“STUDY OF MUTUAL FUNDS AND Its COMPETITION IN INDIA”

A Dissertation Report

SUBMITTED FOR THE PARTIAL FULFILMENT OF

THE REQUIREMENT FOR THE AWARD

OF

Master of Business Administration

SUBMITTED BY
Indranil Choudhury

ROLL NO.-AUR0901025

UNDER GUIDENCE OF

Faculty Guide

Mr.Udayan Karnatak

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY RAJASTHAN

Year of Submission-2009-11
 Table of Contents

 List of Tables

Chapter 1

Table 1.1-Introduction to mutual funds.

Table 1.2-Meaning of mutual Funds.

Table 1.3-Type of mutual funds.

Table 1.4- Concept of mutual funds.

Chapter 2

Table 2.1-Research methodology and sample profile

Table 2.2-Sample size

Chapter 3

Table 3.1-MF’s By Structure.

Table 3.2-MF’s By Investment.

Table 3.3-MF’s By Nature.

Table 3.4- Performance of ING CUB Fund

Table 3.5-Peformance of Wealth Builder

Table 3.6-Debt Funds

Table 3.7-Liquid Funds

Table 3.8-SIP

Table 3.9(a)-Tax Implications

Table 3.9(b)-Other Schemes.

Chapter 4

Table 4.1-how to use Beta for MF’s.

Table 4.2-How to use Sharpe and Treynor Ratios.

Table 4.3-Portfolio of respective funds.

Table 4.4-Portfolio T/O ratios.

Table 4.5-Entry and Exit loads.

Table 4.6-Expense Ratio.

Table 4.7-Dividend History.

Table 4.8-Asset allocation.

Table 4.9(a)-Increase and decrease in fund size.

Table 4.9(b)-Standard deviation and fund size.

Chapter 5

Table 5.1-Competition faced by MF’s.

Table5.2-Insurance products as a competition to MF’s.

Table5.3-How to generate return from insurance.

Table5.4-market share of private companies.

Table5.5-Current market share of Private companies.

Table5.6-Various types of Life insurance.

Table5.7-Tax benefit.

Chapter 6

Table 6.1- Analysis of insurance plan.

Table 6.2- Premium allocation

Chapter 7

Table 7.1- Conclusion and suggestion

Table7.2- Example

 List of Figures and Flow Charts

Chapter 1

Table 1.4- Concept of Mutual funds.

Chapter 3

Table 3.4- ING C.U.B fund NAV chart

Table 3.5-UTI Wealth builder fund NAV Chart

Chapter 5

Table 5.3-How to generate returns from Insurance

Table 5.4-Market share of private Insurance companies.

Table 5.5-Current market share of Private companies.

Table5.5-NAV Chart of HDFC.

Table5.5-NAV Chart of Reliance industries.

 List of Abbreviation

IIFL - India Info line Pvt ltd.

 ACKNOWLEDGMENT

I am highly indebted to my Director Of ABS, Major General B.N.Kaul , who gave me an

opportunity to work in the Finance Topic in this esteemed College and also for his whole-hearted
support and suggestions. Working under his able guidance was truly a learning experience for
me.

I would also like to thank my faculty guide, Lec. Udyan Karnatak, who from the beginning had
confidence in my abilities to not only complete the project, but to complete it with excellence.

I am also heartily thankful to all other faculty members for their precious time, recommendations
and suggestions that were of great help in completion of this project.
Chapter 1

Table 1.1

Introduction of Mutual Fund

Started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and
Reserve Bank and the first scheme launched by UTI was Unit Scheme 1964.Though the growth was slow but
it accelerated in 1987 because of non UTI players and SBI mutual fund was the first non UTI mutual fund
established in 1987 and in 1993 SEBI (mutual fund) regulation were substituted by a more comprehensive
and revised Mutual Fund regulations in 1996 and industry now functions under the SEBI mutual fund
regulations 1996.The only exception is UTI,since it is a corporation formed under the separate act of
Parliament.

Table 1.2

Meaning of Mutual Fund

Mutual fund allows a group of investors to pool their money together with a predefined investment objective.
and mutual fund will have a fund manager who is responsible for investing the gathered money into specific
securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit holder of the fund.

Table 1.3

Types of Mutual Fund Schemes

1. By Structure –
- Open ended Schemes

- Close ended Schemes

- Interval Schemes

2. By Investment Objectives –

- Growth Schemes

- Balanced Schemes

- Income Schemes
- Money Market Schemes

3. By Nature –

- Equity Fund

- Debt Fund

- Balanced Fund

4. Other Schemes –

- Tax Saving Schemes

- Sector Specific Schemes

- Index Schemes

Table 1.4
Chapter 2

Table 2.1

Research method and sample profile

Method- In order to conduct the research, telephonic calls have been made to various individuals
and specially doctors and lawyers from Jaipur.

In the call conducted the following questions were asked

 Do they invest in share markets?

 Do they invest in mutual funds?
 If they don’t invest then are they willing to invest?
 If they are not willing to invest what are the reasons for the same.
 If they are willing to invest then what and where are they willing to expose themselves?
 What is the Minimum and maximum amount they can invest p.a.

As this research was conducted by me while I was working in India Info line (As a part of my
college placement) most of the calls that were made gave a negative response. Most of them
even disconnected the call when they heard that the call was made from a brokerage company.
But as and when the days passed some calls were converted and positive response started
flowing in.

The data was mainly collected from Yellow pages for the doctors and the lawyers journal which
was obtained by me from the Jaipur high court.

Table 2.2

The following work was done and the responses of the potential client are as follows
Name of the Person Phone number Profession Response
Adhikari Prahalad sungh 2546873 Lawyer Not Picking up
Nitin Agarwal 9414360296 Lawyer Not interested and ended the call directly
Amit kumar agarwal 9829197115 Lawyer Not available
Anindita Agarwal 9830024698 Lawyer Phone number does not exists
Bal swaroop agarwal 26217913 Lawyer Not picking up
Mukesh Agarwal 9829166780 Lawyer call disconnected
Pankaj Agarwal 9414413545 Lawyer Not picking up the call
Smt. Prabha agarwal 9414071930 Lawyer Not picking up the call
Purshottam agarwal 01421-225522 Lawyer Wrong number
Ram gopal agarwal 2242227 Lawyer Not interested and ended the call directly
Ratan kumar agarwal 9829090323 Lawyer Not interested
Ratan Lal agarwal 9414042642 Lawyer don’t call him again
Rishi pal agarwal 9829069784 Lawyer He died few days ago
Not interested as he believes it
Surya Prakash Agarwal 9829064729 Lawyer is a bad stock market
Virendra Prasa Agarwal 9414076288 Lawyer Not interested as he is 60 years of age
Vinod kumar agarwal 2785837 Lawyer Number out of service
Vipin Agarwal 2652618 Lawyer Route Busy
Vizzy Agarwal 9829067997 Lawyer Not Interested
yamani Agarwal 2523106 Lawyer husband does all the investment
Agrajit Aloana Bimal 9868553362 Lawyer Very busy and told to call next year
Anchal agarwal 2307168 Lawyer She got married
First talked with the asistance
then the Doctor said that he
Dr Sanjay Mittal 9785245155 Doctor was not interested as he is leaving India
Dr Sunil Srivastava 9414159191 Doctor Did not pick up the call but later cut the call
DR Dinesh Mathur 9929766659 Doctor Told to call at 7pm
Abhishek dental care 2394411 Doctor Not In use
Dr Abhishek Vashishtha 5107515 Doctor Not answering the call
Dr Malti Gupta 2701710 Doctor Directly cut the call
Manoj Kumar agarwal 9829011375 Lawyer Is in a meeting and told not to bother again
Her father told that
she is out of station and
Poonam agarwal 25220022 Lawyer she will be back after 2 months
Ravi Shankar agarwal 9414337839 Lawyer Not Interested
Rajiv Agarwal 9828014235 Lawyer Not Picking up
Shailendra agarwal 9414042131 Lawyer Directly cut the call
Rajiv Agrawal 9828014235 Lawyer Told to call after 5pm
Ahmed sager 9414057814 Lawyer Told to meet afeter 01/04/2011
Ahluwalia Bhawani 9829020373 Lawyer Not picking up the call
Ahmed Ansar 9414362324 Lawyer Agreed to meet
Ahmed Khaleel 9829188186 Lawyer Agreed to meet
Amit Ahuja 9829795959 Lawyer Agreed to meet
S.K Ajmera 9828019188 Lawyer Not interested as he had the
 bad experience of the downfall of 2002
Ambrish 9414714157 Lawyer Not interested and ended the call directly
Amipal 9252059443 Lawyer Not picking up the call
Anand Digvijay 9829050089 Lawyer Not interested
Anand Rakesh babu 9462063791 Lawyer Not picking up the call
Anand Sapdeep 9414322714 Lawyer The Call was on wait
Anandka Gaurav 9414201527 Lawyer Switched off
Amiruddin Ansari 9414245759 Lawyer Call After 5pm
Arvind Kumar Arora 9887612418 Lawyer Not picking up the call
Man Mohan Arora 9828200027 Lawyer Call after Holi
Neeraj Kumar arsani 9414486031 Lawyer Not Picking up the call
Arya Hoshiyar Singh 9314969073 Lawyer Not interested in insurance and in equity
Arya Laxmi Kant 9351978068 Lawyer Not interested at all
Arya OM Prakash 9314643080 Lawyer Agreed to meet
Arya Pratap singh 9414260560 Lawyer Agreed to meet
Dr Agarwal Vishal
Endodonic Centre 9414044400 Doctor The Call was on wait
Anant Dental Clinic 9828011291 Doctor The call was not answered
Dr Anita nair 2336340 Doctor don’t call her again
Ashok Dental clinic 2370093 Doctor Told to call the next day
Told to send whatever market
info we have, and if he likes
Avnish dental care 9414454411 Doctor them he'l call back
Balaji Dental clinic 9828012176 Doctor Told to call after 1 hour
Dr. Bupesh Bhatt 3249360 Doctor Cut the Call directly
Dr Bindu Bharadwaj 2301909 Doctor Satisfied with Motialal oswal
Dr.Chopra 2610491 Doctor Does not believe in stock market
Don’t want to get in to Stock
markets becausehis hisband
Dr Seema Choudhury 2385288 Doctor have strictly warned her not to
Dr Choudhury
(Choudhury dental care
centre) 9414362455 Doctor Not Interested
Ashia ganpat singh 9928092593 Lawyer Call afetr half hour
JP Asiwal 9351323764 Lawyer Number out of service
Asthana Pradeeo Kumar 9414187891 Lawyer Number out of service
Sandeep ahuja 9829048066 Lawyer Agreed to meet
Babita 9460367524 Lawyer Number not Valid
Badetia jagdish prasad 9214304665 Lawyer Told to call later as he was busy in the court
Bagdara Suwer singh 9414796059 Lawyer The Number was wrong
Bagdia Dhruv singh 9314500952 Lawyer The Number was wrong
Rajesh Bagria 9414922057 Lawyer Not picking up the call
Dr. Kiran(Kiran dental
clinic) 6536520 Doctor Number not in service
Dr kiran Taneja- When talked about India
Siddhivinayak complex 9784637269 Doctor Infoline she directly cut the call
Dr kiran Taneja-sadala 9414076209 Doctor Call not picking up
19
Kumar Dental care 9314505050 Doctor Not interested
Malhotra dental care 9829466789 Doctor Do not disturb
Dr Deepak R Bharadwaj 9829054056 Doctor Call later
Dr Harsh nath ravindra 2551404 Doctor Not Interested
Dr Rishab Jain 9414251399 Doctor Do not disturb
Husband is a Chartered accountant
Dr.Ritu Rai gupta 9887022867 Doctor so don’t need any assistance
Dr. S .D Sharma 9414889161 Doctor Cell Switched Off
Dr Vijay Saxendra 9414074205 Doctor Not Interested
Bagdoliya dilip singh 9829888544 Lawyer To call after 5pm
Bagria Madan Lal 9314231878 Lawyer Agreed to meet
Suman Bai 9460579971 Lawyer Wrong number
Baid narendra kumar 9829436162 Lawyer Do not disturb again
Bairwa hans Raj 9314849195 Lawyer Not interested
Barala Dharmendra 9783227100 Lawyer Not interested
Beniwal Balweer singh 9928602848 Lawyer number busy
Beniwal Brijmohan 9351675780 Lawyer Switched off
Benowal Inderaj Singh 9414624509 Lawyer Not interested
Beniwal Manoj 9414095132 Lawyer Agreed to meet
Bhaba Girish 9829648468 Lawyer Number not in Existant
Bhaduria Rajesh kumar
singh 9414248873 Lawyer Not interested
Bhagwati Prashant 9214347666 Lawyer Is busy and said not to disturb any more
Dr Deepak Sharma 9414039654 Doctor Have asked to call after 1 hour
Dev dental hospital 2466401 Doctor To busy and have said not to call again
Dr Saraswat dental
hospital 2351728 Doctor Do not disturb again
Dr Indearesh Goyal 2703482 Doctor Do not disturb again
Dr Lavish gupta 9950765090 Doctor Do not disturb again
Dr. Vivek gupta 2372882 Doctor Don’t call again
Dr harsh(Harsh dental
hospital) 9414279627 Doctor Have asked to call after 1 hour
Dr K.K.Vashittha 2562418 Doctor Have asked not to call again
Dr. Kamlesh Agarwal 2303148 Doctor Telephone number Temporary withdrawn
Dr.Kushal (Kushal
Dental Clinic) 5547925 Doctor Number temporalily not available
Smt Khanna told that his husband
does all the work of investment
Dr Khanna( Khanna and when asked for the number
dental clinic) 2393516 Doctor she was reluctant to give his number
Bhagwati Sandeep 9829586024 Lawyer Agreed to meet
Bhaira suresh kumar 9414258275 Lawyer Not picking up the call
Bhambani Dropadi 9352788871 Lawyer Directly cut the call
Dr Nishi Sonkhya 9314900555 Doctor Do not Disturb
Dr.Vinod jain 9414050027 Doctor Not Interested
Dr. Navneet Khotari 2351716 Doctor Not Interested
Dr. Rakshita Kothari 9314877393 Doctor Do not disturb
Dr. Bharat Sapra 9829150500 Doctor Call after 6pm
Dr Harsh Udawat 9928076901 Doctor Not Interested
Dr.N.K Malpani 9414169090 Doctor Call after 4.30 pm
Dr. Alook Pareek 9950570398 Doctor Directly disconnected the phone
he was complaining that all
brokerage firms have just
exploited his money including IIFL
so he would rather not invest his
Dr Anuraj Dhaker 9829213226 Doctor hard earned money
Dr Ashok Mittal 2522063 Doctor Not picking up the call
Dr.CP Agarwal 9829233850 Doctor As he is driving the car call him after 1 hour
Dr CS Mittal 9887079174 Doctor Directly cut the call
Dr Dillip Kimmatkar 9828166303 Doctor Not interested in any financial services
Dr Dillip Mehta 9983904061 Doctor Not Interested
Out of station and don’t
Dr Dinesh saini 9829006051 Doctor want to get disturbed
Not interested and does not
Dr Agarwal 9314299612 Doctor want any financial assistance
Dr Rajan garg 9314502026 Doctor Agreed to meet
Dr. Meena Govardhan 2203268 Doctor Please don’t Disturb
Bhambu naresh 9414504545 Lawyer Agreed to meet
lost faith in the market after the
Bhambi ashok kumar 9214114303 Lawyer loss in november 2008
Bhambo rajesh kumar 9828428260 Lawyer Wrong number
Abhishek Bhandari 9829295394 Lawyer Call after 22/03/2011
Have got calls from other brokers also,
and was tired with this calls
so dosent wanted to be disturbed
L.M bhanddari 9828152478 Lawyer (was abusing)
Nitin Bhandari 9928877875 Lawyer Not picking up the call
Sumer chand Bhandari 9413842858 Lawyer The cell was switched off
Abhishek Bharadwaj 9829653107 Lawyer Have asked to call tomorrow i-e 18/03/2011
Bhargava manu 9414048871 Lawyer Had asked to call after 1 hour
Bhargava Rakesh kumar 9414261644 Lawyer Have asked to call between 3-4pm
Bharti Subhas 9314282688 Lawyer Have asked to call at 5pm
Neeraj Bhatt kumar 9414068469 Lawyer Have asked to call after 01/04/2011
Smt.Sadhna Bhatt 9829180881 Lawyer Wrong number
was busy and have asked to call
Bhattacharya DRP 2811685 Lawyer tomorrow evening at 5pm
Bhattacharya Kishore 9214598792 Lawyer Have told not to disturb again
Bhedi Yogesh Kumar 9414461915 Lawyer Not interested at all
Have said" why cant you understand
Dr Govind saini 9414202598 Doctor that I don’t require any financial services".
Dr.DD Gupta 9414063815 Doctor have said not to bother again
Dr. J.B Gupta 9829414680 Doctor Directly disconnected the phone
Dr.D.K Ramawat 9414106240 Doctor Call in the Evening at 6pm
Dr Sushil Sanghi 9829065605 Doctor Not interested in any financial services
Dr.Sanjeev Kumar
Sharma 9983333421 Doctor Do not disturb
Dr.Puneet Saxena 9414079182 Doctor Cell Switched Off
Dr V.D Sharma 9414073019 Doctor dosent want to talk to any brokerage firm
Dr D.S Malik 9829122957 Doctor Call After 4-5 days
Dr. M.K. Bhora 9314156461 Doctor Call in the After at 6pm
Dr Manoj Kabra 9414306722 Doctor Told to call after lunch
DR R.K.Verma 9829059970 Doctor The number was Busy
Dr.Anoop Jhurani 9829019985 Doctor not interested
Dr Anurag Dhaker 9829213226 Doctor Do not disturb
Please don’t call me again or
Dr Sachin Gupta 9414064560 Doctor I will file a complain against you
Have already invested with a local
Dr KK Sharma 2785794 Doctor broker who is his best friend
Dr.Kapil Gangwal 9314504479 Doctor Not picking up the call
Dr Mahavir Jangid 9829030404 Doctor Call after 1 hour
Dr Vishwanath Mathur 9414054377 Doctor Not interested
Dr Pankaj Singhal 9251478826 Doctor Number not in use
Dr. S.B solanki 9414079343 Doctor Directly disconnected the phone
Dr saurabh mathur 9950191816 Doctor The number is busy
Dr Jai krishan mittal 9784011957 Doctor said not to bother him again
The moment he heard about IIFl
Bhojak Ravi 9414075929 Lawyer he disconnected the call
Not interested as he is handling
the litigation for a lot of banks and
V.N Bohra 9414042470 Lawyer have qualified CA's to look after his protfolio
Surendra Singh
chandrewi 9414826906 Lawyer not ansewring the call
Pushpendra kumar Have met with an accident
chansoria 9414826906 Lawyer and would like to be not disturbed
Have asked to call on 04/04/2011 to
Atul Chaturvedi 9828262621 Lawyer have an appointment on the next day
Bharti chaturvedi 9828077560 Lawyer number does not exist
Manish Kumar
chaturvedi 9929307024 Lawyer Have shifted to Haryana so not interested
Narendra Kumar
chaturvedi 9928402990 Lawyer Is interested to call after 10/04/2011
Prashant Chaturvedi 9828023808 Lawyer His mother said that he is out of India
To call after a week as he is not in
Swarnim Chaturvedi 9414074197 Lawyer jaipur-call on 12/04/2011
Amit Chaudhury 9952535962 Lawyer The Number was wrong
Have left Jaipur and will contact
ashok Chaudhury 9414338375 Lawyer if he is interested
Kuldeep singh
Chaudhury 9414278752 Lawyer Wrong number
Left jaipur forever as said by
Mahipal Singh his brother,and when asked that
Chaudhury 9413685482 Lawyer if he was interested he directly cut the call
Rahul Chaudhury 9413300006 Lawyer The cell was switched off
Snajjan kumar
Chaudhury 9314548571 Lawyer The Number was wrong
not interested as he does not
Vikas Choudhury 9828535348 Lawyer believe in the stock markets at all
Deepak achauhan 9214694928 Lawyer Not picking up the call
Rahul Singh Chauhan 9413437299 Lawyer Do not disturb again
Abhimanyu Singh
chauhan 9414483731 Lawyer Disconnected the call directly
Dr. Vijendra Narain Wife seriously injured so don’t
jhameria 9413972477 Doctor wated to be disturbed
Dr Alok Gupta 9414062700 Doctor Not picking up the call
Ashish Chauhan 9413966666 Lawyer The number is not in exitance
Atul Kumar chauhan 9414499674 Lawyer Dialed number does not exists
Was driving the car and said to
Bhanwar singh Chauhan 9414047205 Lawyer call after 15 minutes
Deepesh Chauhan 9414358555 Lawyer Have asked not to bother him again
Devendra kumar
Chauhan 9414454870 Lawyer Not responding
Dinesh Chauhan 9829699908 Lawyer Not picking up the call
Mahendra singh
chauhan 9214611884 Lawyer The cell was switched off
Mukesh Chauhan 9828083104 Lawyer The number is Busy
Nathu Singh Chauhan 9414796820 Lawyer Not at all interested
Disconnected the call directly
R.K.Chauhan 9314210610 Lawyer after hearing IIFL
Not interested as he does not have
Rupendra Chauhan 9460145435 Lawyer even Rs 100 to invest any where
Siddharth Singh
Chauhan 9414068800 Lawyer Directly cut the call
Mahesh Kumar chawla 9414200101 Lawyer The Call was on wait
 Chapter 3

Mutual Funds In India

Table 3.1

By Structure

Open - Ended Schemes

An open ended schemes contains following points –

(i) An open-end fund is one that is available for subscription all through the year.

(ii) These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset

Value ("NAV") related prices.

(iii) The key feature of open-end schemes is liquidity.

Close - Ended Schemes

An close ended schemes has following characteristics which describes this scheme –

(i) A closed-end fund has a set maturity period which generally ranging from 3 to 15 years.

(ii) The fund is open for subscription only during a specified period.

(iii) Investors can invest in the scheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchanges where they are listed.

(iv) SEBI Regulations decide that at least one of the two exit routes is provided to the investor, In

order to provide an exit route to the investors

Interval Schemes

An interval schemes contains following points through which we can know about this scheme-

(i) Interval Schemes are that scheme, which combines the features of open-ended and close-ended
 schemes.

(ii) The units may be traded on the stock exchange or may be open for sale or redemption during

pre-determined intervals at NAV related prices.

Table 3.2
By Investment Objectives

Growth Schemes

Growth Schemes are also known as equity schemes and the aim of these schemes is to provide capital
appreciation over medium to long term. These schemes normally invest a major part of their fund in equities
and are ready to bear short-term decline for getting long term capital appreciation.

Income Schemes

Income Schemes are also known as debt schemes and these schemes provide regular and steady income to
investors. These schemes generally invest in fixed income securities such as bonds and corporate
debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes

Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and
capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion
indicated in their offer documents but normally they invest 50% in shares and 50% in fixed income securities.

Money Market Schemes

Money Market Schemes provide easy liquidity, preservation of capital and moderate income and these
schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.
 Table 3.3

By Nature

Equity Fund

These funds invest a maximum part of their amount into equities holdings. The structure of the fund may vary
different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-
classified depending upon their investment objective, as follows:

(i) Diversified Equity Funds

(ii) Mid-Cap Funds

(iii) Sector Specific Funds

(iv) Tax Savings Funds (ELSS)

“Equity investments are meant for a longer time horizon, thus Equity funds rank high on the

risk-return matrix”

Mid Cap Fund

Most stocks held in a mid cap fund are firms with established businesses that are still considered developing
companies. These funds tend to offer more growth than large-cap stocks and less volatility than the small-cap
segments and the size restrictions for a stock fluctuates between funds. The range of $2 billion to $10 billion is
only an approximation, and it can change over time.

Equity Linked Saving Scheme

Equity linked saving schemes are a kind of mutual funds like diversified equity funds with Tax benefits. It is just
like other tax saving instruments like National Savings Certificate and Public Provident Fund. Main advantage
with ELSS is lock-in period is only 3 years while for NSC it is 6 years and for PPF it is 15 years. At the same
time risk factor is high in ELSS. Some ELSS schemes also offer personal accident death cover insurance and
provide 30 to 40% returns compared to 8% in NSC and PPF. Premature withdrawal is not allowed but it is
allowed in other instruments in some specific conditions.
Tax Benefits (ELSS) -

Dividends from mutual funds are fully exempt from income tax under Section 10(33). Equity funds (schemes
that invest 50 per cent of their funds in equity) are also exempt from dividend tax. ELSSs offer under section
88 tax rebate on investments up to Rs 10,000 in a financial year. The difference between the selling price and
the cost price is taxable as capital gain in the year of sale, at 10 per cent or 20 per cent, depending on
whether or not you claim indexation benefits.

Table 3.4-

ING C.U.B. Fund (Growth)

Types of Features Close Ended

Nature Equity

Option Growth

Fund Size 41.38 as on july 08

Beta 0.64

Sharpe Ratio 0.39

Standard Deviation 3.12

 Treynor Ratio 1.88

Portfolio Turnover Ratio 119.33

Expense Ratio 2.50

Risk & Return

3 Month 6 Month 1 Year 3 Year 5 year Since

Inception
-19.48 -28.75 -8.90 NA NA 16.88

Portfolio of the Fund

Portfolio Attributes

P/E 19.37 as on June 08

P/B 3.70 as on June 08

Dividend Yield 0.84 as on June 08

Market Cap. 5,115.44 as on  June - 2008

Assets Allocation

Equity Debt Cash & Equivalent

91.29 0.0 8.71

Net Asset Value (NAV)

Latest NAV 13.72 as on Aug 5, 2008

52 Weeks High 23.23 as on Jan 7, 2008

52 Weeks Low 11.92 as on Jul 16, 2008

 Increase & Decrease in the Fund 1.7 Crore

Last Dividend NA

Minimum Investment 5000

Table 3.5

UTI Wealth Builder Fund

Types of Features Close Ended

Nature Equity

Option Growth

Fund Size 808.6 as on Jun 30, 2008

Beta 0.95

Sharpe Ratio 0.27

Standard Deviation 3.60

Treynor Ratio 1.01

 Portfolio Turnover Ratio 143.48

Expense Ratio 1.93

Risk & Return

3 Month 6 Month 1 Year 3 Year 5 year Since

Inception
-15.56 -24.85 -7.05 NA NA 7.48

Portfolio of the Fund

Portfolio Attributes

P/E 24.68 as on June 08

P/B 4.08 as on June 08

Dividend Yield 0.61 as on June 08

Market Cap. 49,172 as on  June – 2008

Assets Allocation
 Equity Debt Cash & Equivalent

79.36 3.29 17.35

Net Asset Value (NAV)

Latest NAV 11.50 as on Aug 5, 2008

52 Weeks High 17.58 as on Jan 7, 2008

52 Weeks Low 10.13 as on Jul 16, 2008

Increase & Decrease in the Fund -164.57 Crore

 Last Dividend NA

Minimum Investment 5000

Table 3.6-

Debt Fund
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and
financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds
ensure low risk and provide stable income to the investors. Debt Funds are Classified as:

(i) Gilt Fund

(ii) Monthly Income Plan

(iii) Liquid Fund

(iv) Short Term Plan

(v) Income Fund

Gilt Fund

Invest their amount in securities issued by Government, popularly known as Government of India debt papers.
These schemes are safer as they invest in papers backed by Government. Gilt funds differ from bond funds
because bond funds invest in corporate bonds, government securities, and money market instruments. Gilt
funds stick to high quality-low risk debt; mainly government securities and government securities mean and
include central government dated securities, state government securities and treasury bills. The gilt funds
provide to the investors the safety of investments made in government securities and better returns than direct
investments in these securities through investing in a variety of government securities yielding varying rate of
returns gilt funds, however, do run the risk.. The first gilt fund in India was set up in December 1998.

The Reserve Bank provides liquidity support and other facilities, such as, Subsidiary General and current
accounts, transfer of funds through the Reserve Bank's Remittance Facility Scheme and access to call money
market to dedicated gilt funds. These facilities are provided to encourage gilt funds.
Monthly Income Plan

Plan holder invests maximum of their total amount in debt instruments, they invest minimum in equities. It gets
benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when
compared with other debt schemes. A debt fund that pays a dividend every month or where the investor opts for
a systematic withdrawal plan also provides regular monthly income to investors.

Then what is special about Monthly Income Plans? The difference between a debt fund and an Monthly Income
Plan is that a debt fund is fully invested in debt securities, whereas an Monthly Income Plan has the flexibility of
owning equity - up to 15 per cent in most Monthly Income Plans at present.

Tax Implication

An investor can replicate the MIP by having 90 per cent of his portfolio in a debt fund and 10 per cent in an
equity fund. If the weightage of equity goes up to 13 per cent, he will rebalance his portfolio, for which he will
have to pay tax. Thus, the MIP is a better option than this method. If an investor goes for the dividend plan of an
MIP, he will have to pay tax on the dividend.
The most tax-efficient method is to opt for systematic withdrawal plans. Though this may appear as if the
investor is eating into his capital, it need not necessarily be so as the NAV of the fund will keep rising. The
investor only has to take a precaution of limiting withdrawals to about 10 per cent of the invested amount each
year.

Table 3.7
Liquid Fund

These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, Commercial
Papers and Certificate of Deposits. These funds are meant for short-term cash management of corporate
houses and the investment period is of 1day to 3 months. These schemes rank low on risk-return matrix and
are considered to be the safest amongst all categories of mutual funds.

Liquid Funds score over short term fix deposits. Banks give a fixed rate in the range 5%-5.5% p.a. for a term of
15-30 days. Returns from deposits are taxable depending on the tax bracket of the investor, which considerably
pulls down the actual return. Dividends from liquid funds are tax-free in the hands of investor, which is why they
are more attractive than deposits. The distribution tax in the case of liquid funds is higher at 25% as compared
to other debt-based funds. Other debt-based funds such as income funds or MIP have a lower distribution tax of
12.5%. Nowadays, mutual funds have introduced liquid plus funds that are for all practical purposes like liquid
funds. However, the distribution tax rate on these funds is the lower rate of 12.5%

Table 3.8-

Systematic Investment Plan

A Systematic investment plan is a popular investment strategy available to salaried or regular income group
investors among others. Instead of making one lump sum investment, investors put in a fixed sum of money
each month, over a period of time. The amount to invest each month and the time span of this investment is
decided by the investors. There are many options available in the market. This system does away with the need
to time the market. SIP investment is an attractive scheme for wide range of income groups. You can invest as
little as Rs. 500 a month and there is no upper limit. A Systematic Investment Plan is not a type of mutual fund.
It is a method of investing in a mutual fund.

In SIP the money is invested in a mutual fund which invests your money in the stock market and financial
instruments such as bonds. SIP is only a methodology of investing. Investors must remember that merely
investing through SIPs will not deliver the results. You need to choose the right scheme first. Money invested
through a SIP will lose value if invested in the wrong scheme. So selection of the right scheme is the first job.

Benefits:

(i) By opting to invest every month, you invest in a disciplined manner. This results in forced savings. As this is
a monthly exercise, you tend to plan your expenditure.

(ii) Historically the returns offered by stock market investments are higher than any other form of saving.

(iii) Buy low sell high, just four words sum up a winning strategy for the stock markets. But timing the market is
not easy for everyone. If you invest via a SIP, you do not commit the error of buying units when the market is at
its peak. Since you are buying small amounts continuously, your investment will average out over a period of
time.

(iv) You will end up buying some units at a high cost and some units a lower price. Over time, your chances of
making a profit are much higher when compared to a one-time investment.

(v) Mutual Fund investments are managed by qualified and experienced professionals who have the expertise
of investment techniques, backed by dedicated investment research team.

Entry and Exit Load

An entry or exit load is a fee you pay the fund when you buy or sell the units. An exit load may be charged if you
stop the SIP mid-way. Let’s say you have a one-year SIP but discontinue after five months, then an exit load will
be levied. These conditions will vary between mutual funds.
You can purchase scheme units at a lesser cost as most of the Asset Management Companies (AMCs) charge
less “entry load” (for some scheme even NIL) for SIP investments, as compared to normal purchases in the
mutual fund scheme.

Table 3.9(a)

Tax Implications

(i) Let’s say you have invested in the SIP option of a diversified equity fund. If you sell the units after a
year of buying, you pay no capital gains tax. If you sell it before a year, you pay capital gains tax of 15%.

(ii) Let’s say you invest through a SIP for 12 months: January to December 2008. Now, in February 2009,
you want to sell some units.
The system of first-in, first-out applies here. So, the amount you invest in January 2008 and the units you
bought with that money will be regarded as the units you sell in February 2009. For tax purposes, the units that
you sell first will be considered as the first units bought.

Fixed Maturity Plan

Fixed Maturity Plans, FMPs, are as attractive as Bank Fixed Deposits in terms of interest rates. Further, on
account of lower taxes on mutual funds, post-tax return from Fixed Maturity Plans is far better. Fixed Maturity
Plan’s combine tax efficiency of mutual funds with the safety of fixed deposit. Fixed Maturity Plan’s generate
significantly better post tax returns.
Banks have been luring investors by offering attractive deposit rates, but Fixed Maturity Plans with tax-adjusted
returns, still score higher. Fixed Income instruments seem to be stealing the show these days. Currently 90 day
Bank FD offers 5.50-5.75% whereas Fixed Maturity Plans of 90 days are offering 6.85-7.10%.

The tax implication is same here as the interest earned on Bank FDs and the appreciation earned in Fixed
Maturity Plans has to be added to the income of that year and tax is to be paid as per your tax slab.

The attraction increases when the term selected by you is over 365 days. Let's consider a bank FD offering
8.00% and an Fixed Maturity Plan offering 8.00%. In a bank FD you have to pay 30% tax (if you are in the
highest tax bracket). So your post tax return is 8.00% minus 30% tax on it, which leaves you with a paltry 5.60%
post tax returns.

Whereas, in Fixed Maturity Plans you need to pay just 10% concessional Long Term Capital Gain Tax without
indexation or 20% with indexation for investments of over a year. So your post tax return is 8.00% minus 10%
tax on it, which leaves you with a smart 7.20% post tax returns. (Add 2% education cess & 10% surcharge if
applicable on tax paid in both cases). In institutional plans, corporate earn additional 0.25% -- 0.40% pa returns.

The attraction increases further if the term is higher than, say, 2 years.

Though banks are offering 8.00% for 366-390 day deposits, the rate of interest is lower on higher terms. Banks
are offering 7.50% (8.00% for Senior Citizens) for terms over 2 years and attract the usual 30% tax (for highest
tax bracket individuals) whereas FMPs offer 8-8.10% returns.

So, get smart to earn higher returns and pay very less tax .

How to select between Bank Fixed deposits & FMPs?

Calculate Post-Tax Returns -- That's where you win or lose.

Fixed Maturity Plans are surely the smarter option than Bank FDs. . .

But is there something smarter in Debt for some specific needs?

Situation A: You have to park your funds for short duration, but you are not sure whether you would need it
back in a month or 6 months.

Problem: In Bank FDs. if you make 15 days FD and renew every 15 days, you will lose on the interest rate. If
you make a 6 month bank FD and if you have to prematurely withdraw it, you pay 0.50% penalty on the
applicable interest rate for that period of deposit.

In Fixed Maturity Plans, if you have to prematurely withdraw it, you pay an exit load.

Solution: In such scenario, where you may need your funds back at short notice, Liquid funds should be
preferred over bank FDs & FMPs. Liquid funds have no specific term and can be withdrawn anytime. They
generate around 5.00% p.a. returns.

Opt for dividend option (monthly) so that your returns are tax-free (though 14.025% DDT is applicable) rather
than paying short term capital gains tax for any period less than 1 year.

Balanced Fund

As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed
income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to
provide investors with the best of both the worlds. Equity part provides growth and the debt part provides
stability in returns.

Table 3.9(b)

Other Schemes

(i) Tax Saving Schemes

(ii) Index Schemes

(iii) Sector Specific Schemes

Tax Saving Schemes

This scheme offers tax rebates to the investors under the law. Under Sec.88 of the Income Tax Act,
contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. The
Templeton India Pension Plan is a balanced fund. This means up to 40% of the money is invested in
equity and the rest in debt (fixed income instruments).

(i) Maximum investment: No cap but the tax benefit will only avail up to an investment of Rs
70,000.
(ii) Lock-in period: Three years.
(iii) Return: Not fixed. Dividends and appreciation in the net asset value (NAV). This is the
cost of a unit of a fund. Both are tax free.

Index Fund

Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or
the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index.
The percentage of each stock to the total holding will be identical to the stocks index weightage. And
hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in
the offer documents. Like Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum
stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries.
While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to
keep a watch on the performance of those sectors/industries and must exit at an appropriate time
 Chapter 4

Analysis of Mutual Funds

We should consider the following terms to come to the unbiased decision. Terms are as follows:

 Risk & Return

 Portfolio of that fund

 Dividend History

 Increase & Decrease in Fund Size

 Assets Allocation

 Beta

 Sharpe Ratio

 Portfolio Turnover Ratio

 Entry Load

 Exit Load

 Expense Ratio

 Standard Deviation

Table 4.1

Beta
Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to
respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta
of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates
that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2 then its
theoretically 20% more volatile than market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based stocks have a beta
of greater than 1, offering the possibility of a higher rate of return, but also posing more risk. and ideal beta is
0.8.

“A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market
as a whole”

Table 4.2

Treynor Ratio

A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been
earned on a risk less investment per each unit of market risk.

The Treynor ratio is calculates:

(Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the Portfolio

Sharpe Ratio

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of
excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns
than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The
greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.
Table 4.3

Portfolio of the Respective Fund

A grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-
traded and closed-fund counterparts. Portfolios are held directly by investors and/or managed by financial
professionals.

Prudence suggests that investors should construct an investment portfolio in accordance with risk tolerance and
investing objectives. Think of an investment portfolio as a pie that is divided into in to pieces of varying sizes
representing a variety of asset classes and types of investments to accomplish an appropriate risk-return
portfolio allocation.

For example: A conservative investor might favor a portfolio with large cap value stocks, broad-based market
index funds, investment-grade bonds and a position in liquid, high-grade cash equivalents.

In contrast, a risk loving investor might add some small cap growth stocks to an aggressive, large cap growth
stock position, assume some high-yield bond exposure, and look to real estate, international and alternative
investment opportunities for his or her portfolio.

So before investing the money in any mutual fund, we should look at the portfolio and analyze the portfolio that
how much fund it contains. And look at the top 10 holding of that company.
Table 4.4

Portfolio Turnover Ratio

It is the measurement of how frequently assets within a fund are bought and sold by the managers. Portfolio
turnover is calculated by taking either the total amount of new securities purchased or the amount of securities
sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the fund. The
measurement is usually reported for a 12-month time period.

The portfolio turnover measurement should be considered by an investor before deciding to purchase a given
mutual fund or similar financial instrument. After all, a firm with a high turnover rate will incur more transaction
costs than a fund with a lower rate. Unless the superior asset selection renders benefits that offset the added
transaction costs they cause, a less active trading posture may generate higher fund returns.

In addition, cost conscious fund investors should take note that the transactional brokerage fee costs are not
included in the calculation of a fund's operating expense ratio and thus represent what can be, in high-turnover
portfolios, a significant additional expense that reduces investment return.

Table 4.5

Entry Load

Entry load is the commission that an investor has to pay while purchasing units of a mutual fund. This is a
certain percentage that the mutual fund charges and charge applied at the time of the initial purchase for an
investment, usually mutual funds and insurance policies. It is deducted from the investment amount and, as a
result, it lowers the size of the investment.

Let’s say you are investing Rs 10,000 in a fund that has a 2% entry load. So out of your investment, Rs 200 will
be deducted as a load and the balance will be invested.

Exit Load
A fee or charge assessed to an investor for withdrawing money prior to a previously stipulated date. This is
almost always expressed and charged as a percentage of assets rather than a flat fee. Exit Fees may be found
not only on mutual funds as back-end loads, but also on hedge funds, annuities and limited partnership
units. Often the managers of these funds employ investing strategies that keep daily liquidity to a minimum, and
the exit fees act as a deterrent to early withdrawals. Investor should consider this charge before
investing their money. Let’s say there is an exit load of 2.5%. If you are selling your units and it amounts to Rs
15,000, then the fund will deduct Rs 375 and the balance will be returned to you.

Table 4.6

Expense Ratio

Expense Ratio is the measurement of what it costs an investment company to operate a mutual fund. An
expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by
the average dollar value of its assets under management. Operating expenses are taken out of a fund's assets
and lower the return to a fund's investors.

Depending on the type of fund, operating expenses vary widely. The largest component of operating expenses
is the fee paid to a fund's investment manager/advisor. Other costs include recordkeeping, custodial services,
taxes, legal expenses, and accounting and auditing fees. A fund's trading activity, the buying and selling of
portfolio securities, is not included in the calculation of the expense ratio. Costs associated with mutual funds
but not included in operating expenses are loads.

Table 4.7

Dividend History

Investor should know about the dividend history of that fund in which he/she is going to invest and dividend
history of that fund means from last few years that fund distributing dividend to their investor or not and if
distributing then from which rate.Continuity in distributing dividend shows that the respective fund is giving good
return to their investor, which enhances the credibility of that fund.
Table 4.8

Assets Allocations

There is no simple formula that can find the right asset allocation for every individual. However, the
consensus among most financial professionals is that asset allocation is one of the most important decisions
that investors make. In other words, your selection of individual securities is secondary to the way you
allocate your investment in stocks, bonds, and cash and equivalents, which will be the principal determinants
of your investment results. It is an investment strategy that aims to balance risk and reward by apportioning a
portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk
and return, so each will behave differently over time and it is important for an investor to have clear vision
regarding their investment, if an investor wants to invest their money in debt fund then investor should go for
that mutual fund which invest maximum in debt so analysis of assets allocation is also important for an
investor.

Table 4.9(a)

Increase & Decrease in Fund Size

Fund size of any mutual fund is declining it means investors withdrawing their money which means investors
are earning from their fund this thing does value addition for that fund. So investor gets some idea about
that fund and this point gives positive reaction to the investor.

Risk & Return

The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are
associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high
potential returns. So it is very important for an investor to look at the return of that fund in which he/she wants to
invest because vital thing for an investor is the return if the fund doesn’t have a strong past background it
means that fund is not giving good returns,

Table 4.9(b)

Standard Deviation
In finance, Standard deviation is applied to the annual rate of return of an investment to measure the
investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a
gauge for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile
stock will have a high Standard deviation while the deviation of a stable blue chip stock will be lower., it
means those fund which have high standard deviation means they carry higher risk and higher risk means
maximum chances of growth, so its up to the investor to invest or not in that type of fund.

Dispersion

In finance, dispersion is used to measure the volatility of different types of investment strategies. Returns that
have wide dispersions are generally seen as more risky because they have a higher probability of closing
dramatically lower than the mean. In practice, standard deviation is the tool that is generally used to measure
the dispersion of returns. A large dispersion tells us how much the return on the fund is deviating from the
expected normal returns. 
Chapter 5

Table 5.1

The competition faced by MFs

When we are talking about Mutual funds and how would they benefit the consumers in their
investment policies, one important thing that was worth noticing that most of the consumers of such
financial products were more comfortable with life insurance products.

The Indian mentality is of such nature that, if on one hand my life and the future of my family is getting
secured and at the same time my investment needs are also getting fulfilled then why should I go for
a risky investment (When compared to LIC). So a study about how LIC is taking the possible share of
peoples investment from MF’s is very important for this study as well.

Table 5.2

Insurance In India

• Insurance Act, 1938

• Nationalization of Life Insurance Industry – Incorporation of LIC – 1956
• Nationalizations of General Insurance Business – GIBNA, 1972
• Opening up of Insurance Industry - IRDA Act, 1999
• Public Grievances (Ombudsman) Rules, 1998

Indian Insurance Industry has become more competitive in the recent years particularly after 1990s.
Most of the largest financial corporations over the world have entered with their insurance products to
India's Insurance Market. Various insurance schemes are easily available in the Indian Insurance
Industry these days

Before insurance sector was opened to the private sector Life Insurance Corporation (LIC) was the only
insurance company in India. After the opening up of Insurance sector in India there has been a glut of
insurance companies in India. These companies have come up with innovative and flexible insutrance
policies to cater to varying needs of the individual. Opening up of the Insurance sector has also forced the Lic
to tighten up its belt and deliver better service. All in all it has been a bonanza for the consumer.

Major Life insurance Companies in India are:

 Aviva Life Insurance

 Bajaj Allianz
 Birla S un Life Insurance
 Bharti AXA Life Insurance Co. Ltd
 Future General India Life Insurance Co. Ltd
 HDFC Standard Life Insurance
 ICICI Prudential
 IDBI Fortis Life Insurance Co. Ltd
 ING Vysya
 Kotak Mahindra
 LIC
 Max New York Life Insurance
 Metlife India Insurance
 Reliance Life Insurance
 SBI Life Insurance
 Shriram Life Insurance
 Sahara India Life Insurance Co. Ltd
 Tata AIG Life Insurance
Table 5.3

How to Generate Return from Insurance

Table 5.4

Market share of Private Companies For 2002-03

 ING Vysya
2.1%
Kotak
2.9%Sanmar MetLife
AMP
Aviva 1.5% 1.2%
4.5%
ICICI
MNYL Prudential
5.1% 31.8%
Tata AIG Bajaj Allianz Birla Sunlife
7.3% 11.5% 14.4%
HDFC Std.
Life
7.7%
SBI Life
10.2%
Table 5.5

Current Market Share of Private Companies

Table 5.6
 Life Insurance

Life is very fragile and death is a certainty. We cannot control the uncertainties of life. But, we can cover the
risks surrounding us. Life insurance, simply put, is the cover for the risks that we run during our lives. It
protects us from the contingencies that could affect us.Life insurance is not for the person who passes away,
it for those who survive. It is the responsibility of every bread earner to guard against the events that could
affect the family in the unfortunate circumstance of his / her demise. Thus, having a life insurance policy is
very vital. Before going for a life insurance policy it is imperative that you know about various types of life
insurance policies. Major among them

(i) Term Policy

(ii) Whole Life Policy
(iii) Endowment Policy
(iv) Money Market Policy
(v) Unit Link Insurance Plan
(vi) Pension Plan
Term Policy

Term Insurance, also known as pure life cover, is the cheapest and the simplest form of insurance
under this insurance policy, against payment of regular premium, the insurer agrees to pay your
beneficiaries the sum assured in event of your premature death. However, if you survive till the end of
the policy term, nothing is payable to you. This policy has no savings component and the premiums
you pay are purely a cost to buy you life cover. Term Insurance, also known as pure life cover, is the
cheapest and the simplest form of insurance. Under this insurance policy, against payment of regular
premium, the insurer agrees to pay your beneficiaries the sum assured in event of your premature
death. However, if you survive till the end of the policy term, nothing is payable to you. This policy has
no savings component and the premiums you pay are purely a cost to buy you life cover. Term life
insurance is only truly useful if you have an inkling that you’re going to die in a month, and want to
cover your bases quickly and easily. Most term life insurance policies can be purchased much quicker
than their whole life insurance counterparts, due to their nature. The providers of term life insurance
don’t check into your background and health nearly as completely as a whole life provider might.
Odds are good that your term will expire without you expiring. This gives the insurance company what
they want most, your money. This is suitable for ….

 Those are looking for a low cost life cover without any savings benefits attached.
 Those are at that stage in life where insurance cover is vital but you cannot afford high premium
payment due to low income

Whole Life Policy

.Whole life insurance refers to an insurance policy that provides for a life contribution by the insured. This is
not for a fixed phase as in term life insurance, but for the whole of the insured’s life. Most people have
classified whole life insurance as a forceful scheme manipulated by most employers, giving employees no
choice over their future. This proposition is not founded and there are options such as single premium,
interest-sensitive and traditional whole life insurance policies. The premium on a whole life insurance policies
are usually very high giving the fact that cover is for life. The insured is paying for the insurance as well as for
investment. But most insured are given the options to either pay a fixed or periodic premium.

Whole life insurance should be considered the best choice for those seeking long term goals. No matter how
expensive it can be, we need it for our own safety. Think of what might happen not only to your dependents
upon death, but also to you upon retirements. Life may prove unattractive to you if you had not made enough
investments. As a result, the best favor and protection we could afford ourselves is through a whole life
insurance. This is more important if there are others who solely depend on you. Whole life insurance is
therefore to provide a long term economic sovereignty and harmony to your beloved ones. Keep in mind that
a whole life insurance policy can be cancelled at any time and upon such an event, the present cash worth of
your savings can be paid to you.
Whole life insurance is not a service that can easily be purchased over the counter. It is more complex than
term life insurance. At times there are certain regulations as to medical examinations. Any reasonable insurer
will want to know the state of your health before selling out a policy to you. This will settle on what quantity of
premium to charge on you. Medical examinations are also necessary to place you in a risk or non-risk
category. For example, smokers, patients who have survived strokes, heart diseases, cancer and other
terminal diseases will all be put in a high risk group and as such, the amount of premium you are liable to will
have to increase. Risky activities as determined by the insurer such as those of climbers and fire fighters may
also increase the amount of premium. A whole life insurance may only be disadvantageous in that it is
expensive. The benefits outweigh the defects. When faced with a shortage of money, you may take out a loan
using your policy as collateral.

Endowment Policy

An Endowment Policy is a combination of savings along with risk cover. These policies are specifically
designed to accumulate wealth and at the same time cover your life. In simple words, these polices are
issued for specific time periods during which you pay a regular premium. If you die during the tenure of the
policy, your beneficiaries will receive the sum assured along with the accumulated bonus additions. if you
outlive the policy tenure you will receive the sum assured along with accumulated bonus additions.

An endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to
provide life insurance protection. Therefore, it is more of an investment than a whole life Policy.

Endowment life insurance pays the face value of the policy either at the insured's death or at a certain age or
after a number of years of premium payment. Endowment policy is an instrument of accumulating capital for a
specific purpose and protecting this savings program against the saver's premature death. This is suitable for
…

 Those want to accumulate capital for anticipated financial needs like buying an asset such as a
home, providing for your old age, your children's education, marriage, etc.

Money Back Policy

These policies are structured to provide sums required as anticipated expenses (marriage, education, etc)
over a stipulated period of time. With inflation becoming a big issue, companies have realized that sometimes
the money value of the policy is eroded. That is why with-profit policies are also being introduced to offset
some of the losses incurred on account of inflation. A portion of the sum assured is payable at regular
intervals. On survival the remainder of the sum assured is payable. In case of death, the full sum assured is
payable to the insured. The premium is payable for a particular period of time. This is an anticipated
endowment policy with an additional feature of receiving a benefit at regular intervals during the tenure of the
policy. The risk cover continues for the entire sum assured in spite of the installments already paid. If you
outlive the policy, the balance sum assured along with accumulated bonus is paid back to you.

This is suitable for …

 Those plan to coincide the funds received from the policy with your future anticipated
needs like a car, an overseas holiday, children's educational needs, marriage expenses, etc

Unit linked insurance plan (ULIP)

Unit linked insurance plan (ULIP) is life insurance solution that provides for the benefits of protection
and flexibility in investment. The investment is denoted as units and is represented by the value that it
has attained called as Net Asset Value (NAV). The policy value at any time varies according to the
value of the underlying assets at the time. A ULIP is a life insurance policy which provides a
combination of risk cover and investment. The dynamics of the capital market have a direct bearing
on the performance of the ULIPs.

ULIP provides multiple benefits to the consumer. The benefits include:

 Life protection
 Investment and Savings
 Flexibility
 Adjustable Life Cover
 Investment Options
 Transparency
 Options to take additional cover against
 Death due to accident
 Disability
 Critical Illness
 Surgeries
 Liquidity
 Tax planning

Unit Fund

The allocated (invested) portions of the premiums after deducting for all the charges and premium
for risk cover under all policies in a particular fund as chosen by the policy holders are pooled
together to form a Unit fund.

Types of Funds which ULIP Offer

Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time
horizons. Different funds have different risk profiles. The potential for returns also varies from fund to
fund.

The following are some of the common types of funds available along with an indication of their risk
characteristics.

General Description Nature of Investments Risk

Category
Equity Funds Primarily invested in company stocks with the Medium to
general aim of capital appreciation High

Income, Fixed Invested in corporate bonds, government Medium

Interest and Bond securities and other fixed income instruments
Funds
Cash Funds Sometimes known as Money Market Funds — Low
invested in cash, bank deposits and money
market instruments

Balanced Funds Combining equity investment with fixed interest Medium

instruments

Investment Returns Guaranteed in a ULIP

Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in
investment portfolio is borne by the policy holder” Depending upon the performance of the unit linked fund(s)
chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the
past returns of a fund are not necessarily indicative of the future performance of the fund.

Pension plan

pension plan or an annuity is an investment that is made either in a single lump sum payment or
through installments paid over a certain number of years, in return for a specific sum that is received
every year, every half-year or every month, either for life or for a fixed number of years.annuities differ
from all the other forms of life insurance in that an annuity does not provide any life insurance cover
but, instead, offers a guaranteed income either for life or for certain perioed .

Typically annuities are bought to generate income during one's retired life, which is why they are also
called pension plans. By buying an annuity or a pension plan the annuitant receives guaranteed
income throughout his life. He also receives lump sum benefits for the annuitant's estate in addition to
the payments during the annuitant's lifetime.

Charges, fees and deductions

ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and
charges are given below. However it may be noted that insurers have the right to revise fees and charges
over a period of time.

Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before allocating the units under the
policy. This charge normally includes initial and renewal expenses apart from commission expenses.

Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend
on number of factors such as age, amount of coverage, state of health etc

Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset
Value (NAV) .
Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This could be flat
throughout the policy term or vary at a pre-determined rate.

Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as
mentioned in the policy conditions.

Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without charge, with subsequent
switches, subject to a charge.

Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover
is utilized for purchasing units

. Net Asset Value (NAV)

NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the
website of the respective insurers.

Payment of premiums is discontinued

a) Discontinuance within three years of commencement – If all the premiums have not been paid for
at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may
give an opportunity for revival within the period allowed; if the policy is not revived within that period,
surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for
revival, whichever is later.

(b) Discontinuance after three years of commencement -- At the end of the period allowed for revival,
the contract shall be terminated by paying the surrender value. The insurer may offer to continue the
insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not
less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s
premium, the contract shall be terminated by paying the fund value.
 Table 5.7

Tax Benefits

Under Sec.80C of the Income Tax Act

Premiums paid upto maximum of Rs.1,00,000/-, subject to maximum of 20% of Sum Assured ,to effect or
keep in force an insurance on the life of the individual, the spouse and any child of the individual.

Under Sec.80CCC of the Income Tax Act

Premiums paid upto maximum of Rs. 1,00,000/- to effect or keep in force a contract of annuity plan for
receiving pension.

Under Sec.80 D of Income Tax Act

Premiums paid (other than through cash) towards Critical Illness Rider, subject to a total maximum of
Rs.15,000/- (an additional Rs 5,000 for senior citizens) to effect or keep in force an insurance on the health of
the individual, spouse and dependent parents or children.

Maturity Benefits are exempted under sec 10 (10D)

Maturity benefits are tax free. However in cases where premium exceeds 20% of Sum assured in any year,
benefits paid in excess of premiums paid will be taxable.

However, u/s.80 CCE, the aggregate amount of deduction under section 80C, section 80CCC, and
section 80CCD shall not, in any case exceed Rs.1lakh

Table 5.8

Analysis of Debt Fund

Company HDFC (MIP) Growth Reliance (MIP) (Growth)

Types of Features Open Ended Open Ended

 Nature Debt Debt

Option Growth Growth

Fund Size 1222.97 as on Jun 30, 2008 209.63 as on Jul 31, 2008

Beta 0.97 0.98

Sharpe Ratio 0.32 0.11

Standard Deviation 0. 0.79

Treynor Ratio 0.24 0.09

Portfolio Turnover Ratio NA NA

Expense Ratio 1.72 2.00

Inception Date Dec 8,2003 Dec 29,2003

Increase & Decrease in Fund - 77.94 Crore - 30.75 Crore

Last Dividend Declared NA NA

Risk & Return

Company 1Month 3 Month 6 Month 1 Year 3 year Since

Inception
HDFC (MIP) 2.72 -3.22 -4.09 1.44 9.76 10.66
 Reliance (MIP) 2.33 0.29 -1.67 4.22 8.59 8.47

Portfolio of the Fund

Assets Allocation

Company Equity Debt Cash & Equivalent

HDFC MIP
24.65 58.66 16.69

Reliance MIP 9.71 35.19 55.10

Company HDFC MIP (Growth) Reliance MIP (Growth)

Latest NAV 15.96 as on Aug 5, 2008 14.58 as on Aug 5, 2008

52 Weeks High 17.44 as on Jan 7, 2008 15.14 as on Jan 7, 2008

52 Weeks Low 15.32 as on Jul 16, 2008 13.70 as on Aug 21, 2007

Net Asset Value (NAV)

NAV Chart of HDFC

NAV Chart of Reliance

Conclusion

If we analyze both fund without any hallo effect then we can come to the conclusion that HDFC Monthly
Income Plan is better or Reliance Monthly Income plan and while analyzing the fund the most important thing
is which we have to consider is Risk & Return because if the fund is not giving good returns then there is
nothing in that fund and while analyzing Monthly Income Plan we should Focus on monthly return because it
is monthly income plan and if we look at the 1 month return then HDFC is giving good result but if we look at
the return 3 and 6 month return then Reliance is quite good and if we look at the long term growth then HDFC
MIP Fund is much better then Reliance MIP fund so it is very difficult to analyze but if we look at the beta
then HDFC MIP Fund’s beta is 0.97 and Reliance MIP Fund’s beta is 0.98 so again it is very close and sharp
ratio of HDFC MIP Fund’s is much better then Reliance MIP Fund’s and expense ratio of HDFC is 1.72%And
2.0% of Reliance MIP Fund so again HDFC is cheaper in case of expense ratio and Fund size of HDFC
Fund is decreasing means investors are withdrawing their money which means they are getting good returns
and Fund size of Reliance is also decreasing but not like HDFC ,and the most important thing is that ICRA
has given Seven Star to HDFC MIP Fund and Three Star to Reliance MIP Fund and so investor should
invest in HDFC MIP Fund because from last few month this fund gained a growth of 3.06 % and Reliance
MIP Fund has gained a growth of 2.41 % so investor should preferred HDFC MIP Fund.

Analysis of Balanced Fund

Company Canara Robeco Balanced UTI Balanced

Fund Growth Growth

Types of Features Open Ended Open Ended

Nature Equity & Debt Equity & Debt

Option Growth Growth

Fund Size (in crores) 126.21 as on Jun 30, 2008 868.13 as on Jun 30, 2008

Beta 1.07 0.97

Sharpe Ratio 0.26 0.24

Standard Deviation 2.67 2.42

Treynor Ratio 0.64 0.61

Portfolio Turnover Ratio 24 20.87

Expense Ratio 1.23 1.99

Inception Date Feb 1, 1993   Feb 12, 1995

Increase & Decrease in Fund 6.85 Crore -124.46 Crore

 Last Dividend Declared NA 14 % as on Jun 30, 1999

Risk & Return

Company 3 Month 6 Month 1 Year 3 Year 5 year Since

Inception
Canara

Robeco Balanced -8.83 -11.47 -1.19 21.95 27.03 9.72

Fund Growth
UTI Balanced

Growth -10.94 -17.54 -4.56 13.19 20.68 14.71

Portfolio of the Fund

Assets Allocation

Company Equity Debt Cash & Equivalent

Canara Robeco
Balanced Fund 67.80 14.32 17.88
Growth

UTI Balanced Growth 67.19 21.48 11.33

 Net Asset Value (NAV)

Canara Robeco Balanced

Company UTI Balanced Growth
Growth

Latest NAV 40.68 as on Aug 8, 2008 57.53 as on Aug 5, 2008

52 Weeks High 55.54 as on Jan 7, 2008 77.13 as on Jan 7, 2008

52 Weeks Low 35.56 as on Jul 16, 2008 51.06 as on July 16,2008

Conclusion

If we analyze both fund without being biased then we can come to the conclusion that Canara Fund is better
or UTI Fund and while analyzing the fund the most important thing is which we have to consider is Risk &
Return because if the fund is not giving good returns then there is nothing in that fund and the return of
Canara Robeco Balanced Fund is much better at every stage like if we look at the history of the return then
Canara Fund has given good return after 3 years 21.95 % where UTI gave 13.19 % so Canara Robeco Fund
is better than UTI Fund in case of return and if we talk about sharp ratio then Canara fund has .26 and UTI
Fund has .24 so Canara Fund is Slightly Better and due to the better return portfolio turnover ratio of Canara
Fund is 24 % where UTI’s portfolio turnover ratio is 20.87 which is less than Canara Fund which means
transaction of securities are high because of good return and the both funds invest maximum in equity but
canara fund invest more in cash & equivalent tan debt bur UTI Balanced Fund invest more in debt after equity
and UTI declared 14 % dividend in 1999 but after this they didn’t declared dividend may be because of bad
return and ICRA has given Four Star to Canara Robeco Fund where UTI fund got Two Star on the basis of
all facts and ICRA’s rating investor should adopt Canara Robeco Fund.
 Company Canara Robeco Balanced UTI Balanced

Fund Growth Growth

Types of Features Close Ended Open Ended

Nature Equity Equity & Debt

Option Growth Growth

Fund Size (in crores) 41.38 as on july 08 868.13 as on Jun 30, 2008

Beta 0.64 0.97

Sharpe Ratio 0.39 0.24

Standard Deviation 3.12 2.42

Treynor Ratio 1.88 0.61

Portfolio Turnover Ratio 119.33 20.87

Expense Ratio 2.50 1.99

Inception Date Feb 1, 1993   Feb 12, 1995

Increase & Decrease in Fund 6.85 Crore -124.46 Crore

Last Dividend Declared NA 14 % as on Jun 30, 1999

Risk & Return

Company 3 Month 6 Month 1 Year 3 Year 5 year Since

Inception
Canara

Robeco Balanced -8.83 -11.47 -1.19 21.95 27.03 9.72

Fund Growth
 UTI Balanced

Growth -10.94 -17.54 -4.56 13.19 20.68 14.71

Portfolio of the Fund

Assets Allocation

Company Equity Debt Cash & Equivalent

Canara Robeco
Balanced Fund 67.80 14.32 17.88
Growth

UTI Balanced Growth 67.19 21.48 11.33

Net Asset Value (NAV)

Canara Robeco Balanced

Company UTI Balanced Growth
Growth

Latest NAV 40.68 as on Aug 8, 2008 57.53 as on Aug 5, 2008

 55.54 as on Jan 7, 2008
52 Weeks High 77.13 as on Jan 7, 2008

52 Weeks Low 35.56 as on Jul 16, 2008 51.06 as on July 16,2008

Chapter 6

Table 6.1

Analysis of Insurance Plan

Company HDFC (Young Star) Kotak (Head Start)

Fund Charges 1.25 of Fund Value 1.1 of Fund Value

Administration Charges Rs. 60 per month 75 Rs per Month in 1 year

40 Rs.Per Month in 2nd year on wards

Partial Withdrawal After 3rd yr 30% of premium NA

Charges After 2nd yr 15% of premium

Switch Charges Rs100 for every add switch 500 for every additional switch

Policy Revival Charges Rs. 250 Rs. 500

Free Switches 24 Switches in a year 4 Switches in a Year

Surrender Charges After 1st yr 95% of Fund Value 3% in 4th year

After 2nd yr 35% of Fund Value
2% in 5th year
After 3rd yr 15% of Fund Value
After 4th yr 5% of Fund Value 1% in 6th year

Minimum Investment 12000 15000

Table 6.2

Premium Allocation

Company HDFC (YOUNG STAR)

Regular Premium Paid Year 1 Yearly (in percentage)

12000- 199,000 40

2,00,000 – 4,99,000 52

5,00,000- 9,99,000 64

10,00,000- 19,00,000 77

20,00,000 + 90

Regular Premium paid Year 2 Yearly (in percentage)

12000- 199,000 93

2,00,000 – 4,99,000 93

5,00,000- 9,99,000 93

10,00,000- 19,00,000 93

20,00,000 + 93

Regular Premium paid Year 3 on wards Yearly (in percentage)

12000- 199,000 98

2,00,000 – 4,99,000 98

5,00,000- 9,99,000 98

10,00,000- 19,00,000 98
20,00,000 + 98

Company KOTAK HEAD STARAT)

Regular Premium Paid Year 1 Yearly (in percentage)

15000-24999 68

25000-149999 68

150,000 or Above 80.5

Regular Premium paid Year 2 Yearly (in percentage)

15000-24999 86

25000-149999 91

150,000 or Above 93

Regular Premium paid Year 3 on wards Yearly (in percentage)

15000-24999 93

25000-149999 95

150,000 or Above 96

Regular Premium paid 4-10 Year

15000-24999 99

25000-149999 99

150,000 or Above 99

Regular Premium paid 11 Year on wards

15000-24999 100

25000-149999 100

150,000 or Above 100

Chapter 7
Table 7.1

Conclusion and suggestions

If we deeply analyze both plans then it is very difficult to take the final decision because HDFC is providing 24
free switches and on the other hand KOTAK provides only 4 free switches in a year but in case of
administration charges KOTAK is cheaper than HDFC because KOTAK is charging Rs 75 per month in 1 st
year and Rs 40 per month in 2 nd year on wards and limited premium term is 3-10 years if we take minimum
premium term then the total administration expenses for 3 years is Rs

1860 and on the other hand if we take HDFC Plan for minimum term then total administration expenses for 3
years are Rs 2160 so KOTAK is cheaper but KOTAK charges Rs 500 for every additional switch on the other
hand HDFC charges Rs 100 for every additional switch. But fund charges are high in HDFC than KOTAK,
So till now it’s very difficult to say that HDFC is better or KOTAK but the most important instrument is premium
allocation charges which helps an analyst to come to the unbiased decision we can come to the conclusion
with the help of this example:

Table 7.2

EXAMPLES-

Mr. X adopt HDFC Young Star Plan and he pays 20,000 premium per annum and so the money
invested every year after premium allocation charges

Annual Regular Premium Amount Invested Year

Premium Paid Allocation In Market

20,000 40 4800 1
20,000 93 18,600 2
20,000 98 19,600 3
20,000 98 19,600 4
20,000 98 19,600 5
20,000 98 19,600 6
20,000 98 19,600 7
20,000 98 19,600 8
20,000 98 19,600 9
20,000 98 19,600 10
20,000 98 19,600 11
20,000 98 19,600 12
20,000 98 19,600 13
20,000 98 19,600 14
20,000 98 19,600 15
 Total Premium Paid Amount Invested Amount Invested In the Market
In the Market In Percentage
3,00,000 2,78,200 92.40%

Mr. Y adopts KOTAK Head Start Plan and he pays 20,000 premium per annum and so the money
invested every year after premium allocation charges is:

Annual Regular Premium Amount Invested Year

Premium Paid Allocation In Market

20,000 68 12,800 1
20,000 86 17,200 2
20,000 93 18,600 3
20,000 99 19,800 4
20,000 99 19,800 5
20,000 99 19,800 6
20,000 99 19,800 7
20,000 99 19,800 8
20,000 99 19,800 9
20,000 99 19,800 10
20,000 100 20,000 11
20,000 100 20,000 12
20,000 100 20,000 13
20,000 100 20,000 14
20,000 100 20,000 15

Total Premium Paid Amount Invested Amount Invested In the Market

In the Market In Percentage
3,00,000 2,87,200 95.73%

So we can conclude this thing that KOTAK Plan is better because 95.73% amount of an investor is invested
and in HDFC it is only 92.4% so every person want to invest maximum amount in the market.