies viz. the
National Insurance Company Ltd., the New India Assurance Company Ltd.,
the Oriental Insurance Company Ltd. and the United India Insurance
Company Ltd. GIC incorporated as a company.

THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

(IRDA)

The Insurance Act, 1938 had provided for setting up of the Controller of
Insurance to act as a strong and powerful supervisory and regulatory
authority for insurance. Post nationalization, the role of Controller of

4
Insurance diminished considerably in significance since the Government
owned the insurance companies.

But the scenario changed with the private and foreign companies foraying
in to the insurance sector. This necessitated the need for a strong,
independent and self-directed Insurance Regulatory Authority was felt. As
the performance of legislation would have taken time, then Government
constituted through a Government resolution an Interim Insurance
Regulatory Authority pending the performance of a comprehensive
legislation.

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

to provide for the establishment of an Authority to protect the interests of
holders of insurance policies, to regulate, promote and ensure orderly
growth of the insurance industry and for matters connected therewith or
incidental thereto and further to amend the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and the General insurance Business
(Nationalization) Act, 1972 to end the monopoly of the Life Insurance
Corporation of India (for life insurance business) and General Insurance
Corporation and its subsidiaries (for general insurance business).

The act extends to the whole of India and will come into force on such
date as the Central Government may, by notification in the Official
Gazette specify. Different dates may be appointed for different provisions
of this Act.

The Act has defined certain terms; some of the most important ones are
as follows appointed day means the date on which the Authority is
established under the act. Authority means the established under this Act.
Interim Insurance Regulatory Authority means the Insurance Regulatory

5
Authority set up by the Central Government through Resolution No. 17(2)/
94-lns-V dated the 23rd January, 1996.

Words and expressions used are not defined in this Act but defined in the
Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the
General Insurance Business (Nationalization) Act, 1972 shall have the
meanings respectively assigned to them in those Acts.

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

insurance company" means any insurer being a company:

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

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

company, either by itself or through its subsidiary companies or its
nominees, do not exceed twenty-six per cent. Paid up capital in such
Indian insurance company

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

insurance business or re-insurance business?

LIFE INSURANCE CORPORATION OF INIDA (LIC)

Vision
“To emerge as a transnational competitive financial conglomerate of
significance to societies and be the pride of India.”

Mission
“Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes with
competitive returns and by rendering resources for economic
development”

6
Members On The Board Of The Corporation

Shri. T.S. Vijayan (Chairman)

Shri. D.K. Mehrotra (Managing Director - LIC)
Shri. Thomas Mathew T. (Managing Director - LIC)
Shri. A.K. Dasgupta (Managing Director - LIC)
Shri. Ashok Chawla (Finance Secretary, Ministry of Finance, Govt. of India)
Shri. G.C. Chaturvedi (Additional Secretary, Department of Financial
Services, Ministry of Finance, Govt. of India.)
Shri. Yogesh Lohiya (Chairman cum Managing Director, GIC of India)
Shri. T.C. Venkat Subramanian (Chairman & Managing Director. Export
Import Bank of India)
Dr. Sooranad Rajashekhran
Shri. Monis R. Kidwai

List of Life Insurance Providers in India

• Bajaj Allianz Life Insurance

• Birla Sun Life Insurance
• HDFC Standard Life Insurance
• ICICI Prudential Life Insurance
• ING Vysya Life Insurance
• Life Insurance Corporation of India
• Max New York Life Insurance
• Kotak Mahindra Life Insurance

7
 • SBI Life Insurance
• Tata AIG Life Insurance
• Reliance Life Insurance
• Aviva Life Insurance Company
• Sahara India Life Insurance
• Shriram Life Insurance
• Future Generally India Life Insurance
• IDBI Fortis Life Insurance

Types of Life insurance Policy:-

a. Endowment Policy

Endowment insurance are policies that cover the risk for a specified
period and at the end the sum assured is paid back to the policyholder
along with all the bonus accumulated during the term of the policy. The
Endowment insurance policies work in two ways, one they provide life
insurance cover and on the other hand as an vehicle for saving. They are
more expensive than Term policies and Whole life policies. Normally the
bonus is calculated on the sum insured but the only drawback is that the
bonuses are not compounded. Endowment insurance plans are best for
people who do not have a saving and an investing habit on a regular
basis. Endowment Insurance Plans can be bought for a shorter duration
period.

b. Whole Life Insurance

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

life insurance plan the risk is covered for the entire life of the policyholder
that is the reason they are called whole life policies. The nominee of the
beneficiary are paid the policy dues and the bonus only upon the death of

8
the policyholder. The policyholder is not getting any money during his or
her own lifetime that means there is no survival benefit to the policy
holder.

c. Unit Linked Policy

A Unit linked insurance plans are a special kind of insurance policies which
have a benefit of life insurance and also serves as an investment tool. In a
unit linked insurance plan there are two parts in the premium a client
pays, the first part of the premium goes into covering the life of the policy
holder and the second part goes into investments. Almost all insurance
companies give their customers a choice to select the investment mix.
They can go for 100% equity funds or 100% debt funds or a mixture of
both. The returns from the insurance policy are directly related to the
performance of the funds. The only drawback of unit linked insurance
plans is its charges for first few years, which varies from 30% to 70% of
the premium.

d. Term Life Insurance

Term Insurance is a no add-ons life insurance plans and covers a person

for a term of one or more years. It pays a death benefit only if death
occurs in that term. Term Insurance generally offers the cheapest form of
insurance. One can renew most Term Insurance policies for one or more
terms even if his health condition has changed. Each time one renew the
policy for a new term, premiums may climb higher.

Term policies cover only the risk during the selected term period. If the
policyholder survives the term, the risk cover comes to an end. A Term
plan is a pure risk cover plan and it meet the needs of people who are
initially unable to pay the larger premium required for a whole life or an

9
endowment assurance policy, but they hope to be able to pay for such a
policy in the near future.

e. Money Back Policy

Money back policies are plans where the survival benefits are payable
only at the end of the term period, plus the added benefit of money back
policies is that they provide for periodic payments of partial survival
benefits during the term of the policy so long as the policy holder is alive.
An additional and important feature of money back policies is that in the
event of death at any time during the term of the policy, the death claim
comprises full sum assured without deducting any of the survival benefit
amounts. Money Back Policies are good for people who want to insure
their life and also want to some return from their investment's at a later
date. The return from investments in Money Back Policies would range
between 5% to 8% annually depending on the interest rate movements.

Example:

Ms. Sania Mirza, aged 25 invests Rs.2lac in a money back policy (T.No-75)
paying an annual premium of Rs.12, 546/- for 20 years period. She
receives Rs.40, 000 at the end of each 5th, 10th, 15th year. On maturity
balance Rs.80, 000+ Rs.1, 64,000/- (as per bonus rate of 2005 i.e.
Rs.41per thousand p.a.)+Rs.4000/- FAB. If Ms. Sania dies after 8 year, his
nominee will receive S.A. +Bonus without deducting the survival benefit
already paid to Ms. Sania

Products of Life Insurance:-

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

training period, I had worked on following main products and their details
are as follows:

10
A. JEEVAN ANAND an Endowment Assurance + Whole Life
plan

Jeevan Anand plan is the combination of whole life policy and endowment
insurance policy. The plan provides the pre-decided S.A. and bonus at the
end of the stipulated PPT, but the risk cover on the life continues till
death. This policy is suitable for the people of all ages and social groups.
The policyholder will be benefited by giving protection to their families
from a financial hold up that may occur due to their downfall.

Premiums are usually payable for the selected term of years or until death
if it occurs during the term period. Accident benefit is available during
engaged in hazardous occupations attracting occupational extra.

Death benefit:

If death occurs during the premium paying term S.A. + Bonus + FAB, if
any is payable and premium payment is ceased. An extra amount equal to
the S.A. is payable if death occurs after the premium paying term. No
bonus is paid on death after the premium paying term.

Accident benefit:

The double accident benefit is available during the premium paying term
and thereafter. The premium for this has been built into the tabular
premium rate.

Example:

Mr. Sharad Pawar 25 years, applied for jeevan anand policy for 20 years
with S.A. Rs.1 Lac. He has to pay annual premium of Rs.5490, Mr. Sharad
Pawar will get Rs.1, 98,000/- (S.A. + Bonus as per 2005 rates i.e. Rs.43

11
per thousand per annum which become 43 x 100 x 20 = 86,000/-). Even
after the premium paying term is over, risk cover continues till the death
of Mr. Sharad Pawar.

But if, Mr. Sharad Pawar dies (After premium paying term is over) at the
age of 65 years his nominee will get an additional amount equal to the
S.A. i. e. Rs.1 Lac in cash. Since Mr. Pankaj has already received the
bonus, LIC will not pay second time bonus.

In case Mr. Sharad Pawar dies during premium paying term, his nominee
will receive Rs. 1Lac + accumulated Bonus.

B. KOMAL JEEVAN-LIC- children plan

This is a Children's Money Back Plan that provides financial protection

against death during the term of plan with periodic payments on survival
at specified durations. This plan can be purchased by any of the parent or
grand-parent for a child aged 0 to 10 years. A Komal Jeevan Plan with
payment of premium ceasing on policy anniversary immediately after the
child attains 18 years of age. The plan, besides offering risk cover, also
offers payment of Sum Assured in installments at age 18,20,22,24 and
Guaranteed and Loyalty additions, if any, at the age 26. Premiums are
payable yearly, half-yearly, quarterly, monthly or through Salary
deductions, as opted by insurer.

Benefits:

a. Guaranteed Addition:

The policy provides for the Guaranteed Additions at the rate of Rs.75 per
thousand Sum Assured for each completed year. The Guaranteed

12
Additions are payable at the end of the term of the policy or earlier death
of the Life Assured. The Guaranteed Additions will be payable:

(i) On death or
(ii) On maturity i.e. on policy anniversary immediately after the Life
Assured attains the age of 26 years, provided the risk has commenced
under the policy.
b. Installment Benefits:

The Sum Assured under this plan will be paid in installments at periodic
intervals provided the policy is in force for full sum assured as under:

c. Loyalty Addition:

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

commencement of the risk under the policy based on the rates declared
from time to time , depending on the experience of the Corporation.

d. Death Benefit:

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

commencement of risk but before policy matures, the Sum Assured
together with Guaranteed Additions is payable without any deduction or
adjustment for the amount that may have been paid earlier by way of
installments benefits.

e. Premium Waiver Benefit:

Premium waiver benefit can be availed by the proposer under this plan for
which additional premium will be payable. Lives up to the age of 50
(nearer birthday) are eligible, subject to normal underwriting
requirements.

13
 Yearly Amount payable on
Amount Guaranteed
Age Sum Premiu death during the
payable Addition
at Assure m
on payable on
entry d Payabl 8th Year 12th Year Survival maturity
e

Rs.1,
lakh on
attainme
nt of age
18 yrs.

Rs.1,
Sum lakh on
Assured of attainme
Sum Assured of Sum of
Rs.5,lakh+ nt of age
Rs.5,lakh+ Rs.7,87,500
Guaranteed 20 yrs.
Rs.5Lak Rs.5063 Guaranteed Addition + plus
5 Addition of
h 2 of Rs.4,12,500/- + Loyalty
Rs.2,62,500/ Rs.1.5
Loyalty Addition* if addition* if
- + Loyalty lakh on
any any
Addition* if attainme
any nt of age
22 yrs.

Rs.1.5
lakh on
attainme
nt of age
24 yrs

f. Term Rider Benefit:

Term Rider Benefit can be availed by the proposer to the extent of 20% of
the basic Sum Assured under the policy not exceeding Rs.100000/-. The
benefit will be payable in case the proposer dies before the policy
anniversary on which the child completes 18 years. Lives up to the age of
50(nearer birthday) are eligible for this benefit subject to normal
underwriting requirements. In order to understand the policy more clearly
let us consider following illustration:

C. BIRLA SUNLIFE INSURANCE TERM PLAN

14
Birla Sun Life Insurance Co. Ltd. is a joint venture between Aditya Birla
Group, an Indian multinational corporation, and Sun Life Financial Inc, a
leading global insurance company. Birla Sun Life Insurance is
distinguished as the first company in the sector of financial solutions to
begin Business Continuity Plan. This insurance company has pioneered
the unique Unit Linked Life Insurance Solutions in India. Within 4 years of
its launch, BSLI became one of the leading players in the industry of
Private Life Insurance Scheme. This plan has been designed for people
who want to avail of the benefits of life insurance at low cost. It is a low
premium, pure risk coverage plan which takes care of our financial
commitments towards our family or dependants, should anything
unfortunate happen to you. This is an pure risk cover plan without any
maturity benefit.

(* As per current tax legislations)

15
Entry Age 18-55 yr.

Minimum Face Amount (Sum Rs.2, 50,000 in case of single

Assured) premium & Rs.2, 00,000 in case of
regular premium for a person
fulfilling the eligibility criteria.

Benefit Period As per policy terms 5,10, 15, 20 or

25 years

Premium Paying Period Annually, semi-annually, quarterly,

Monthly (through ECS) or one-time
payment

Amount due to nominee in event Sum assured/face amount

of death of the life insured

Maturity benefit Nil

*Tax Benefits Under Sec 80C and Sec 10 (10D)

of the Income Tax Act 1961**

16
 “Aspiration and realities influence one’s financial
planning.
A good plan ensures access to money at right time
for deployment in right assets class.
Mutual Fund investments are subject to market
risks.”

MUTUAL FUNDS

17
A mutual fund is nothing more than a collection of stocks and/or bonds.
One can think of a mutual fund as a company that brings together a group
of people and invests their money in stocks, bonds, and other securities.
Each investor owns shares, which represent a portion of the holdings of
the fund. It is a trust that pools the savings of a number of investors who
share a common financial goal.

The income earned through these investments and the capital

appreciations realized are shared by its unit holders in proportion to the
number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low
cost.

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

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

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

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

The value of the portfolio is updated every day.

18
4. The investor’s share in the fund is denominated by “UNIT”. The value of
the unit changes with changes in the portfolio value every day the value
of the unit of investment is called as the Net Assets Value or NAV.

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

investment objectives of the fund.

History of Mutual Fund

The concept of mutual funds was introduced in India with the formation of
Unit Trust of India in 1963. The first scheme launched by UTI was the now
infamous Unit Scheme 64 in 1964. UTI continued to be the sole mutual
fund until 1987, when some public sector banks and Life Insurance
Corporation of India and General Insurance Corporation of India set up
mutual funds. It was only in 1993 that private players were allowed to
open shops in the country.

Today, 32 mutual funds collectively manage Rs 6713575.19 crores under

hundreds of schemes. The year 1993 was a remarkable turning point in
the Indian Mutual Fund industry. The stock investment scenario till then
was restricted to UTI (Unit Trust of India) and public sector. But this year
marked the entry of private sector mutual funds, giving the Indian
investors a wider choice of selecting mutual funds. From then on, the
graph of mutual fund players has been on the rise with many foreign
mutual funds also setting up funds in India. The industry has also
witnessed several mergers and acquisitions proving it advantageous to
the Indian investors.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era
between 1963 and 1987 marked the existence of only one mutual fund

19
Company in India with Rs. 67 Bn assets under management (AUM), by the
end of its monopoly era, the Unit Trust of India (UTI). By the end of the
80s decade, few other mutual fund companies in India took their position
in mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund,
Can bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank
Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a
new horizon in Indian mutual fund industry. By the end of 1993, the total
AUM of the industry was Rs. 470.04 Bn. The private sector funds started
penetrating the fund families. In the same year the first Mutual Fund
Regulations came into existence with re-registering all mutual funds
except UTI. The regulations were further given a revised shape in
1996.Kothari Pioneer was the first private sector mutual fund company in
India which has now merged with Franklin Templeton. Just after ten years
with private sector players penetration, the total assets rose up to Rs.
1218.05 Bn. Today there are 33 mutual fund companies in India.

Major Mutual Fund Companies in India

Birla Sun Life Mutual Fund

HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
Prudential ICICI Mutual Fund
State Bank of India Mutual Fund
Tata Mutual Fund
Kotak Mahindra Mutual Fund
Unit Trust of India Mutual Fund
Reliance Mutual Fund
Franklin Templeton India Mutual Fund

20
LIC Mutual Fund
Governance of Mutual Fund

a. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organization.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd
August 1995.

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

has been registered with SEBI. Till date all the AMC’s are that have
launched mutual fund schemes are its members. It functions under the
supervision and guidelines of board of directors. AMFI has brought down
the Indian Mutual Fund Industry to a professional and healthy market with
ethical lines enhancing and maintaining standards. It follows the principle
of both protecting and promoting the interest of mutual funds as well as
their unit holders.

It has been a forum where mutual funds have been able to present their
views, debate and participate in creating their own regulatory framework.
The association was created originally as a body that would lobby with the
regulator to ensure that the fund viewpoint was heard. Today, it is usually
the body that is consulted on matters long before regulations are framed,
and it often initiates many regulatory changes that prevent malpractices
that emerge from time to time.

OBJECTIVES:

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

areas of operation of mutual fund industry.

21
 2. To recommend and promote best business practices and code of
conduct to be followed by members and others engaged in the
activities of mutual fund and asset management including agencies
connected or involved in the field of capital markets and financial
services.
3. To interact with the Securities and Exchange Board of India (SEBI)
and to represent to SEBI on all matters concerning the mutual fund
industry.
4. To represent to the Government, Reserve Bank of India and other
bodies on all matters relating to the Mutual Fund Industry.
5. To develop a cadre of well trained Agent distributors and to
implement a programme of training and certification for all
intermediaries and other engaged in the industry.
6. To undertake nationwide investor awareness programme so as to
promote proper understanding of the concept and working of mutual
funds.
7. To disseminate information on Mutual Fund Industry and to
undertake studies and research directly and/or in association with
other bodies.

b. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996

S - Securities provide for investor.

T - Tax Benefits planning and exemption.
O - Optimum return on investment.
C - Cautious Approach.
K - Knowledge of Market.
Ex - Exchange of Securities Transacted.
C - Cyclopedia of Listed Companies.
H - High Yield.
A - Authentic Information
N - New Entrepreneur encouraged.
G - Guidance of Investor & Company.
E - Equity

22
To protect the interest of the investors, SEBI formulates policies and
regulates the mutual funds. It notified regulations in 1993 (fully revised in
1996) and issues guidelines from time to time. MF either promoted by
public or by private sector entities including one promoted by foreign
entities is governed by these Regulations.

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

making investments in various types of securities. Custodian, registered
with SEBI, holds the securities of various schemes of the fund in its
custody.

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

Company or board of trustees must be independent. They should not be
associated with the sponsors. 50% of the directors of AMC must be
independent. All mutual funds are required to be registered with SEBI
before they launch any scheme.

Types of Mutual fund

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

financial position, risk tolerance and return expectations etc. The table
below gives an overview into the existing types of funds in the Industry.

By Constitution
a) Open-ended schemes
b) Close-ended schemes
c) Interval schemes

By Investment objective:
a) Equity Fund
i. Diversified Fund

23
 ii. Tax Saving Fund
iii. Index Fund
iv. Sectoral Fund
b) Debt Fund schemes
c) Hybrid schemes
d) Money market schemes

a. Open-ended Fund

Funds that can sell and purchase units at any point in time are classified
as Open-end Funds. The fund size (corpus) of an open-end fund keeps on
changing because of continuous selling (to investors) and repurchases
(from the investors) by the fund. Since the NAV of an open-end fund is
calculated daily, it serves as a useful measure of its fair market value on a
per-share basis.

b. Close-ended Fund

Funds that can sell a fixed number of units only during the New Fund Offer
(NFO) period are known as Closed-end Funds. The corpus of a Closed-end
Fund remains unchanged at all times. After the closure of the offer, buying
and redemption of units by the investors directly from the Funds is not
allowed. However, to protect the interests of the investors, SEBI provides
investors with two avenues to liquidate their positions

Closed-end Funds are listed on the stock exchanges where investors can
buy/sell units from/to each other. The trading is generally done at a
discount to the NAV of the scheme. The NAV of a closed-end fund is
computed on a weekly basis (updated every Thursday). Closed-end Funds
may also offer "buy-back of units" to the unit holders. In this case, the
corpus of the Fund and its outstanding units do get changed.

24
Distinct Features of Closed-end Funds:

• These funds are closed to new capital after they begin operating.
• Closed-end funds trade on stock exchanges rather than being
redeemed directly by the fund.
• Unlike open-end funds, the closed-end funds can be traded during
the market day at any time. Open-end funds are generally traded at
the closing price at the end of the market day.
• Closed-end funds are usually traded at a premium or discount
whereas open-end funds are traded at NAV.

c. Large-Cap Fund

Large cap funds are those mutual funds, which seek capital appreciation
by investing primarily in stocks of large blue chip companies with above-
average prospects for earnings growth.

Different mutual funds have different criteria for classifying companies as

large cap. Generally, companies with a market capitalization in excess of
Rs 1000 crore are known large cap companies. Investing in large caps is a
lower risk-lower return proposition (vis-à-vis mid cap stocks), because
such companies are usually widely researched and information is widely
available.

Large cap funds invest in those companies that have more potential of
earning growth and higher profit. One of the major advantages of large
cap funds is that they are less unstable than mid cap and small cap funds
and the near term forecast of large cap funds can be more accurately
predicted. On the flip side, the large cap funds offer lower returns than
mid cap or small cap funds. But when compared in totality, large cap
funds outperform all other funds. These funds come under low risk low

25
return category. In volatile times it is advisable to invest in large cap
funds.

d. Mid-Cap Fund

Mid cap funds are those mutual funds, which invest in small / medium
sized companies. As there is no standard definition classifying companies
as small or medium, each mutual fund has its own classification for small
and medium sized companies. Generally, companies with a market
capitalization of up to Rs. 500 crore are classified as small. Those
companies that have a market capitalization between Rs. 500 crore and
Rs. 1,000 crore are classified as medium sized.

Big investors like mutual funds and Foreign Institutional Investors are
increasingly investing in mid caps nowadays because the price of large
caps has increased to a large extent. Small / midsized companies tend to
be under researched thus they present an opportunity to invest in a
company that is yet to be identified by the market. Such companies offer
higher growth potential going forward and therefore an opportunity to
benefit from higher than average valuations.

Mid cap companies are looked upon as wealth creators and have the
potential to join the league of large cap companies. Such companies are
quick, flexible and can adapt to the changes faster. One of the challenges
that fund managers of mid cap funds face is to identifying such
companies. But mid cap funds are very unpredictable and tend to fall like
a pack of cards in bad times. So, caution should be exercised while
investing in mid cap mutual funds. Mid cap funds are a good option in
case the investor wants to add some diversity to his portfolio.

26
e. Equity Fund

Equity mutual funds are also known as stock mutual funds. Equity mutual
funds invest pooled amounts of money in the stocks of public companies.
Stocks represent part ownership, or equity, in companies, and the aim of
stock ownership is to see the value of the companies increase over time.
Stocks are often categorized by their market capitalization (or caps), and
can be classified in three basic sizes: small, medium, and large. Many
mutual funds invest primarily in companies of one of these sizes and are
thus classified as large-cap, mid-cap or small-cap funds.

f. Balanced Fund

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

that buys a combination of common stock, preferred stock, bonds, and
short-term bonds, to provide both income and capital appreciation while
avoiding excessive risk.

Balanced funds provide investor with an option of single mutual fund that
combines both growth and income objectives, by investing in both stocks
(for growth) and bonds (for income). Such diversified holdings ensure that
these funds will manage downturns in the stock market without too much
of a loss. But on the flip side, balanced funds will usually increase less
than an all-stock fund during a bull market.

27
g. Growth Fund

Growth funds are those mutual funds that aim to achieve capital
appreciation by investing in growth stocks. They focus on those
companies, which are experiencing significant earnings or revenue
growth, rather than companies that pay out dividends. Growth funds tend
to look for the fastest-growing companies in the market. Growth managers
are willing to take more risk and pay a premium for their stocks in an
effort to build a portfolio of companies with above-average earnings
momentum or price appreciation.

The objective of growth funds is to achieve capital appreciation by in

stocks of those companies, which are registering significant earnings or
revenue growth. Growth funds offer tremendous opportunities for growth,
when the financial market is optimistic.

h. Money Market Fund

These funds are also income funds and their aim is to provide easy
liquidity, preservation of capital and moderate income. These schemes
invest exclusively in safer short-term instruments such as treasury bills,
certificates of deposit, commercial paper and inter-bank call money,
government securities, etc. Returns on these schemes fluctuate much less
compared to other funds. These funds are appropriate for corporate and
individual investors as a means to park their surplus funds for short
periods.

Money market funds are generally the safest and most secure of mutual
fund investments. The goal of a money-market fund is to preserve
principal while yielding a modest return. When investing in a money-
market fund, attention should be paid to the interest rate that is being
offered.

28
i. Tax-saving funds

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

benefits under Section 88 of the Income-Tax Act. So, on an investment of
up to Rs 10,000 a year in an ELSS, you can claim a tax exclusion of 20 per
cent from your taxable income. One can invest more than Rs 10,000, but
won’t get the Section 88 benefits for the amount in excess of Rs 10,000.
The only drawback to ELSS is that you are locked into the scheme for
three years.

In terms of investment profile, tax-saving funds are like diversified funds.

The one difference is that because of the three year lock-in clause, tax-
saving funds get more time to reap the benefits from their stock picks,
unlike plain diversified funds, whose portfolios sometimes tend to get
dictated by redemption compulsions.

j. Debt/ Income Fund

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

investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures, Government securities and money
market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity
markets. However, opportunities of capital appreciation are also limited in
such funds. The NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs of such funds
are likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.

29
k. Index Funds

An index fund is a type of mutual fund that builds its portfolio by buying
stock in all the companies of a particular index and thereby reproducing
the performance of an entire section of the market. The most popular
index of stock index funds is the Standard & Poor's 500. An S&P 500 stock
index fund owns 500 stocks-all the companies that are included in the
index. Investing in an index fund is a form of passive investing. Passive
investing has two big advantages over active investing. First, a passive
stock market mutual fund is much cheaper to run than an active fund.
Second, a majority of mutual funds fail to beat broad indexes such as the
S&P 500.

Net Assets Value:-

Net Asset Value, or NAV, is the sum total of the market value of all the
shares held in the portfolio including cash, less the liabilities, divided by
the total number of units outstanding. It is the price at which investors can
buy or redeem the mutual fund’s units. Thus, NAV of a mutual fund unit is
nothing but the 'book value.'

A fund's NAV fluctuates along with the value of its underlying investments.
The formula for NAV is:

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

Holdings - Fund Liabilities
Total Fund Units Outstanding

Let's assume at the close of trading day before today a particular mutual
fund held Rs.10, 500,000 worth of securities, Rs.2, 000,000 of cash, and

30
Rs.500, 000 of liabilities. If the fund had 1,000,000 units outstanding, then
yesterday's NAV would be:

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

A fund's NAV will change daily as the value of a fund's securities, cash
held, liabilities, and the number of shares outstanding fluctuates.

Advantages of Mutual Funds:

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

rather it pools the money of several investors and invests this in stocks,
bonds, money market instruments and other types of securities.

• Professional Management

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

management of our money. Investors purchase funds because they do not
have the time or the expertise to manage their own portfolios. A mutual
fund is a relatively inexpensive way for a small investor to get a full-time
manager to make and monitor investments.

• Well Regulated

All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by
SEBI.

• Diversification

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

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

31
a large number of assets so that a loss in any particular investment is
minimized by gains in others. In other words, the more stocks and bonds
we own, the less any one of them can hurt us (Enron Corporation). Large
mutual funds typically own hundreds of different stocks in many different
industries. It wouldn't be possible for an investor to build this kind of a
portfolio with a small amount of money.

• Economies of Scale

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

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

• Liquidity

Just like an individual stock, a mutual fund allows us to request that our
shares be converted into cash at any time. With open-end funds, we can
redeem all or part of our investment any time we wish and receive the
current value of the shares. Funds are more liquid than most investments
in shares, deposits and bonds. Moreover, the process is consistent,
making it quick and efficient so that we can get our cash in hand as soon
as possible.

• Simplicity

Buying a mutual fund is easy. Many banks have its own line of mutual
funds, and the minimum investment is small. Most companies also have
automatic purchase plans whereby as little as $100 can be invested on a
monthly basis.

• Tax Benefits

32
Last but not the least, mutual funds offer significant tax advantages.
Dividends distributed by them are tax-free in the hands of the investor.
They also give the advantages of capital gains taxation. If we hold units
beyond one year, we get the benefits of indexation. Simply put, indexation
benefits increase our purchase cost by a certain portion, depending upon
the yearly cost-inflation index (which is calculated to account for rising
inflation), thereby reducing the gap between your actual purchase costs
and selling price. This reduces our tax liability. What’s more, tax-saving
schemes and pension schemes give us the added advantage of benefits
under Section 88. We can avail of a 20 per cent tax exemption on an
investment of up to Rs 10,000 in the scheme in a year.

Disadvantages of Mutual Funds:

• Professional Management

Notice we qualified the advantage of professional management with the

word "theoretically"? Many investors debate whether or not the so-called
professionals are any better than you or I at picking stocks. Management
is by no means perfect, and, even if the fund loses money, the manager
still takes his/her cut. We'll talk about this in detail in a later section.

• Costs

Mutual funds don't exist exclusively to make our life easier all funds are in
it for a profit. The mutual fund industry is masterful at burying costs under
layers of terminology. These costs are so complicated that in this tutorial
we have devoted an entire section to the subject.

• Dilution

It's possible to have too much diversification. Because funds have small
holdings in so many different companies, high returns from a few

33
investments often don't make much difference on the overall
return. Dilution is also the result of a successful fund getting too big.
When money pours into funds that have had strong success, the manager
often has trouble finding a good investment for all the new money.

• Taxes

When making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a
security, a capital-gains tax is triggered, which affects how profitable the
individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.

Systematic Investing Plan:-

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

just like a recurring deposit with the post office or bank where we put in a
small amount every month. The difference here is that the amount is
invested in a mutual fund.

How to invest in SIP’s

• The SIP option is available with all types of funds like equity, income
or gilt.
• An investor can avail the SIP option by giving post-dated cheques of
Rs 500 or Rs 1,000 according to the funds’ policy.
• If an investor wants to put more than Rs 500 or Rs 1,000 in any
given month he will have to fill in a new a form for SIP intimating the
fund that he is changing his SIP structure. Also he will be allowed to
change the SIP structure only in the multiples of the SIP amount.
• If an investor is investing in two different schemes of the same fund
he can fill in a common SIP form for all the schemes. However if the

34
 first holders in those schemes are different than they will have to fill
different SIP forms, as the first holder has to sign on the form.
• The investor can get out of the fund i.e. redeem his units any time
irrespective of whether he has completed his minimum investment
in that scheme. In such a case his post-dated cheques will be
returned back to him.

Investing in SIP’s is also known as Rupee cost averaging. The advantage

of rupee cost averaging is that the Net asset value (NAV) is averaged out,
as the investor will be entering the fund at different NAV’s, which may be
higher or lower depending on the market condition.
For e.g., two investors Ashok and Kishore invested in an equity mutual
fund at the same time. While Ashok made a lump sum investment of Rs.
60,000/-, Kishore chose the SIP way to invest the same amount but in
multiples of Rs.10, 000/- each month for six months.

Here’s what they gained at the end of the period

35
COMPARISION BETWEEN INSURANCE AND MUTUAL FUND

Ashok’s lump sum Kishore’s SIP route

investment
Month Unit Amount Units Amount Units
Price Invested Bought Invested Bought
(Rs) (Rs) (Rs)
1 20 60000 3000 10000 500
2 18 - - 10000 556
3 14 - - 10000 714
4 22 - - 10000 455
5 26 - - 10000 385
6 20 - - 10000 500
Total Invested 60000 60000
Average Price Paid 20 20
Total number
of units bought 3000 3109
Value of
Investments
after six months 60000 62180

36
Insurance plans and mutual funds are not comparable as both serves
different investor needs. While mutual funds fulfil the investment need,
life insurance acts as a safety net. Unit-linked insurance plans (Ulips) do
have some similarity with mutual funds. The primary objective of an
insurance product is protection. The whole reason why it has evolved as a
savings plan in the minds of certain people is because there is a
significant savings component attached to it; however, it is still not the
primary purpose of the plan.

Both these instruments are designed to serve different purposes and are
not comparable. A unit-linked plan from an insurance company is an
insurance policy designed to pay a lump sum on maturity or on death if
earlier. Premium paid under these plans is eligible for tax deduction under
Section 88 of the Income Tax Act. On the other hand, mutual funds are
investment avenues to participate in the growth of financial markets and
do not provide any tax deduction (except ELSS and pension funds).

For a unit-linked insurance plan, providing life cover is the most important
function; returns are just an added benefit, which gets magnified, given
the tax rebates. Though unit-linked plans offer transparency in returns in
terms of net asset value and flexibility in investment options in debt,
equity or mixes of both, these advantages remain secondary, whereas for
a mutual fund, the main objective is to provide returns.

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

lock-in of three years. Even if one redeems after three years, you would
be at a loss because of higher initial administrative charges. For example,
the upfront charges for the first two premium amounts are as high as 20-
27 per cent. Then there is an annual management fee of 0.8-1.25 per cent
and a flat fee of Rs 15-20 per month. Finally, there is a deduction for risk
cover. This goes towards contribution to the sum assured or the life

37
insurance cover, which is based on mortality rates as calculated by
actuaries. Though mutual funds too have entry and exit loads (maximum
2 per cent) and expenses (maximum 2.5 per cent), these costs are lower
than unit-linked plans.

If we take a look at the recent scenario in the Indian financial market then
we can find the market flooded with a variety of investment options which
includes mutual funds, equities, fixed income bonds, corporate
debentures, company fixed deposits, bank deposits, PPF, life insurance,
gold, real estate etc. All these investment options could be judged on the
basis of various parameters such as- return, safety convenience, volatility
and liquidity. measuring these investment options on the basis of the
mentioned parameters, we get this in a tabular form

Return Safety Volatility Liquidity Convenienc

e
Equity High Low High High or Moderate
low
FI Bonds Moderate High Moderate Moderate High
Co. Moderate Moderate Moderate Low Low
Debenture
s
Co. FDs Moderate Low Low Low Moderate
Bank Low High Low High High
Deposits
PPF Moderate High Low Moderate High
Life Low High Low Low Moderate
Insurance
Gold Moderate High Moderate Moderate Low
Real High Moderate High Low Low
Estate
Mutual High High Moderate High High
Funds

38
RESEARCH METHODOLGY

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

question through the application of the scientific method. It is a
systematic and intensive study directed towards a more complete
knowledge of the subject studied. Marketing research is the function
which links the consumer, customer and public to the marketer through
information- information used to identify and define marketing
opportunities and problems generate, refine, and evaluate marketing
actions, monitor marketing actions, monitor marketing performance and
improve understanding of market as a process.

Marketing research specifies the information required to address these

issues, designs, and the method for collecting information, manage and
implemented the data collection process, analyses the results and
communicate the findings and their implication.

I have prepared project as descriptive type, as the objective of the study

demands the answers of the question related to find the potentiality of life
insurance?

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

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

working of company and approaching customers directly in the field, tele-
calling, cold calling, campaigning and through references to know their
interest in business with company in my project and also make
questionnaire for creating database of business class as well as routine
working people in Jodhpur city for company.

39
I decided on Secondary data collection method was used by referring to
various websites, books, magazines, journals and daily newspapers for
collecting information regarding project under study.

Data Interpretation and Analysis

No. of Customers how have invested in mutual fund

Respons Frequenc Percentag

e y e
Yes 19 38%
No 31 62%
Total 50 100

Interpretation:

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

Only 38% of people invest in mutual fund.

Other Investment option

40
 Options Frequenc Percentage
y s
Fixed deposits 12 50%
Post office 6 25%
schemes
Recurring 6 25%
deposits
Total 24 100%

Interpretation:-

The analysis of data reveals that 50% investors still consider FD’s as
most suitable instrument for investment. And prefer Rd’s over
Systematic Plan of mutual fund.

Different policies bought by customers

41
 COMPANY’S NO.OF
PERCENTAGE
NAME RESPONDENT
L.I.C. 28 56%
HDFC 02 04%
Icici Prudential 10 20%
SBI Life Insurance 07 14%
Reliance Life 03 06%
Insurance
Total 50 100%

Interpretation:-

LIC has retained the Interest of its customers. Still 56% peoples
prefer the policies of LIC of India as most suitable for getting
themselves and their family insured.

Modes of Information

42
Interpretation:

Peoples use
Options Frequenc Percentag
the various
y e
Advertisement 22 44% mode of
s information
Agents 12 24%
for
Seminar 7 14%
Workshop 9 18% purchasing
Total 50 100% insurance
policies. But advertisement is more popular.

Sectors where investment in made.

43
 Options Frequenc Percentage
y s
Government 27 54%
sector
Private sector 23 46%
Total 50 100%
Interpretation:

People prefer both the sectors approx equally.

Rate at which investors want to grow their investment

44
 Options Frequenc Percentage
y s
Steadily 17 34%
At an average 13 26%
rate
Fast 20 40%
Total 50 100%
Interpretation:

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

Reaction on unfortunate market fall

45
 Options Frequenc Percentage
y s
Withdraw your 8 16%
money
Wait and watch 26 52%
Invest more in it 16 32%
Total 50 100%

Interpretation:

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

46
 Factors considered before investing in mutual fund or Ulips

Response No. of Respondent Percentage

Safety of principal 14 28%
Low risk 15 30%
Higher Return 14 28%
Maturity Period 04 08%
Terms & 03 06%
Conditions
Total 50 100%

Interpretation:

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

but 28% wants the safety of their principal amount and 28% can
afford to invest in securities offering higher risk higher return.

47
 Options Frequenc Percentage
y s
Savings A/c’s & PO schemes 18 36%
Mutual funds investing in bonds 6 12%
Mutual funds investing in stocks 3 06%
Balanced mutual funds 1 02%
Individual stocks & bonds 5 10%
Ulips 4 08%
Other instruments like real estate, 13 26%
gold
Total 50 100%
Interpretation:

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

in saving a/c’s and Po’s.

Comfort level in making investment decisions

48
 Options Frequenc Percentage
y s
Low 14 32%
Moderat 18 41%
e
High 12 27%
Total 50 100%

Interpretation:

41% of the respondents are moderately comfortable in making

investment decisions.

Recommendations: (With reference to mutual fund)

49
The most vital problem spotted is of ignorance. Investors should be made
aware of the benefits. Nobody will invest until and unless he is fully
convinced. Investors should be made to realize that ignorance is no longer
bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer.
But most of the people are not even aware of what actually a mutual fund is?
They only see it as just another investment option. So the advisors should try
to change their mindsets. The advisors should target for more and more
young investors. Young investors as well as persons at the height of their
career would like to go for advisors due to lack of expertise and time.

The advisors may try to highlight some of the value added benefits of MFs
such as tax benefit, rupee cost averaging, and systematic transfer plan,
rebalancing etc. these benefits are not offered by other options
singlehandedly. So these are enough to drive the investors towards mutual
funds. Investors could also try to increase the spectrum of services offered.

Now the most important reason for not availing the services of advisors was
spotted was being expensive. The advisors should try to charge a nominal
fee at the beginning. But if not possible then they could go for offering more
services and benefits at the existing rate. They should also maintain their
decency and follow the code of ethics so that the investors could trust upon
them. Thus the advisors should try to attract more and more persons and
turn them into investors and finally their clients.

BIBLIOGRAPHY

50
1. http://www.scribd.com/doc/15516166/Final-Project-Report-on-
Mutual-Fund
2. http://www.scribd.com/doc/17314260/Mutual-Funds-Project
3. http://www.thehindubusinessline.com/iw/2004/05/30/stories/200405
3000241300.html
4. http://www.indianexpress.com/news/mutual-funds-and-insurance-
serve-different/482613/
5. http://www.birlasunlife.com/BirlaSunLife/Insurance/BSLI_MP/BSLI_Ins
Plans/Individual/Protection/bsl_termplan.aspx
6. http://www.bimadeals.in/content/birla-sun-life insurancebirla-term-
plan
7. http://new.valueresearchonline.com/story/h2_storyView.asp?
str=7430
8. http://www.clickindia.com/detail.php?id=447489
9. http://www.akanshaindia.com/komal.htm
10. http://www.licindia.com/children_need_002_benefits.htm
11. http://www.financials.co.in/question/20090302103454AAtkWw9
.html
12. Factsheets of different Companies of mutual fund and of LIC of
India.
13. www.mutualfundsindia.com
14. www.amfi.com
15. www.investopedia.com
16. www.investorsgudie.com
17. www.valueresearchonline.com
18. www.canbankmutual.com

51
ANNEXURE
Questionnaire

1. Do you invest in Mutual Funds

a. Yes
b. No

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

a. Fixed deposits
b. Post office schemes
c. Recurring deposits

3. Which company’s insurance policy you prefer the most

a. L.I.C.
b. HDFC
c. Icici Prudential
d. SBI Life Insurance
e. Reliance Life Insurance

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

companies

a. Advertisements

b. Agents

c. Seminar

d. Workshop

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

a. Government sector
b. Private sector

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

a. Steadily

52
 b. At an average rate
c. Fast

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

then what will you do

a. Withdraw your money

b. Wait and watch

c. Invest more in it

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

a. Safety of principal

b. Low risk

c. Higher Return

d. Maturity Period

e. Terms & Conditions

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

a. Savings A/c’s & PO schemes

b. Mutual funds investing in bonds

c. Mutual funds investing in stocks

d. Balanced mutual funds

e. Individual stocks & bonds

f. Ulips

g. Other instruments like real estate, gold

10. Your comfort level in making investment decisions can best be

described as

53
a. Low

b. Moderate

c. High

54