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Life Insurance in its present form came to India from United Kingdom (UK) with the establishment of the British firm, ORIENTAL LIFE INSURANCE CO. in Calcutta in 1818, followed by Bombay Life Insurance Co. in 1823; Madras Equitable Life Insurance Society in 1829 & Oriental Government Security Life Insurance Co. in 1874. Prior to 1871, Indian lives were treated substandard & charged an extra premium of 15 – 20 %. Bombay Mutual Life assurance Society, an Indian insurer, which came into existence in 1871, was the first one to cover Indian lives at standard rates. Later in 1928, the Indian Insurance Companies Act was enacted to enable the government to collect statistical information about both life & non –life insurance business transacted in India by the foreign & Indian insurers, including the provident insurance societies. BY 1956, 154 Indian insurers, 16 non-Indian insurers & 75 provident societies were carrying on life insurance business in India. was taken over by the Central Government & then nationalized on 1st September 1956, when the LIFE INSURANCE CORPORATION came into existence. As these companies grew, the government began to exercise control on them. The Insurance Act was passed in 1912, followed by a detailed and amended Insurance Act of 1938 that looked into investments, expenditure and management of these companies' funds. By the mid-1950s, there were around 170 insurance companies and 80 provident fund societies in the country's life insurance scene. However, in the absence of regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government decided nationalizes the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies.

Life Insurance in India was nationalized by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC. In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatization of the life insurance sector. While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000.The same year that the newly appointed insurance regulator - Insurance Regulatory and Development Authority IRDA -- started issuing licenses to private life insurers.

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The Insurance sector in India has gone through a number of phases and changes, particularly in the recent years when the Govt. of India in 1999 opened up the insurance sector by allowing private companies to solicit insurance and also allowing FDI up to 26%.Life and general insurance in India is still a nascent sector with huge potential for various global players with the life insurance premiums accounting to 2.5% of the country's GDP while general insurance premiums to 0.65% of India's GDP

Taking out a life insurance policy covers the risk of dying early, by providing for one‟s family in the event of one‟s death. It also manages the risk of retirement providing an income for one in non-earning years. There are a variety of policies available in the market, ranging from Term Endowment and Whole Life Insurance, to Money Back Policies, ULIPs, and Pension plans. 1) Term Insurance Term Insurance, as the name implies, is for a specific period, and has the lowest possible premium among all insurance plans. You can select the length of the term for which you would like coverage, up to 35 years.Payments are fixed and do not increase during your term period. In case of an untimely death, your dependents will receive the benefit amount specified in the term life insurance agreement. You can customise Term life insurance with the addition of riders, such as Child, Waiver of Premium, or Accidental Death. 2) Endowment Insurance Endowment Insurance is ideal if you have a short career path, and hope to enjoy the benefits of the plan (the original sum and the accumulated bonus) in your life time.Endowment plans are especially useful when you retire; by buying an annuity policy with the sum received, it generates a monthly pension for the rest of your life. 3) Whole Life Insurance Whole Life Policies have no fixed end date for the policy; only the death benefit exists and is paid to the named beneficiary. The policy holder is not entitled to any money during his or her own lifetime, i.e., there is no survival benefit..Primary advantages of Whole Life Insurance are guaranteed death benefits, guaranteed cash values, and fixed and known annual premiums. 4) Money-Back Plan In a Money-Back plan, you regularly receive a percentage of the sum assured during the lifetime of the policy. Money-Back plans are ideal for those who are looking for a product that provides both - insurance cover and savings.It creates a long-term savings opportunity with a reasonable rate of return, especially since the payout is considered exempt from tax except under specified situations.
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5) ULIP Unit-linked Insurance Plans (ULIPs), introduced by the private players, are hugely popular, because they combine the benefits of life insurance policies with mutual funds. A certain part of the premium is invested in listed equities/debt funds/bonds, and the balance is used to provide for life insurance and fund management expenses. 6) Pension Plan Insurance companies offer two kinds of pension plans - endowment and unit linked. Endowment plans invest in fixed income products, so the rates of return are very low.Unit-linked plans are more flexible. You can stop contributing after 10 years and the fund will keep compounding your corpus till the vesting date. You can opt for higher exposure in the stock market for your plan if your risk appetite allows it. Lower risk options like balanced funds are also offered.

1. HDFC Standard Life Insurance Company Ltd. 2. Max New York Life Insurance Co. Ltd. 3. ICICI Prudential Life Insurance Company Ltd. 4. Kotak Mahindra Old Mutual Life Insurance Limited 5. Birla Sun Life Insurance Company Ltd. 6. Tata AIG Life Insurance Company Ltd. 7. SBI Life Insurance Company Limited . 8 8. ING Vysya Life Insurance Company Private Limited 9. Bajaj Allianz Life Insurance Company Limited 10. Metlife India Insurance Company Ltd. 11. Future Generali India Life Insurance Company Limited 12. IDBI Fortis Life Insurance Company Ltd. 13. Reliance Life Insurance Company Limited. 14. Aviva Life Insurance Co. India Pvt. Ltd. 15. Sahara India Insurance Company Ltd. 16. Shriram Life Insurance Company Ltd. 17. Bharti AXA Life Insurance Company Ltd. 18. Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd. 19. Aegon Religare Life Insurance Company Ltd. 20. DLF Pramerica Life Insurance Company Ltd.

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Tolani College Of Commerce Page 5 . It is anchored by an extraordinary force of 100.000 employees. health. Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group. Mission  To help people mitigate risks of life. and money at all stages and under all circumstances Enhance the financial future of our customers including enterprises  Values      Integrity Commitment Passion Seamlessness Speed A US $28 billion corporation. Vision   To be a leader and role model in a broad based and integrated financial services business.. offers a formidable protection for its customers‟ future. accident. belonging to 25 different nationalities. leading international financial services organization from Canada. a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc. the Aditya Birla Group is in the league of Fortune 500 worldwide. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc.OVERVIEW ABOUT THE COMPANY- Established in 2000. The group operates in 25 countries across six continents – truly India's first multinational corporation.

while as on March 31. ULIPS. BSLI has several firsts to its credit.75. Additionally. pure term plan. Investment Linked Insurance Products and Web-Based Insurance Policies sale. To establish credibility and further transparency. Dream plans in insurance products that give you complete transparency and value-formoney. Such services are well supported by sound financials that the Company has. Policies of the company Protection Plans Saving Plans Health Solution Plans Retirement Plans Children Plans Rural Plans Group Plans Tolani College Of Commerce Page 6 . life stage products. BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. international equity funds. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis.000 empanelled advisors. 2000 crs. health plan and retirement plan) that the company offers. the extensive reach through its network of 600 branches and 1. 2009. helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. 2009. This impressive combination of domain expertise. 8165 crs as on February 28. These category development initiatives have helped BSLI be closer to its policy holders‟ expectations. BSLI has the best Turn Around Time according to LOMA on all claims Parameters. To ensure that our customers have an impeccable experience. Birla Sun Life Insurance Company Limited also offers MF (Mutual Fund). Products offered by the company The many pioneering activities by Birla Sunlife include Unit Linked Life Insurance Solutions. The AUM of BSLI stood at Rs. product range. reach and ears on ground. BSLI has ensured that it has lowest outstanding claims ratio of 0. Additionally. which gets further accentuated by the complete bouquet of insurance products (viz. the company has a robust capital base of Rs.00% for FY 2008-09. Add to this.Known for its innovation and creating industry benchmarks.

Rupee today is worth than rupee of tomorrow or a year hence and as parting with money involves the loss of present consumption. Assessment of quality of management of the companies in which investment has been already made or is proposed to be made. it has to be rewarded by a return commensurate with time of waiting. there is a direct relationship between the expected return and unavoidable risk. Due to risk aversion of investor. Constant review of investment: Portfolio managers are required to review their investment in securities and continue selling and purchasing their investment in more profitable avenues. For this purpose they will have to carry the following analysis. competition in the market. Industries and economic environment and its impact on industry prospects in terms of prospective technological changes. BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT There are two basic principles for effective portfolio management. Present values and future values are related by a discount factor comprising of firstly the interest rate component and secondly the time factor. financial and monetary policies of the Government of India and the Reserve Bank of India. As regards the risk factor. the higher should be the return. they feel risk is inconvenient and has to be rewarded by a return. Time value of Money and Safety of Money. Tolani College Of Commerce Page 7 . The larger the risk taken. Avoidable risk can be reduced or even eliminated by measures like diversification. Secondly. a safe rupee is preferred to an unsafe rupee at any point of time.INTRODUCTION TO PORTFOLIO THEORY Two basic principles of Finance form the basis of Portfolio theory. Effective investment planning for the investment in securities by considering the following factors: Fiscal. The future flows are to be discounted to the present by a required rate of discount to make them comparable and equal in value. capacity utilization with industry and demand prospects. namely.

It is desirable for the investor so as to take advantage of attractive opportunities upcoming in the market. which a finance manager must consider. Liquidity i. Favourable tax status: The effective yield an investor gets from his investment depends on tax to which he is subject. which can be attained by reinvesting in growth securities or through purchase of growth securities. The analysis of securities market and its trend is to be done on a continuous basis The above analysis will help the portfolio manager to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. If. By minimizing the tax burden. Marketability i. Diversification: The basic objective of building a portfolio is to reduce the risk of loss of capital and/or income by investing in various types of securities and over a wide range of securities. As aggressive investment company may.e. however.Financial and trend analysis of companies‟ balance sheets/profit and loss accounts to identify sound companies with optimum capital structure and better performance and to disinvest the holding of those companies whose performance is found to be slackening. nearness to money. the case with which a security can be bought or sold. This is essentially for providing flexibility to investment portfolio. OBJECTIVES OF PORTFOLIO MANAGEMENT Security / Safety of principal: Security not only involves keeping the principal sum intact but also keeping its purchasing power. FACTORS AFFECTING INVESTMENT DECISIONS IN PORTFOLIO MANAGEMENT Objectives of Investment Portfolio: This is the crucial point. There can be many objectives of making an investment. Stability of income so as to facilitate planning more accurately and systematically the reinvestment or consumption of income. so the timing for investment or dis-investment is also revealed. How the objectives Tolani College Of Commerce Page 8 . The manager of a provident fund portfolio has to look for security (low risk) and may be satisfied with none too high a return. be willing to take higher risk in order to have capital appreciation. yield can be effectively improved. Capital growth.e.

Interest rate risk vulnerability for different securities is as under:1) Types Cash Equivalent Long Term Bonds Risk Extent Less vulnerable to interest rate risk More vulnerable to interest rate risk 2) Purchasing power risk: It is also known as inflation risk. therefore. The investment managers under both the schemes will invest the money of the Trust in different kinds of shares and securities. in which there is a great amount of risk that he may be even lose his initial investment itself.e. price of securities tends to move inversely with change in rate of interest. Nominal return contains both the real return component and an inflation premium in a transaction involving risk of the above type to compensate for inflation over an investment-holding period. It arises because inflation affects the purchasing power adversely. It is obvious. higher could be the risk that one has to take.can affect in investment decision can be seen from the fact that the Unit Trust of India has two major schemes : Its capital units are meant for those who wish to have a good capital appreciation and a moderate return. VARIOUS TYPES OF RISKS INVOLVED IN AN INVESTMENT ARE AS FOLLOWS:- Interest rate risk: This arises due to variability in the interest rates from time to time. Higher the return that one wishes to have from the investment portfolio. The objectives of an investment portfolio are normally expressed in terms of risk and return. he can attempt the same by purchasing high-risk shares. that the objectives must be clearly defined before an investment decision is taken. Thus. Inflation rates vary over time and investors are caught unaware when rate of inflation changes unexpectedly causing erosion in the value of Tolani College Of Commerce Page 9 . long term securities show greater variability in the price with respect to interest rate changes than short term securities. A change in the interest rates establishes in an inverse relationship in the price of security i. It is on this basis of the objectives that a finance manager decides upon the type of investment to be purchased. Risk and return have direct relationship. if one wishes to double his investment in one year. The ordinary units are meant to provide a steady return only.

g. 4) Financial risk: It arises due to changes in the capital structure of the company. In addition to the few mentioned here. there are other constraints like the level of requisite knowledge (investors may not be aware of certain financial instruments and their pricing). Business cycles affect all types of securities viz. It is also known as leveraged risk and expressed in terms of debt-equity ratio. This Tolani College Of Commerce Page 10 . Flexible income securities are more affected than fixed rate securities during depression due to decline in their market price. Excess of debt vis-à-vis equity in the capital structure indicates that the company is highly geared. It is not desirable to invest in such securities during inflationary periods.. there is cheerful movement in boom due to bullish trend in stock prices whereas bearish trends in depression brings down fall in the prices of types of securities. Purchasing power risk is however. 3) Business risk : Business risk emanates from sale and purchase of securities affected by business cycles technological changes etc.realised rate of return and expected return. for a pension fund the investment policy will depend on the average age of the plan‟s participants. small investors may not be able to invest in Certificate of Deposits). WHAT ARE THE GOALS OF AN INVESTOR There are specific needs for all types of investors. less in flexible income securities like equity shares or common stock where rise in dividend income offsets increase in the rare of inflation and provides advantage of capital gains. children‟s marriage / education. Similarly. & how he may react during certain investment market & economic conditions. The risk is known as leveraged or financial risk of which investors should be aware and portfolio manager should be very careful. housing etc. For example. Purchasing power risk is more in inflationary conditions especially in respect of bonds and fixed income securities. regulatory provisions (country may impose restriction on investments in foreign countries) etc. investment size (e. which also serve to outline the investment choices faced by investors Risk & Profile questionnaire will help an investor to understand the financial markets. there are certain specific needs for institutional investors also. Although a leveraged company‟s earning per share are more but dependence on borrowings exposes it to the windingup for its inability to honour its commitment towards lenders / creditors. are major event triggers that cause an increase in the demands for funds. retirement. For individual investors. An investment decision will depend on the investor‟s plans for the above needs.

safety and tax implications. tax planning. 4. For this purpose. The liquidity and safety of an investment will depend upon the marketability and credit rating of the borrower. These characteristics vary between assets and securities. These tax provisions as such can influence the investor in a big way as these provisions will alter the risk return scenario of investment alternatives. It is therefore. These characteristics vary between assets and securities.which is enclosed MOTIVES FOR INVESTMENT The investor has to set out his priorities keeping the following motives in mind. investor should specify his income bracket. WHAT IS ASSET ALLOCATION? An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals. capital appreciation. namely the company or the issuer of securities. Tolani College Of Commerce Page 11 . necessary that all these avenues should be assessed in terms of yields. There will be no capital appreciation also in the case of enquiries. liquidity. 2.Questionnaire aims to uncover investors inappendices - attitude to investing. risk tolerance and investment horizon. his liabilities and his preference. etc. Capital appreciation Income Liquidity or marketability Safety or Security Hedge against inflation The investor gets his income from the dividend or yield or interest. 3. An investor is also concerned in having a tax plan to reduce his tax commitments so as to maximise the take home income. 5. All investors would like to have: 1. The investment avenues have certain characteristics of risk and return and also of some tax concessions attached to them.

These are no doubt real concerns. if some securities crash. combined with regular income and relative stability of bonds and the liquidity and security of cash. but involves some amount of strategy. bank account. your non-stock holdings can help bail you out. In actual fact. Tolani College Of Commerce Page 12 . “asset allocation” and “diversification” are often used interchangeably. whether you realise it or not. typically. stocks. and maybe some other types of assets as well.have different levels of risk and return. we not only have a stock portfolio. If the stock market crashes. Or if real estate plunges. so each will behave differently over time. Asset allocation is similar to diversification. but much of the tension could be minimized by some prior planning. or whether to own mutual funds or derivatives. A diversified portfolio help protect against large losses because. you will find that the distribution of our money amongst types of asset. This is because they have similar objectives: To minimise risk and provide exposure to differing growth opportunities within an investment portfolio. The question is whether you are doing so consciously and strategically.The three main asset classes . The cornerstone of this is allocation of assets over different asset classes. other may perform well. but a bond portfolio. Most of us spend sleepless nights trying to figure out which stocks to buy or sell. should one of your investments go bad. real estate.equities. or simply in a random or haphazard manner. etc. Diversification is often likened to the old adage. And it is this planning that is called asset allocaton. Depending on whose research you look at. Several studies in the recent past have shown that asset allocation is the single greatest determinant of investment performance. “Don‟t put all your eggs in one basket. It‟s a kind of insurance or protection. But not many know that there is a subtle difference between the two terms. The two phrases. Asset allocation is all about putting your eggs in different baskets. The combination of multiple asset classes offers the growth potential of stocks. a cash equivalent portfolio.” By doing this. you are already allocating your assets – as most of us have our wealth divided into different assets – gold. fixed-income. you will thank God for your PPF account. and cash and equivalents . In a diversified stock portfolio. you can help prevent losing it all on one poor choice-just as all your eggs would break if your dropped the basket.

DIFFERENT ASSET CLASSES – RISK V/S RETURN Essentially. bank deposits. Once the basic principles are understood. an investor can choose to define further classes as per his needs and perceptions. provide for preservation of principal and a fixed rate of return when held to maturity. A Profile of the Three Basic Asset Classes each of these three-asset class offers measurably different tradeoffs between risk and return. For the purpose of this discussion. we will restrict ourselves to the three basic asset classes comprised of financial securities. such as cash or bank accounts offer minimal risk. the allocation process needs to first categorise different assets into broad classes with similar characteristics. Also. Within each of these individual asset classes lie further segments. the greater the returns. There are also other assets like gold or real estate that may not fit into the three commonly accepted categories. though these investments have been very popular in the Indian context. Also. the greater the risk. corporate and government bonds.  Bonds (fixed-income investment): represent loans to a business or government. such as value and growth stocks. and each benefits your portfolio in a different way. certain types of assets like cyclical stocks are often treated as separate assets classes because they have different historical performance characteristics from other stocks. But it is not simple. The first is the return that one gets from a particular investment. Typically.  Cash Equivalents: money market funds. Treasury Bills. Conservative investments. Moderate-risk investments include highly debt instruments (such as company fixed deposits or bonds issued by corporate) as well as bonds with shorter maturities. their lack of liquidity and high unit value makes them intrinsically unsuitable as investments for most of us. and the preservation of principal but generally do not provide returns high enough to outpace inflation. post office savings and the like – provide for low risk. bank deposits and PPF. and essentially seek to preserve existing capital and offer minimal risk. there are two parameters that are of paramount importance. and the second is the risk that one takes to achieve that return. While talking of real estate. it is known that there is a direct relationship between the two. so we tend to use historical data for classification purposes. In the investment world. While most Tolani College Of Commerce Page 13 . Stocks typically offer greater growth possibilities-as well as greater risk potential. It is very difficult to foresee the future risks or returns that a particular investment will have.

Examples of these in India are company fixed deposits.5-12% 11-12% Low Low Low Low Low Bonds Income Mutual Funds 10-15% 10-14% Low Tolani College Of Commerce Page 14 .  We have compiled a broad comparison of the risk versus return equation for various investment opportunities for the Indian investor. they have provided the best record of long term growth of principal.  Stocks (equities) : represent shares (or part ownership) of a company.) Govt. historically. they offer limited potential for increasing returns. NSC (Govt. in the table below:- Risk-Return Comparison of various Investment Avenues Type of Investment Historical Returns Risk Level Cash equivalents Liquid Funds Bank Fixed Deposits Post Office. While stocks can and do experience significant volatility.bonds generate current income. Securities PF/PPF/Pension Bonds Company FD 10-14% Low 7-8% 7-10% 10-12% 8. ICICI bonds and the like.

Tolani College Of Commerce Page 15 . Any change in your circumstances might force a review and rebalancing of your portfolio. most of you have a pretty good idea of what the different asset classes are. it should be more difficult to recover from a market crash. Constant review is required and depending on the circumstances your will have to re-allocate or rebalance your assets. this is illusory. By now. These are: Changes in time frame: As you approach your goal – for example. bore a huge risk as most of the issuers defaulted. However. These instruments are very illiquid. and as was found later. On the other hand you might inherit a large sum unexpectedly. it is usually a good idea to shift to a more conservative strategy. company FDs offered much higher returns (similar to equities). Broadly. retirement or your child‟s college going age. and their historical riskreturn profiles. the kind of changes you could fall into four categories. You may fall ill or may retire or you may have children. it may make sense to take your capital gains on stocks and reinvest this in bonds or cash equivalents. Hence. Not only will the external environment keep changing but your individual situation will change too. Changes in life circumstances: This could be of various types. you might think its time to forget all about them. Unfortunately for us. the only constant is change. There are various events that could trigger the need for rebalancing. and given that liquidity is an important measure of risk (you should get the money when you need it) – some would argue that these instruments should be classified as bonds. asset allocation is a process that you re-visit again and again. with less time left. ASSET ALLOCATION IS NEVER COMPLETE – REBALANCING Now that you have allocated your money to different assets. though PPF and similar accounts appear to have higher returns for lower risk (because the government guarantees them). After all.Equity Equity Mutual Funds Equities 18-22% 18-22% High High Note 1: In India. Note 2: At some point of time. nothing could be further from the truth. Hence.

it is a good idea to check your portfolio at a specific interval. you may suddenly start dreaming of a larger house or plan to move to a more expensive city. See where you are as compared with your target asset mix. time horizon. Any other situation that affects these factors will also call for a review of your allocations and you may find that these needs to be rebalanced. At the same time. This will ensure that they may represent far more than your original target allocation. Conversely. All the above factors essentially serve to change your goals. Changes to goal: For some other reason. selling stocks and reinvesting in bonds or cash can bring your portfolio back into balance. And if you are off target. Not only this cause more tension and take up time. poor market performance might lead to a lower weightage for sticks-suggesting that you increase weightage to equity during a bull market. financial resources or risk profile. exposing you to more risk. For instance. At this point. Hence. we cannot predict our future desires. and our asset allocation strategy must adapt to our changing goals. you could make the necessary corrections by transferring some assets into others. you might find that your investment goals change. it will also lead to unnecessary transaction costs. it does not make sense to check your portfolio and re-balance it every month.Changes in Portfolio Performance: You might find that the stock market enjoys several years of phenomenal performance. Also. may be six months or once a year. good recent performance might suggest that stocks as a class are overvalued. After all. Tolani College Of Commerce Page 16 .

the proposer offers to pay a certain sum towards premium. In this case. The maturity benefit depends on the market conditions and the fund in which the premium has been invested. 1000 with a minimum of say. is payable. on that date of maturity.25 times single premium or 5 times annual premium. The term of the policy is also specified. the premium adjusted towards the cover will decrease and the amount allocated to investment will increase. It should not be less than 5 years or age 70 for Whole Life plans. ULIPs contribute nearly 50% of the premium for some insurers and more than 85% of the premium for some others. the life cover will reduce as the value of the units increases. This price is called the NAV. In linked policies. from among a set of options. Out of the premium.10000. Insurers have developed plans that combine the benefits of life insurance as well as giving various options of participating in the growth of the capital market. quarterly or monthly installments. As the risk cover decreases. has to be 1. as in the case of limited payment policies in yearly. Rs. The death benefit is fixed but the maturity benefit is not guaranteed. Insurers insist that this amount should be in multiples of say Rs. they prefer to use their funds in ways that help them to participate in the boom in the capital market. annual or otherwise as the case may be. payable in the event of death during the term. whichever is higher. a certain amount is adjusted towards the cost of the insurance (death) cover. The allocated premium is used to buy a certain number of units in the chosen fund at the price at which the units are being offered on that day. usually as a multiple like 5 times the annual premium or 1. The SA (Sum Assured) or death cover.500 or Rs. They are also called Unit Linked Insurance Plans or ULIPs. which varies every day. Tolani College Of Commerce Page 17 . Such plans are called Linked Life Insurance Plans.5000 or Rs. The balance. the sum assured may be expressed as an integrated benefit. the sum assured or the value of units in the fund. The minimum Sum Assured.5 times the single premium. is related to this premium. A ULIP is a life insurance policy which provides a combination of life insurance protection and investment. in short. The allocated premium is more in the second year and still more in the third and later years because some charges are not levied in every year. The premium may be paid as a Single premium at the start or periodically over the term or less. Some portion may be adjusted towards the charges. is invested in a fund that the proposer chooses.COMPANYS PRODUCT UNIT LINKED INSURANCE PLAN: When people see how investments in the capital market have grown over the last few years. half-yearly. In case of a ULIP. according to IRDA guidelines. which means that on the happening of the event. called allocated premium.

All these funds will remain invested in a mix of instruments.  Money Market Funds: In this type of fund. charge a redemption fee in such cases. sometimes also called „Growth funds‟.  Balanced Funds: In this type of funds. These policies will not be entitled to any bonus. which guarantee a certain fixed return.The alternative to the integrated benefit is to pay a fixed sum assured as an additional benefit on death. Sometimes there are conditions attached. There is no annual bonus. in addition to the value of units in the fund. In this case. there would be investments in equities. the investment is in short-term money market instruments such as treasury bills. the differences being mainly in the proportions in various kinds of instruments. Partial or total withdrawal is allowed. Options of Funds Insurers offer policyholders a choice of funds in which their moneys may be invested like   Equity Funds: In this type of fund.     The policyholder can pay additional premium for investment at any time. the charge for the risk cover will increase and the allocation to the fund will decrease every year. Debt Funds: In this type of fund. commercial papers. not all. Some insurers. also called Bond Fund. the investments are in both equity as well as debts. This is sometimes called the „Double Death Benefit‟. the investments are in government and government guaranteed securities and such safe debts and other high investment grade corporate bonds. One fund may have more of debt instruments. while another fund will have a larger proportion of equity Tolani College Of Commerce Page 18 . but there may be a loyalty bonus paid at the end. Some of the other features offered by insurers along with ULIPs are the following. etc. sometimes also called Liquid Funds.

Some insurers charge a fee for every such switch. which may appreciate in value more than debt instruments. Defensive. Some others allow a certain number of switches free and then charge a fee for every switch thereafter. Policyholders may also be allowed to redirect the current premium into any fund. the life cover will increase by 1. except during the last 3 years of the policy. irrespective of the fund in which the earlier premiums have been invested.25 times the excess top-up amount. no new units will be added to his fund but some units will be reduced to pay for the annual Tolani College Of Commerce Page 19 . Dynamic. The name does not indicate the manner in which the funds will be invested or will grow. Maximiser. Income. Preserver. but the amount going into the fund for investment will change. Flexibility ULIPs provide lot flexibility to the policyholder. Multiplier. Insurers use different names to differentiate between funds. in any proportion. The option of switching is one provision that gives the flexibility. The risk cover will remain the same. Policyholders are also allowed to make a lump sum additional contribution at any time. Conservative. It would be necessary to track the record of the fund to evaluate how well it is doing. Magnifier. Gilt. Enhancer. There could be a top-up charge. Builder.shares. If that happens. Protector and Secured. Cash-plus. without exercising the switching option. There will also be a lock-in period of three years for each top-up amount. The IRDA guidelines stipulate that top-up is allowed only if the regular premium is paid up-to-date and also that if the top-up amount is more than 25% of the regular premiums paid up-to-date. Insurers allow policyholders to switch their moneys from one fund to another during the term of the policy. This facility allows the policyholder to take advantage of the market conditions. Some of these names are Accelerated. Policyholders may not pay the premium in a year. Top-up is the expression used to refer to the policyholder increasing the contribution for investment. subject to certain conditions.

the NAV used at the time of entry. If he is getting into another fund on that day. on that day. called the Bid price.10000 invested in an Equity Fund and on that particular day. divided by Units in that Equity fund would be the NAV for that day. Some insurers do not have this difference for some plans. This enables policyholders to track the growth of the various funds and to decide whether to continue in the same fund or to switch to other funds. the Equity Fund comprising of contributions from many policyholders would have been invested in a variety of equity shares in the share market along with other instruments. For example.charges for cover. NAV (Net Assets Value) The NAV of a fund represents the net value of the fund on a particular date and reflects the total value of the asset of that fund. after some adjustments for expenses.10 per unit for a specified period from the date the scheme begins. The total market value of these shares and other instruments on any day. like the difference between the buying and selling rates of foreign currency. etc. Both offer and bid prices are the same as NAV. for fund management. the NAV of that fund is Rs.5%. As market values of shares vary. for administration. The loss will only be a nominal fee. This difference is called the bid-offer spread and is normally around 0. if a policyholder wishes to have Rs. he will be given the number of units of that fund. he will get 500 units at the NAV of that date. and the NAV used while exiting. the NAV will keep varying from day to day. called the Offer price. at which he got in. The arrangement can also be terminated at any time and the amount in the fund withdrawn. calculated at the NAV of that fund. which are offered to the policyholders.20.20. For example. he will be allotted 500 units from that fund. This is called premium holiday. because of switching or final termination of the contract. The NAV becomes the basis for new entrants and for exits from the fund. Lock In: Tolani College Of Commerce Page 20 . When he wishes to exit from that fund. The value of a person‟s investment on any day is the number of units held by him multiplied by the NAV. In actual practice. Insurers publish the NAVs of the various funds. will be different. Some insurers offer units at Rs. which may be less than or more than Rs.

And you would ideally like to guarantee this against any eventuality. Presenting the BSLI Dream Child Plan. ULIP DREAM PLAN OF BIRLA SUNLIFE INSURANCE COMPANY LTD In this policy. Flat fee which will be charged every month. regardless of the size of premium. planning for their career or wedding or helping them start their life on an assured footing. may be constant figures or percentages. usually on a monthly basis. The surrender value will be allowed only after 3 years. additional benefits are made available through riders. Fund administration charges being a percentage of the fund and deducted daily. Fund switching charges levied when there is a switch from one fund to another. They are subject to various conditions. The charges are recovered 1) by way of deduction from the premium and/or 2) by cancelling some of the units. Usually riders provide for 1) Accident benefit 2) Disability benefits 3) Increase/decrease in death benefits 4) Hospital cash benefit 5) Spouse insurance benefit Charges: The following charges are applicable in the case of ULIPs. a plan that gives you the guarantee of receiving your Tolani College Of Commerce Page 21 . They may be related to SA or to premium.        Accident benefit charges if the accident rider is availed of Administration or fixed charges are the fees for administration of the plan. and may have minimum and maximum limits. Riders: As in traditional policies. Insurance or risk cover charge is the premium for the death cover.Lock-in period during which withdrawal is not allowed. Service Tax is also charged. and vary between insurers.. investment risk in investment portfolio is borne by the Policyholder In life there are some dreams like giving your child the best possible education. It is 3 years according to IRDA guidelines. Birla Sun Life Insurance brings its Dream Plans that can meet these needs and give you the confidence to live your life with freedom.

5. 50.Child Guaranteed Savings Date is 75 or less 30 days .000 Tolani College Of Commerce Page 22 .Grand/Parent .65 years. you retain the freedom to keep pace with the ever changing world of your dreams for your child. 1961 Plan at a glance 18 .000 subject to minimum Basic Premium Rs. 2.27. What's more. provided age on Entry Age .chosen Basic Sum Assured on the Guaranteed Savings date chosen by you.17 years Guaranteed Savings Date Child's age 18 . 8.00. subject to minimum of 10 policy years Policy Term Pay Term Basic Sum Assured Guaranteed Savings Date + 20 years Years to Guaranteed Savings Date Minimum Rs. The salient benefits of the plan are     You will receive a minimum amount of no less than the Basic Sum Assured chosen by you on the Guaranteed Savings Date of your choice You have the freedom to increase the financial security for your loved ones by choosing an Enhanced Sum Assured You have the freedom to increase your savings by choosing an Enhanced Savings Premium You have the freedom to meet any emergency funds requirements by making partial withdrawals You enjoy tax benefits under section 80C and section 10(10D) of the IncomeTax act.000 Enhanced Sum Assured Enhanced Savings Premium Minimum Rs.000 Minimum Rs.

we will pay to the beneficiary the Basic Sum Assured.This is a joint life insurance policy wherein the grand/parent is the primary life insured and the child is the secondary life insured. Basic benefits Benefits from policiesSurrender Benefit .25% p. the child becomes the primary life insured and the grand/parent becomes the secondary life insured. You will receive the Basic Fund Value at maturity. The policy will continue as long as the secondary life insured is alive. since inception. Mortality Charge The policy administration charge is based on Basic Premium and deducted monthly by cancelling units from the investment fund/s at that time. for Enhancer and Creator. This charge is guaranteed to never increase for the first three policy years. There is no surrender charge once you have completed 5 policy years.a. you can surrender your policy and receive the Basic Fund Value less applicable surrender charge. CHARGES Fund Management Charge payable once your policy matures at the end of the policy case of emergencies. This charge is guaranteed to never increase for the first three policy the unfortunate event the primary life insured dies while the policy is in effect. Policy Administration Charge The policy administration charge is based on Basic Premium and deducted monthly by cancelling units from the investment fund/s at that time. since inception.a. On the Guaranteed Savings Date. We may change the fund management charge under any investment fund at any time in the future subject to IRDA approval. after which it can be increased by no more than 5% p. Tolani College Of Commerce Page 23 . Maturity Benefit . Death Benefit .a. after which it can be increased by no more than 5% p.

Tolani College Of Commerce Page 24 . their attractiveness when the Direct Taxes Code (DTC) comes into operation. equity-oriented mutual fund schemes and a number of other popular savings and investment instruments will lose their tax immunity. Mortality. The amount you will receive on surrendering the policy is the Fund Value less the surrender charges. Mutual fund-Enhancer funds & its allocations under various classes is enclosed in Appendices-2 RECENT SCENARIO OVER ULIPS Unit-linked insurance plans (Ulips). we may increase a particular charge at any time in the future. The government has said it hopes to operationalise the code by April 2011. however. Policy Continuation Charge is deducted to provide the continuation of the policy benefits after the demise of the grand/parent before the Guaranteed Savings Date. Otherwise. Policy Continuation and Enhanced Sum Assured charges are guaranteed never to increase Surrender Charge Surrender charge is applicable if policy is surrendered before the completion of 5 policy years. This charge is per 1000 of Basic Sum Assured and will vary based on gender and attained age of primary life insured. We will take these charges by cancelling units proportionately from each of the investment fund/s at that time. These charges are guaranteed to never increase. This charge will depend on the Guaranteed Savings Date. IRDA Approval Only when specified and within stated limits. all other charges in this policy are guaranteed to never increase during the tenure of the policy.Mortality charge is deducted every month for providing you with the insurance cover. It is charged by cancelling units from the investment fund/s at that time. need to get prior approval from the IRDA before such charge increase is effective. and with it. Birla sunlife insurance has a ULIP product which invest in mutual funds as well as in insurance. issue age and gender of the primary life insured. We.

which are hybrid products incorporating investment and insurance cover as traits. Irda. Tax will not be levied at any stage on these schemes. It qualifies for tax deduction along with a host of other savings schemes. Turf. said R Kannan. individuals who invest in Ulips do not pay tax at any stage—at the time of investment or contribution. In the 2009-10 fiscal. during the tenure of investment. Withdrawals would be taxed. national savings certificate deposits and principal repayment on home loans. equity-oriented mutual funds. exempt (EEE) tax regime. referring to the different stages at which financial instruments may be taxed. investments made before the DTC comes into force will continue to be eligible for the EEE method of tax treatment for the full duration of the financial instrument. debt-oriented mutual fund schemes or other financial products depending on investors’ choice.60 lakh crore that was collected. but not a rollover. such products accounted for more than four-fifths of the total insurance premium of around Rs 2. Taxpayers can claim a deduction of up to Rs 1 lakh a year on these instruments. However. Ulips could be taxed at the time of maturity. member-actuary. recognized provident funds and pure life insurance and annuity schemes—will be tax-free. are particularly popular. or at maturity. “Ulips will be out of the exempt. exempt. general provident fund. At present. but the government has not clarified yet the tax treatment of the products. besides contributing significantly to the capital market”. This means an investor who buys a Ulip before the DTC comes into force will not be taxed at any stage during the full tenure. including bank deposits.” said a senior finance ministry official.war between IRDA & SEBI over ULIPS - Tolani College Of Commerce Page 25 .Ulips. equity-linked mutual fund schemes. The original code had proposed the concept of savings intermediaries that would invest the amounts deposited with them in Ulips. “The existing tax treatment of Ulips is beneficial as it helps in the flow of funds to the infrastructure sector. The new pension scheme will also be covered by the EEE method of taxation and withdrawals will not be taxed at maturity. The revised proposals make it clear that only six schemes—public provident fund (PPF). the pension scheme administered by the Pension Fund Development Regulatory Authority.

The mutual fund industry in India was started by the Unit Trust of India (UTI) in 1963 with the introduction of the Unit Scheme‟64 (US‟64). These products are increasingly gaining popularity among the investors on account of its multi-purpose catering of life cover and equity market linked returns both. The year 1987 saw the entry of public sector mutual funds into the market. i. However. The investment component of the ULIPs. But finally. These were mainly public sector banks and financial institutions. LIC Mutual Fund and Indian Bank Mutual Fund were among the first to launched. is in the nature of mutual funds which falls under the jurisdiction of SEBI‟s governance So SEBI wanted the control over ULIP as majority of portion is invested in equities market.ULIP is saving-cum-investment product that offers the option of life cover along with market liked returns. An amendment favoring IRDA over the Securities and Exchange Board of India was signed by President Pratibha Patil on June 18. Tolani College Of Commerce Page 26 . SEBI‟s contention is that ULIPs are not pure insurance products and such products are coupled with investment products which fall under its purview of regulation.e. which established their own Mutual Funds. they also provide Tax savings. The fund belongs to all investors with each investor‟s ownership depending on the proportion of his contribution to the fund. Additionally. which ultimately finds its way into the equity markets. This scheme is the largest in the country. the more the contribution the higher the ownership and vice-versa. The government has brought down curtains on the two-month long tussle between two regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority (IRDA). Canbank Mutual Fund. Origins of a Mutual Fund The concept of a mutual fund originated in 1870s with Robert Fleming establishing the first investment trust in Scotland in 1890. and as a whole securities market is controlled by SEBI. SBI Mutual Fund. MUTUAL FUNDS A Mutual Fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. so they could very called All-in-One Policies.

The sponsor gets the Mutual Fund registered with SEBI and sets up a trust and an Asset Management Company (AMC). The activities of the AMC are monitored by the Board of Trustees. All these investments are made in the name of the Mutual Fund and not in the name of the individual investors. It invests funds on behalf of the investors. which it will either reinvest or distribute among its investors. The Mutual Fund then starts collecting income on the investments – like dividends and interest. The Trust is represented by a Board of Trustees – the guardians of the investors‟ funds.10/each.The private sector entered the scene in 1993. The AMC creates various schemes. These investors fill in application forms giving their personal details and how much money they want to deposit with the Mutual Fund and submit these forms along with their cheques with either the Mutual Fund or its bankers. an investor holding 300 units of the Mutual Fund will get more dividend than an investor holding 100 units. The AMC is the investment manager of the investors‟ funds. Against this money collected. Tolani College Of Commerce Page 27 . The Fund Managers also buy and sell the investments in the market and collect the sale proceeds on behalf of the investors. the Mutual Fund issues units. How does a Mutual Fund work? A Mutual Fund is set up by a sponsor who contributes a portion of the Mutual Fund‟s net worth. the latter will issue its shares in the name of Kothari Pioneer Mutual Fund. For instance. When the Mutual Fund distributes the income among its investors. which the Mutual Fund advertises.000.5. For instance. inviting the public to deposit their faith and their money with the Mutual Fund. if Kothari Pioneer Mutual Fund invests in 100 shares of Reliance Industries Ltd.. if the investor invests Rs. the Trust and the AMC form the core entities of a Mutual Fund. These were mainly foreign fund management companies entering India through joint ventures with Indian Companies. The Sponsor. usually with a face value of Rs. he will be allotted 500 units of the Mutual Fund. The AMC then takes over and decides where to invest the money collected from these investors. They ensure that the investors‟ interests are safeguarded. it does so on a pro-rata basis. For instance.

if you deposit your money with a Mutual Fund specialising in investing in IT shares. Your Rs. Easy Liquidity This is one of the most important benefits a Mutual Fund offers its investors. this management services comes along with his investment in the Mutual Fund. However. For an individual investor. the profits to you would be higher if you directly invest in them than if you invest through a Mutual Fund.000 will now be spread over more than 2 companies reducing the chances of you losing your money. Professional Management Very few people have the time and inclination to understand and analyze finance markets while making their investments.Mutual Funds have a team of research professionals who are constantly providing these Fund Managers with inputs of opportunities and changes happening in the markets. he becomes a part owner of a large asset value spread over a number of investments. your Rs. Fund Managers of the Mutual Funds AMC are professionals with experience and tract records of managing money and closely tracking the finance markets. A fall in one or both these shares can wipe you out! However.10. Even with a small amount of investments.000 will go into the pool of money collected from other investors like you and the Mutual Fund will buy IT shares of a larger number of companies. You have Rs.Why investing through a Mutual Funds There are a number of good reasons for an investor to invest through the Mutual Fund vehicle. With this amount. This is explained below with a specific situation. But that is a sacrifice worth making for the sake of safety.000 to invest. by Tolani College Of Commerce Page 28 . These are enumerated below: Lower Risk Each investor in the Mutual Fund owns a proportionate part of all the Mutual Fund‟s assets. you will be able to purchase in only one or at the most two IT shares. The downside is that if the shares were to go up. investors holding equity and debt cannot sell their investments easily and quickly. You want to invest in software stocks. Very often.10.10.

000 in a tax saving scheme can avail of a tax rebate of 20% of his investment amount.2. Systematic Withdrawal Plans are best suited for people nearing retirement. Index Investing Index schemes of Mutual Funds give investors the opportunity to invest in index scripts in the same proportion of weightage these scripts have in the index. which. In these plans. G-Sec Investing Gilt and money market schemes of Mutual Funds give investors the opportunity to invest in Government securities and money markets (including inter-bank call money market).10. Saving Taxes Tax saving schemes of Mutual Funds offers investors a tax rebate under section 88 of the Income Tax Act. For instance. This implies that if an investor invests more than Rs.10.10. the rebate is capped to 20% of a maximum investment of Rs. an investor selecting Templeton‟s SIP will need to invest a certain sum of money every month / quarter / half-year in the scheme of his choice. Systematic Investment Plans are best suited for young people who have started their careers and need to build their wealth. he will get a tax rebate of only Rs.000 (20% of Rs. This tax rebate is available every Financial Year.investing through a Mutual Fund. Retirement Planning Mutual Funds offer investors „Systematic Investment Plans‟ (SIP) and „Systematic Withdrawal Plans (SWP). Thus the investor‟s return on investment mirrors the index he invests in.000). an Tolani College Of Commerce Page 29 . an investor invests in a Mutual Fund scheme and is allowed to withdraw money at regular intervals to take care of his expenses. However. These plans are very useful as a tool to provide for one‟s retirement needs.10.000.000 in a tax saving scheme. they have the option of selling their units back to the Mutual Fund and receiving their money within 4 to 7 working days. a person investing up to Rs. SIP‟s entail an investor to invest money at regular intervals in the Mutual Fund scheme the investor has chosen. Under this section.

convertible securities. Gilt schemes Page 30 Tolani College Of Commerce . preference shares and equities. Equity schemes These schemes invest most of their corpuses in equities of companies in various industries / sectors / businesses. A very small portion of the corpus is invested in debt securities in order to enable the scheme to repay money to outgoing investors. 3. banks.investor. Debt / Income schemes These schemes invest most of their corpuses in debt instruments issued by the Government. 4. Money Market schemes These schemes invest in securities with maturities of less than one year. Since these schemes don‟t focus on capital appreciation but on earning higher incomes. Balanced schemes Portfolios of these schemes consist of debt instruments. These schemes‟ objective is to earn income with moderate capital appreciation. Certificates of Deposits issued by banks and Commercial Paper issued by companies. 2. These securities are mainly Treasury Bills issued by the Government. TYPES OF MUTUAL FUNDS Nature of investment 1. these investment options are normally not available to individual investors). 5.e. on his own would not have access to (i. Since there is no investment focus on a particular type of business or sector. The investment in equity and debt is more or less in equal proportion. these are called diversified equity schemes. they are also called income schemes. corporates. These scheme also invest in the inter-bank call money market. financial institutions and entities engaged in infrastructure / utilities.

Tolani College Of Commerce Page 31 . Index schemes These schemes track the performance of a specific stock market index. Being a very focused investment option. This section stipulates that an investor gets a tax rebate of 20% on a maximum investment amount of Rs. The objective is to match the performance of the index by investing in shares that constitute the index. Bond schemes These are focused debt schemes investing primarily in corporate debentures and bonds or in infrastructure or municipal bonds. For instance.000 per Financial Year in a tax saving scheme. Not only do these schemes invest in the same shares that make up the index. more than one year. fluctuations in interest rates bring about changes in market prices of these securities resulting in gain or loss to the investor. they invest in these share in the same proportion as the weightage they are given in the index. the investor has to remain invested for a minimum period of three years in order not to have the tax rebate cancelled. Pharmaceuticals or Fast Moving Consumer Goods. 9. the scheme will also invest 25% of its corpus in HLL shares. Tax saving schemes These schemes are essentially diversified equity schemes with an additional benefit of offering a tax rebate under Section 88 to the investor. (HLL) wherein HLL‟s shares make up 25% of the index. these schemes carry a high level of sector and company specific risk. However. Although these securities have „zero‟ risk (Sovereign ratin). 7.e. if the index tracked constitutes shares of Hindustan Lever Ltd.10. Sector Specific schemes These schemes invest in only one industry or sector of the market such as Information Technology. 6. 8.These schemes invest in Government securities with medium to long term maturities i.

I may get high returns or I may also incur losses”. b. at a price based on the scheme‟s Net Asset Value (NAV) WHAT ARE EQUITY FUNDS? These are by far the most widely known category of funds though they account for broadly 40% of the industry‟s assets. as funds investing 100% in international equities are also equity funds from the investors‟ asset allocation point of view. High Return should not be understood as “If I take high risk I will get high returns”. An investor can buy units from or redeem units to the Mutual Fund itself. They generally are considered as having the highest levels of risks (equity share prices can fluctuate a lot). An investor can buy units from or redeem units to the Mutual Fund itself.Tenure a. at a price based on the schemes Net Asset Value (NAV). This is important from taxation point of view. Close-ended schemes These schemes offer units for sale and repurchase at all times. This concept of Higher the Risk. but the tax laws do not recognize these funds as Equity Funds and hence investors have to pay tax on the Long Term Capital Gains made from such investments (which they do not have to in case of equity funds which have at least 65% of their Average Weekly Net Assets invested in Indian Equities). as it is one of the important characteristic s of Equity fund investing. However. Equity funds essentially invest the investor‟s money in equity shares of companies. they also offer the probability of maximum returns. High Risk. Equity Funds are defined as those funds which have at least 65% of their Average Weekly Net Assets invested in Indian Equities. Equity Funds come in various flavours and the industry keeps innovating to make products available for all types of investors. while the riskier varieties are the Tolani College Of Commerce Page 32 . while the remaining 60% is contributed by debt oriented funds. Open-ended schemes These schemes are available for sale and repurchase at all times. Fund managers try and identify companies with good future prospects and invest in the shares of such companies. hence it must be understood that “If I take high risk. Higher the Returns must be clearly understood before investing in Equity Funds. and hence. Nobody is guaranteeing higher returns if one takes high risk by investing in equity funds. Relatively safer types of Equity Funds include Index Funds and diversified Large Cap Funds.

etc. Infrastructure Fund. Mid Cap Funds or Small Cap Funds – or on the basis of investment strategy the scheme intends to have like Index Funds.Sector Funds. Natural Resources Fund. There can be funds on other indices which have a large number of stocks such as the CNX Midcap 100 or S&P CNX 500. EQUITY FUNDS Index funds Large cap funds Midcap funds Sectoral funds Arbitrage funds Quant funds Multi-cap funds P/E Ratio fund Index fundsIndex Funds invest in stocks comprising indices. which is a broad based index comprising 50 stocks. In India today we find many index funds based on the Nifty 50 index. Power Sector Fund. which comprises large. since equities as an asset class are risky. Quant Fund. Arbitrage Fund. However. Gold Funds (not to be confused with Gold ETF) and Fund of Funds are some of the different types of funds. liquid and blue chip 50 stocks. International Funds. which are designed for different types of investor preferences. Here the investment is spread across a large number of stocks. such as the Nifty 50. Equity Funds can be classified on the basis of market capitalization of the stocks they invest in namely Large Cap Funds. Tolani College Of Commerce Page 33 . there is no guaranteeing return for any type of fund.

diversified large cap funds are considered as stable and safe. stock and stock futures). there are some predefined conditions based upon rigorous backtesting entered into the system and as and when the system throws „buy‟ and „sell‟ calls. Mid cap fundsAfter large cap funds come the midcap funds. globally competitive products and are quick to respond to market dynamics. There can be actively managed or passively managed mid cap funds. the scheme enters. Tolani College Of Commerce Page 34 . Therefore.Large cap fundsThese are funds which restrict their stock selection to the large cap stocks – typically the top 100 or 200 stocks with highest market capitalization and liquidity. There are indices such as the CNX Midcap index which tracks the midcap segment of the markets and there are some passively managed index funds investing in the CNX Midcap companies. and/ or exits those stocks. Examples of such funds are IT Funds.e. It is generally perceived that large cap stocks are those which have sound businesses. etc. strong management. Pharma Funds. Sectoral fundsFunds that invest in stocks from a single sector or related sectors are called Sectoral funds. Infrastructure Funds. This regulation is relaxed for sectoral funds and index funds.g. Arbitrage fundsThese invest simultaneously in the cash and the derivatives market and take advantage of the price differential of a stock and derivatives by taking opposite positions in the two markets (for e. This is to ensure that schemes are diversified enough and investors are not subjected to undue risk. Many of these midcaps are said to be the „emerging bluechips‟ or „tomorrow‟s large caps‟. which invest in stocks belonging to the mid cap segment of the market. Regulations do not permit funds to invest over 10% of their Net Asset Value in a single company. i. Quant fundsA typical description of this type of scheme is that „The system is the fund manager‟.

the scheme will sell. Options give the holder the right but not the obligation to buy or sell the underlying asset at a pre-specified price for a fixed duration. OPTIONS & FUTURESOptions Options are financial instruments whose value depends on an underlying asset. Investments in the equity markets are considered to be fraught with uncertainties and volatility. For every buyer Tolani College Of Commerce Page 35 . and when the P/E ratio is at the upper end of the band. DEBT FUNDS Debt funds are funds which invest money in debt instruments such as short and long term bonds. The main investing objectives of a debt fund is usually preservation of capital and generation of income. Which is why debt schemes. Performance against a benchmark is considered to be a secondary consideration. corporate paper. Therefore venturing into debt market investments is not common among investors. theoretically. than equity funds because the overall management costs are lower. call money etc. which could be anything from stocks through indices to commodities. The fund manager has total freedom to invest in any stock from any sector. Call options gives the buyer the right to buy the underlying asset whereas put options gives the buyer the right to sell the underlying asset. commercial paper. government securities. which are considered to be safer and less volatile have attracted investors. Not many understand the relationship between interest rates and bond prices or difference between Coupon and Yield. on average. Options are either ‘call’ or ‘put’. Debt markets in India are wholesale in nature and hence retail investors generally find it difficult to directly participate in the debt markets. Options are the most versatile trading instrument ever invented. Thus when a stock is trading at a historically low P/E multiple. The fees in debt funds are lower. P/E Ratio fundA fund which invests in stocks based upon their P/E ratios. have a smallcap portfolio today and a largecap portfolio tomorrow. the fund will buy the stock. Since options cost less than stock they provide a high leverage approach to trading that can significantly limit overall risk of a trade or provide additional income. t-bills.Multicap fundsThese funds can. Investors can however participate in the debt markets through debt mutual funds. These factors may have an impact on constant flow of returns.

when he decides to exercise his option. It is an agreement to buy or sell an asset (of a specified quantity) at a certain future time for a certain price. The premium is dependent on many factors like the underlying asset price. A forward contract is settled at maturity. Infact the exchange provides a mechanism. The specified price in the forward contract is referred to as the „delivery price‟. The premium is the per share price that the option holder pays upfront to the seller to acquire the option. The difference between the price as on the settlement date and the price at which the forward contract was entered into determines the value of the contract to both the buyer and the seller. the risk free rate of return and the corporate benefits at the time to maturity of the option. The other party to the contract assumes a short position and agrees to sell the asset at the same date for the same price. On the settlement date the forward contract can have a positive or negative value depending on the movement of the price of the underlying asset. which the holder of the option has to pay (or receive). At the time the contract is entered into. The seller receives an amount called the ‘premium’ from the buyer. The minimum option lot is 100 shares. No cash is exchanged when the contract is entered into. A clearinghouse becomes counterparty to both sides of the transaction.of an option there is a seller. Another difference between forwards and futures is that when the contract Tolani College Of Commerce Page 36 . It is fixed by the exchange for the entire duration of the option). Over a period of time the forward price tends to fluctuate but the delivery price remains constant. Forwards A forward contract can be regarded as the simplest mode of derivative transaction. As the buyers and the sellers do not know each other it is the clearinghouse which guarantees the trade. Such a contract is usually between two financial institutions or a financial institution and one of its corporate clients. imparts liquidity and creates a set of rules and regulations that have to be adhered to by the parties to the transaction. Futures A futures contract is a contract to buy or sell a certain asset at a specified future time and price. This leads to a standardization. called the ‘writer’. It is pertinent to note that the forward price and delivery price of the underlying asset are both equal at the time the contract is entered into. the strike price (the price. which gives the two parties a guarantee that the contract will be honoured. the value of the forward contract is zero to both the parties. One of the parties to a forward contract assumes a long position and agrees to buy the underlying asset at the specified future date at the specified price. The seller keeps the premium regardless of whether the option is exercised or not. the volatility of the asset price. The holder of the short position delivers the asset to the holder of the long position in return for a cash amount equivalent to the delivery price. such contracts are normally traded on a stock exchange.

It made a low of Rs 53 (closing price) on 27th Oct 2008 and then bounced up from there . Support Example : Below chart is for Jaiprakash Associates (click to enlarge) . You can clearly see in charts that it reached Rs 53 levels . Technical Analysis gives us hint on what can happen in future . and lots of buyers come to buy it . it again started heading down . At that price point ." Even though you have picked up some excellent companies for your long term investments . Its only the higher probability that it will bounce back . at support levels demand is thought to be strong enough to prevent the price from declining further. In other words. Now the biggest challenge and question you have is "When to buy it" ? You should not just go next day and buy the share . Support and Resistance: Support : Support for a price is a price area where there are lots of buyers ready to buy the stocks rather than sellers . The contract is referred to by the delivery month and the exchange specifies the period between which the delivery has to be made. not a guarantee . BASICS OF TECHNICAL ANALYSIS Difference between fundamental analysis and technical analysis: There are two important questions which one has to answer when one wants to buy/sell shares? They are "What to buy/sell" and "When to buy/sell" ? Fundamental Analysis answers the question "What to buy"? It a study of companies Financial statements . That's not the end of the story . that's not the right approach . "Will it be more valuable than what it is now " entered into the exact delivery date is not specified. Please understand that Support point is not a place from where it will for sure bounce back. generally its a range like 98-100 or 560-570 . Now Rs 53 is the support point . understand that it only gives you chances. It answers the question "Will this company be a good buy for long term" ? . markets study to find out the future prospects of a company. Decisions taken on basis of TA only increases your risk/reward scenario . This is a point where Buying has less risk . cash books . Also understand that its not exactly a fixed price which should be considered as Support. Fundamental Analysis and Technical Analysis is a personal choice and one may work for you and other may not work for you. There can be a price area where buying is best in terms of risk/reward . Tolani College Of Commerce Page 37 . Hence buyers outnumber sellers and there is a higher possibility that prices will bounce back from that point . but could not break down from that point and again bounced back from there . So everything should be taken with crossed fingers . Technical Analysis is the study of charts . Which point is Support point : Every Low made by the price can be considered as Support Area . price and volume patterns and other indicators derived from price and volume . Prices went up from that point and after reaching Rs 90 . the general perception is that its a good buy .

Resistance : Resistance is just opposite of Support .Resistance point is the High made by a price .It was a very good "BUY" around Rs 53 .Understand that buying around Rs 53 . At this point there are enough sellers in the market to prevent it from rising further . After that you can see how it reversed from that point 2 times in Jan and Feb 2009 . It was a wise decision to sell at those points. All the high's will act as some kind of resistance points. At this price levels there are more sellers than buyers and with high probability prices reverses from this point . not a "no-risk" trade . Resistance Example : Below is Reliance Charts . Prices can break down from there also. Tolani College Of Commerce Page 38 . You can see that reliance made a high of Rs 1400 around Dec 2008 . is only a less-risky trade .

The methodology for carrying out the project was very simple that is through secondary data obtained through various mediums like fact sheet of the funds.CONCLUSION This project has been undertaken in order to track the performance of various debt based mutual funds. or if he needs to switch to another fund. Newspaper. By understanding the basis of the different measures of evaluating the performance of the fund. AMFI book. With globalization and the growing competition in the investments opportunity available he would have to make guided and rational decisions on whether he gets an acceptable return on his investments in the funds selected by him. This dynamic change has taken place because of a number of reasons. etc. Hence this project has helped in terms of achieving such an end. Tolani College Of Commerce Page 39 . the Internet. the right decision has been taken in terms of selection of the fund. An investor is interested in tracking the value of his investments. for that he invests directly in the market or indirectly through Mutual Funds.

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