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➢ Executive Summary
➢ Objectives
➢ Introduction
➢ Company Profile :-
• TATA-AIG organizational chart
• SWOT analysis of insurance industry
○ List of banks and their fixed deposit rates
○ Fixed deposits of Post Offices
○ Company fixed deposits
○ Advantages of shares
○ Benefits of mutual funds
• Mutual fund risks
○ Recent trends in mutual funds
○ Schemes of mutual funds
○ Advantages
○ Products
○ Annuities
➢ Conclusion and Recommendation
Executive Summary

Executive Summary
In Present scenario money market have lot of Investment option like Share,
Mutual Fund, Insurance; fixed deposit etc .In few years Share Market has emerged
as a tool for ensuring one’s financial well being.
Share Markets have not only contributed to the India growth story but
have also helped families tap into the success of Indian Industry. As information
and awareness is rising more and more people are enjoying the benefits of
investing in Share Markets. once people are aware of Share Market investment
opportunities, the number who decide to invest in Share Markets increases to as
many as one in every five people. Second option is Mutual Fund this is systematic
investment which give less risk high return.
This Project gave me a great learning experience and
at the same time it gave me enough scope to implement my
analytical ability. The first part gives an insight about financial
market and its various aspects, the Company Profile, Objective of
the study, Research Methodology. One can have a brief
knowledge about financial market and its basics through the
The second part of the Project consists of financial
market analysis collected from past records and Survey report.
This Project covers the topic of “COMPARATIVE ANALYSIS OF
data collected has been well organized and presented. I hope the
research findings and conclusion will be of use.
“There are no tree of money but if you invest it in right place it will
give good return.” This sentence spread a good massage in market .now
financial market is very big market, it have a lot of opportunity not only for
big investor but also small investor. Main object of this research is analyzing
the investment option in Market .

• To find the best investment option for different categories of

investment for different goal.
• Study of Liquidity, Risk and Return of each investment options.
• To find out preference of the investors for investment options

• Primary data is collected through internet and personal interview. The
sample group was different age groups and their investment products.
• Secondary data was collected from the websites of various research
agency and also from magazines like Business India, Business world
• Data Analysis by using Graph and table.

• Indian market is very big market and by using some sample data we
cannot analyze whole investor.
• Market is volatile and there are no any Scientific method which give
exact result for Future market.

Savings form an important part of the economy of any nation. With savings
are invested in many forms of investment options available, the money acts
as the driver for growth of the country. Indian financial scene too presents a
plethora of avenues to the investors.

We, Indians work hard for our entire life to earn our living. Out of that
we save some part in a hope that it will be used for our future to make it
happy and reliable. These savings are generally invested with a hope to get
good returns from it. So, this invested money earns us profit in a regular
course. These profit margins depend upon the different investment options
available in the market. Below are mentioned some of the basic and most
opted for investment options to suit all financial situations.

Investment options:
We can divide investment options in two categories. They are mainly, real
investments and financial investments. Real investments include
investments made to buy house, car or machinery which are real assets.
Financial investments include investing funds in buying some shares, mutual
funds or bonds which are financial assets.

In a more generalized form there are the below mentioned investment

options available.

• PERSONAL INVESTMENTS: These are a type of financial

investments wherein we can save our money as savings in a bank and
get interest on the invested amount. These are very general form of
• STOCK MARKET INVESTMENTS: In these form of investments we
can invest our money in stocks and earn profits or make losses
depending on the stock's performance in the market. It is a complex
form of investment wherein we are continuously required to keep an
eye on the market performance.
• REAL ESTATE INVESTMENTS: These are a type of property
investments wherein we can invest our money in buying a house or a
piece of land. We can use the real estate for personal residential or
commercial use or can rent or lease it for commercial or residential
purposes. Here we get a good profit margin and at the same time our
assets are increased.
• BUSINESS INVESTMENTS: We can invest our money in our own
business instead of investing it with some other source. This is a good
method of investing our money and at the same time setting
something for ourselves.

There are many companies and advisors to guide people regarding the
selection of a particular investment option. They analyze the market
situation and refer a suitable investment option for people. People can take
their help if they want to reduce their risks and increase their profits. There
are even many investment brokers and investment analysts to help people
with the process of investment.

About the Tata Group:

The Tata Group comprises 98 operating companies in seven business

sectors: information systems and communications; engineering; materials;
services; energy; consumer products; and chemicals. The Group was
founded by Jamsetji Tata in the mid 19th century, a period when India had
just set out on the road to gaining independence from British rule.
Consequently, Jamsetji Tata and those who followed him aligned business
opportunities with the objective of nation building. This approach remains
enshrined in the Group's ethos to this day.

The Tata Group is one of India's largest and most respected business
conglomerates, with revenues in 2006-07 of $28.8 billion (Rs129,994 crore),
the equivalent of about 3.2 per cent of the country's GDP, and a market
capitalization of $72.8 billion as on January 10, 2008. Tata companies
together employ some 289,500 people. The Group's 27 publicly listed
enterprises — among them stand out names such as Tata Steel, Tata
Consultancy Services, Tata Motors and Tata Tea — have a combined market
capitalization that is the highest among Indian business houses in the
private sector, and a shareholder base of over 2.9 million. The Tata Group
has operations in more than 85 countries across six continents, and its
companies export products and services to 80 countries.

The Tata family of companies shares a set of five core values: integrity,
understanding, excellence, unity and responsibility. These values, which
have been part of the Group's beliefs and convictions from its earliest days,
continue to guide and drive the business decisions of Tata companies. The
Group and its enterprises have been steadfast and distinctive in their
adherence to business ethics and their commitment to corporate social
responsibility. This is a legacy that has earned the Group the trust of many
millions of stakeholders in a measure few business houses anywhere in the
world can match.
About American International Group, Inc. (AIG)

American International Group, Inc. (AIG), a world leader in insurance and

financial services, is the leading international insurance organization with
operations in more than 130 countries and jurisdictions. AIG companies
serve commercial, institutional and individual customers through the most
extensive worldwide property-casualty and life insurance networks of any
insurer. In addition, AIG companies are leading providers of retirement
services, financial services and asset management around the world. AIG's
common stock is listed on the New York Stock Exchange, as well as the
stock exchanges in Paris, Switzerland and Tokyo.

About Tata Aig Life Insurance Company Ltd.

Tata AIG Life Insurance Company Limited, which is a joint venture between
Tata Group and American International Group, Inc. (AIG), offers a number of
standard and custom-made life insurance policies. Tata is one of the oldest
and leading business groups of India. Tata Group has had a long association
with India's insurance sector being the largest insurance company in India
prior to the nationalization. American International Group, Inc (AIG) is the
leading U.S. based international insurance and financial services

Tata AIG General Insurance Company Limited (Tata AIG General) is a joint
venture company, formed by the Tata Group and American International
Group, Inc. (AIG). Tata AIG General combines the Tata Group’s pre-eminent
leadership position in India and AIG’s global presence as the world’s leading
international insurance and financial services organization. The Tata Group
holds 74 per cent stake in the insurance venture with AIG holding the
balance 26 percent. Tata AIG General Insurance Company, which started its
operations in India on January 22, 2001, offers complete range of general
insurance for motor, home, accident & health, travel, energy, marine,
property and casualty, liability as well as several specialized financial lines.

According to The Economic Times, Tatas are more reputed than Google,
Microsoft (published on 11th May, 2009 in The Economic Times). They are at
11th position in the trust factor, way ahead of Disney (21th), Google (23rd),
SBI (29th), Microsoft (30th), INFOSYS (39th), Nokia (45th), L&T (47th), Maruti
Suzuki (49th), Hindustan Unilever (70th), & ITC (96th).

The list is made on the basis of admiration, trust and good feeling that
consumers have towards a company. Other Indian companies that are in the
list of top 200 are Canara Bank, HPCL, Wipro, Reliance, M&M, and Bharti
Airtel, BPCL, Punjab National Bank. The report revealed that corporate trust
is higher in the emerging markets, while companies in industrialized markets
are trusted less.

Tata-AIG Life Insurance Company is a joint venture between the Tata Group
(74% equity stake) and American International Group Inc. (AIG) (26% equity
stake). The company offers a broad range of life insurance products to
individuals and groups. The products offered to individuals are variations of
term life with or without a savings element, e.g., endowment policies and
money back policies. Tata-AIG Life has been in operation since April 2001
(incorporated on Aug 23, 2000). While the company itself is relatively new,
the Tata group is widely known in Indian households.

The Tata Group is one of the oldest and largest industrial conglomerates in
India. Established in 1868, it has interests in engineering, consumer
products, chemicals, financial services, hotels, information technology and
telecommunications. With over 80 companies, and with revenues close to
1.8% of the country’s GDP, the Tata brand is very well respected across the
socioeconomic classes. Most importantly, it manufactures a large variety of
goods that are highly visible to low-income households, like consumer
goods, trucks and automobiles that bear the Tata logo. Having been around
for over a century, the name Tata introduces immediate credibility in its
micro insurance operations. Agents selling micro insurance products are
able to assure potential clients that such a large conglomerate would have
little interest in stealing their miniscule (in relative terms) premiums.

AIG is the one of the world’s largest insurers. Aside from its massive pool of
in-house technical capacity, it has experience working on micro insurance in
Uganda.7 Although Tata is the largest shareholder in Tata-AIG; AIG manages
the company with strategic guidance from AIG’s Hong Kong office. Tata-AIG
was among the few private sector insurance players to have a well-known,
reputable local brand, but it did not have a strategic banking alliance with
domestic banks or branch presence in smaller towns that could enable it to
promote micro insurance sales. As a result, its micro insurance strategy had
to be developed around other partner organizations to enable the insurer to
penetrate rural areas. Rural India comprises of over 650 000 villages with
over half of them having a population of less than 500. Even the state relies
on NGOs to provide services to remote and poorly connected locations. For
Tata-AIG’s rural programme, it was evident that the main partners would
need to be NGOs. Fortunately, Tata has the reputation of having contributed
to community development over the years. Substantial parts of the group’s
profits go into a trust and several social organizations across the country
receive grants and assistance from these trusts. The link with Tata helped to
create a climate in which many NGOs were favorably disposed towards Tata-

Although AIG was forced to find a local partner to get a license to do

business in India, the choice of
Tata, with its excellent reputation in the development community, made it
an invaluable partnership.
This was especially significant in India where many multinational
corporations have faced significant difficulties in entering the India market.

Tata-AIG embraced micro insurance as an opportunity, rather than purely as

a cost of doing business in India. Ian Watts, the CEO, envisioned a need for a
separate rural and social strategy and created a separate department, the
de facto micro insurance division. The importance of micro insurance is
reflected in the organizational chart. The CEO had the foresight to recognize
that micro insurance was not simply a matter of selling existing policies
cheaply, but required new products and distribution mechanisms. Crucially
the CEO approved of the distribution of resources towards micro insurance
and the hiring of a specialized micro insurance team. He gave it space to
think creatively about how the sustainable promotion and servicing of micro
insurance products might work. The CEO has been supportive of the micro
insurance programme for a variety of reasons. Most obviously, the insurer is
compelled to meet the rural and social sector obligations. That said, many
insurers have simply seen the obligations as a cost of doing business in
India. They have responded to the obligations by essentially selling only the
required quantity of policies, and there are reports that those have been
poorly serviced. Tata-AIG could have responded in this way, but instead saw
micro insurance as a marketing opportunity. Although micro insurance would
not make much profit (if any) initially, it helps get Tata-AIG’s brand name out
into the market place. With India’s high growth rate, it is possible that
today’s micro insurance policyholder will be tomorrow’s high value client. In
particular, research by the National Council of Applied Economic Research
has predicted rising levels of overall wealth in both the rural and urban areas
of India, The IRDA is very concerned with the promotion of micro insurance.
By engaging so positively with micro insurance, Tata-AIG was able to
strengthen its relationship with the regulator. Its micro insurance
programme has generated considerable publicity for Tata-AIG because it is
innovative. Much of the media in India is hostile or at least suspicious of the
multinational corporations. The micro insurance activities helped promote a
positive image of Tata-AIG.

Core Values:
Integrity: We must always conduct our business with fairness, honesty and
transparency, so that we can at all times stand public scrutiny. We will never
undermine the heritage of trust that comes with the Tata brand.
Entrepreneurship: we would encourage innovative ideas for individual and
organizational development. This thinking would be fostered, encouraged
and recognized for enhancing business. We would take delight in stretching
our goals and each of us would have a sense of ownership and responsibility
for all our business dealings.
Agility: We will encourage an organizational culture and structures that has
capacity for change. Flexibility and adaptability will be critical to our
operations. We will aim for nimble, flexible and customized responses at all
times to all our stakeholders.
Excellence: All our activities must be driven by a passion for excellence.
We must strive, uncompromisingly, to achieve the highest standards in our
daily work and in the quality of the goods and services we offer. We would
endeavor to achieve 'best in class' status in all our processes and results.
Unity: We must work cohesively with our colleagues, customers and
partners around the world, leveraging synergies and building strong
networks based on collaboration and mutual cooperation.
To be a competitive value provider in international business for Group
companies and all our partners.

Become a globally networked enterprise seizing opportunities worldwide to
generate USD 25 million annual profits by.

Vivid Description of Vision:

• Achieved aggressive and profitable growth of our 5 core businesses
and initiated new businesses

• Become a cohesive, integrated and synergized global entity providing

horizontal and vertical reach and infrastructure to all our partners

• Consistently achieved customer delight by focusing on value adding

activities throughout our value chain

• Achieved best partner status with Group Companies in international

business on a sustained basis

• A strong global supply base for world class goods and services

• Become a learning and knowledge rich organization acknowledged as

thought leaders in international business

• Institutionalized Tata Business Excellence Model and achieved best in

class status

• Effective and responsive systems and processes that will underpin our
business decisions to manage risks
• Become an exciting organization which attracts and retains best talent
worldwide for global competitiveness

• Become a proactive, integral and responsible member of our

environment and communities
Besides company funds, the micro insurance team has been able to harness
external funds. In September 2002, DfID put out the bidding process for its
Financial Deepening Challenge Fund, a matching grant for which the private
sector could bid based on innovative ideas to each the poor. Tata-AIG bid for
an assistance of £89 500 ($168 620) and committed matching funds to the
tune of £104 000 ($195 520). The FDCF grant is being used for product
development, capacity building, and physical and communication
infrastructure like vans and the Internet portal.

Profit allocation and distribution:

Tata-AIG is private company and all profits generated by the company go to
its owners (shareholders). The exception to this is with endowment policies
where regulations require that 90% of profits must be returned to


Tata-AIG has NGO partnerships with over 50 NGOs. Over 40% of its 35 000
social sector policies were sold through the partner-agent model. In this
model, the NGO/MFI partner performs the sales and servicing functions,
primarily for its current microfinance clients. The two other models, the
business associate model and the CRIG model, account for the remaining
60% of the new business and are described in more detail below.
TATA-AIG organizational chart:
Source: official website
SWOT analysis of insurance industry:

• Premium rates are increasing • Companies are slow respond to

and so are commissions changing needs
• The variety of products are • Increasing trend of financial
increasing weakness among the companies
• Customers expects more • More competitors for agencies to
services from their brokers compete with banks & internet

• Ability to cross sell financial • Increasing cost and need for
services barely being tapped insurance might hit a point where
• Technology is improving to a backlash will occur
that point that paperless • Increasing expenses and lower
transactions are available profit margins can hit smaller
• Client’s increasing need for agencies and insurance
insurance consultant can companies
open new ways to service the
client and generate income

There are many investment options available for the people in the market,
but there are mainly five investment options, which are considered to be as
most popular and most effective investment options available in the current
market scenario. In general, almost 95-98% people do invest in these, since
the Expected Rate of Return is much higher than any other investment
options, irrespective of the amount of risk is very high in some of the cases.
These investment options are:

This investment option is most popular and safest option available in the
market. With almost every working people invest in fixed deposits; this
investment option leads the chart of four investment options because of its
safety and popularity. Though the amount of return is much lesser than the
other three options, this option heads the table as it has almost no risk of
losing the invested amount. Also, it is the oldest among the other three, so
the trust factor of people is very high.

There are mainly three types of fixed deposits available in the market,
namely, viz.

1. Fixed deposits offered by Banks

2. Fixed deposits offered by Post Offices


3. Company fixed deposits

1. Fixed deposits offered by Banks:

Considered as the safest of all options, banks have been the roots of the
financial systems in India. Promoted as the means of social development,
banks in India have indeed played an important role in not only urban
areas, but also in rural upliftment. For an ordinary person though, banks
have acted as the safest avenue wherein a person deposits money and
earns interest on it. The two main modes of investment in banks, savings
accounts and fixed deposits have been effectively used by one and all.

However, today the interest rate structure in the country is headed

southwards, keeping in line with global trends. With the banks offering just
above in their fixed deposits for one year, the yields have come down
substantially in recent times. Add to this, inflammatory pressure in the
economy and we have a position where the savings are not earning. The
inflation is creeping up almost 8% at times, this means the value of money
saved goes down instead of going up. This effectively mars any chance of
gaining investments from the banks.

Banks in India can be categorized into non-scheduled banks and

scheduled banks. Scheduled bank constitute of commercial banks and co-
operative banks. There are about 67,000 branches of Scheduled banks
spread across India. During the first phase of financial reforms, there was a
nationalization of 14 major banks in 1969.

As far as the present scenario is concerned the banking industry is in a

transition phase. The Public Sector Banks (PSBs), which are the foundation of
the Indian Banking system account for more than 78 per cent of total
banking industry assets.

On the other hand the Private Sector Banks in India is witnessing immense
progress. They are leaders in Internet banking, mobile banking, phone
banking, ATMs. On the other hand the Public Sector Banks are still facing the
problem of unhappy employees. There has been a decrease of 20 percent in
the employee strength of the private sector in the wake of the Voluntary
Retirement Schemes (VRS).

Below ONE Year

Foreign Banks

15- 30- 46- 61- 91- 120- 180- 271-

29 45 60 90 120 179 270 364
days days days days days days days days
ABN-Amro Bank 3.00 3.00 3.00 3.00 3.00 3.75 4.75 4.75
Barclays 2.75 3.00 3.00 3.25 3.50 3.50 4.75 5.25
Citi Bank 2.75 3.00 3.50 3.75 4.50 5.00 5.75 6.00
DBS Bank 2.50 3.00 3.00 3.25 3.25 3.25 4.25 5.25
Standard Charted Bank 2.75 2.75 2.75 3.50 3.75 3.75 4.75 4.75
The Bank of Nova Scotia 3.00 3.50 3.50 3.50 4.50 4.50 5.00 5.00
The HongKong & Shanghai 2.60 2.80 2.80 3.00 3.50 3.50 3.90 4.25

Indian Banks - Public Sector

15- 30- 46- 61- 91- 120- 180- 271-

BANK NAME / DURATION 29 45 60 90 120 179 270 364
days days days days days days days days
Allahabad Bank 3.00 3.00 4.00 4.00 5.00 5.00 5.50 5.50
Andhra Bank 3.00 3.00 4.00 4.00 5.00 5.00 5.50 5.50
Bank of Baroda 3.00 3.00 4.00 4.00 5.00 5.00 5.50 5.00
Bank of India 2.75 3.00 4.00 4.00 5.00 5.00 5.75 6.00
Bank of Maharashtra 3.00 3.00 3.75 4.00 5.00 5.00 5.75 6.00
Canara Bank 2.75 2.75 4.00 4.00 5.00 5.00 5.50 5.50
Central Bank of India 3.25 3.25 3.75 3.75 5.00 5.00 5.75 6.25
Corporation Bank 2.75 3.00 4.00 4.00 5.00 5.00 6.00 6.25
Dena Bank 2.50 2.75 3.75 3.75 4.75 4.75 5.50 5.50
IDBI Bank 3.25 3.25 4.25 4.25 5.50 5.50 6.25 6.25
Indian Bank 2.50 3.00 3.50 3.50 3.50 4.00 5.50 5.50
Indian Overseas Bank 2.50 3.00 3.50 3.50 3.50 4.00 5.50 5.50
Oriental Bank of Commerce 2.75 3.00 4.00 4.00 5.00 5.00 5.50 5.50
Punjab & Sind Bank 2.00 2.00 4.00 4.00 5.00 5.00 6.00 6.25
Punjab National Bank 2.75 2.75 4.00 4.00 4.50 4.50 5.50 5.50

State Bank of India 2.50 2.50 3.50 3.50 4.75 4.75 5.25 5.25
State Bank of Mysore 3.00 3.00 4.00 4.00 5.00 5.00 6.00 6.00
State Bank of Patiala 3.00 3.00 4.00 4.00 5.25 5.25 6.00 6.00
State Bank of Travancore 3.00 3.00 4.00 4.00 5.25 5.25 6.25 6.25
Syndicate Bank 2.50 2.50 3.50 3.50 4.75 4.75 5.50 5.50
UCO Bank 3.00 3.00 4.00 4.00 5.50 5.50 6.50 6.50
Union Bank of India 3.00 3.00 4.00 4.00 4.25 4.25 5.00 5.50
United Bank of India 2.25 2.50 3.50 3.50 4.75 4.75 5.50 5.50
Vijaya Bank 3.00 3.00 4.00 4.00 5.00 5.00 6.00 6.25

Indian Banks - Private Sector

15- 30- 46- 61- 91- 120- 180- 271-

29 45 60 90 120 179 270 364
days days days days days days days days
Axis Bank 2.50 3.00 3.50 4.00 4.50 4.50 6.00 6.25
City Union Bank 4.00 4.00 4.00 4.00 5.00 5.00 6.50 6.50
Development Credit Bank 4.00 4.00 4.75 4.75 4.75 5.50 6.75 7.50
HDFC Bank 2.50 3.00 3.50 3.75 4.50 4.50 5.50 6.50
ICICI Bank 2.75 2.75 3.50 3.50 5.25 5.25 6.00 6.00
IndusInd Bank 2.75 3.00 3.50 4.00 5.25 5.25 6.25 6.75
ING Vysya Bank 3.25 3.50 3.50 4.00 4.75 4.75 5.00 5.00
Karnataka Bank 3.50 3.50 4.00 4.00 5.00 5.00 6.00 6.00
Kotak Bank 2.75 3.00 3.25 3.25 3.50 3.50 4.50 5.00
Tamilnadu Mercantile Bank 3.00 3.00 4.00 4.00 5.00 5.00 6.00 6.00
The Bank of Rajasthan Ltd 3.00 3.00 4.00 4.00 5.25 5.25 5.75 5.75
The Catholic Syrian Bank 3.00 3.00 4.00 4.00 5.25 5.25 6.25 6.25
The Dhanalakshmi Bank 3.00 3.00 4.00 4.00 5.25 5.25 6.25 6.25
The Federal Bank 3.00 3.00 4.00 4.00 5.25 5.25 6.25 6.25
The J & K Bank 2.75 3.25 3.50 3.50 4.75 4.75 5.75 5.75
The Karur Vysya Bank 3.50 3.50 4.50 4.50 5.75 5.25 6.00 6.25
TNSC Bank 4.00 4.00 4.50 450 5.00 5.00 6.00 6.00
Yes Bank 2.50 3.00 3.50 4.00 4.50 4.50 6.00 6.00
ONE year - FIVE years
Foreign Banks

BANK NAME / 1 year < 2 2 years < 3 3 years < 5

DURATION years years years
ABN-Amro Bank 6.00 6.50 6.50
Barclays 6.25 7.00 7.25
CitiBank 6.25 6.75 6.75
DBS Bank 5.75 7.25 7.75
Standard Charted Bank 5.00 6.25 7.00
The Bank of Nova Scotia 5.00 5.00 5.00
The HongKong & Shanghai 4.75 5.50 5.50

Indian Banks - Public Sector

1 year < 2 2 years < 3 3 years < 5

years years years
Allahabad Bank 6.50 6.75 7.00
Andhra Bank 6.50 6.50 7.00
Bank of Baroda 6.50 7.00 7.00
Bank of India 6.50 6.50 6.50
Bank of Maharashtra 6.50 6.50 7.00
Canara Bank 6.25 6.75 7.00
Central Bank of India 6.50 6.75 7.00
Corporation Bank 6.75 7.00 7.00
Dena Bank 6.50 6.75 7.00
IDBI Bank 6.75 7.25 7.25
Indian Bank 6.25 6.75 6.75
Indian Overseas Bank 6.25 6.50 6.75
Oriental Bank of Commerce 6.50 6.75 7.00
Punjab & Sind Bank 7.00 7.25 7.25
Punjab National Bank 6.50 6.75 7.00
State Bank of Bikaner & Jaipur 6.75 7.00 7.25
State Bank of Hyderabad 7.00 7.00 7.25
State Bank of India 6.00 6.50 6.50
State Bank of Mysore 6.50 6.75 7.00
State Bank of Patiala 6.75 7.00 7.25
State Bank of Travancore 7.00 7.25 7.25
Syndicate Bank 6.25 6.50 7.00
UCO Bank 7.00 7.00 7.50
Union Bank of India 6.00 6.50 6.75
United Bank of India 6.25 6.25 6.50
Vijaya Bank 7.00 7.00 7.25

Indian Banks - Private Sector

BANK NAME / 1 year < 2 2 years < 3 3 years < 5

DURATION years years years
Axis Bank 6.75 7.10 7.00
City Union Bank 7.00 7.00 7.25
Development Credit Bank 7.50 7.50 7.50
HDFC Bank 7.25 7.50 6.00
ICICI Bank 6.25 7.00 7.50
IndusInd Bank 7.25 7.25 7.75
ING Vysya Bank 5.25 5.75 5.75
Karnataka Bank 7.00 7.25 7.50
Kotak Bank 5.75 6.25 6.25
The Dhanalakshmi Bank 7.25 7.25 7.50
The Federal Bank 7.25 7.25 7.50
The J & K Bank 6.75 7.25 7.75
The Karur Vysya Bank 7.25 7.50 7.75
The Lakshmi Vilas Bank 7.00 7.75 8.25
The South Indian Bank 7.25 7.25 7.50
TNSC Bank 7.00 6.75 6.75
Yes Bank 6.50 7.10 7.00
Source: various bank’s websites

2. Fixed deposits offered by Post Offices:

Just like banks, post offices in India have a wide network. Spread across the
nation, they offer financial assistance as well as serving the basic
requirements of communication. Among all saving options, Post office
schemes have been offering the highest rates. Added to it is the fact that
the investments are safe with the department being a Government of India
entity. So the two basic and most sought features, those of return safety and
quantum of returns were being handsomely taken care of.
Though certainly current market position is not the most efficient
systems in terms of service standards and liquidity; these have still
managed to attract the attention of small, retail investors. However with the
government investing its intention of reducing the interest rates in small
savings options, this avenue is expected to lose some of the investors.
Public Provident Funds act as options to save for the post retirement period
for most people and have been considered good option largely due to the
fact that returns were higher than most other options and also helped
people gain from tax benefits under various sections. This option too is likely
to lose some of its sheen on account of reduction in the rates offered.
3. Company fixed deposits:

Another oft-used route to invest has been the fixed deposit schemes floated
by companies. Companies have used fixed deposit schemes as a means of
mobilizing funds for their options and have paid interest on them. The safer
a company is rated, the lesser the return offered has been the thumb rule.
However, there are several potential roadblocks are there.
Firstly, of all the danger of financial positions of the company not being
understood by the investor lurks. The investors rely on intermediaries who
more often than not, don’t reveal the entire truth.

Secondly, liquidity is a major problem with the amount being received

months after the due dates. Premature redemption is generally not
entertained without cuts in the returns offered and though they present a
reasonable option to counter interest rate risk (especially when the economy
is headed for a low interest regime), the safety of amount has been found
lacking. Many cases like the Kuber Group and DCM Group fiascoes have
resulted in low confidence in this option.

The Indian Stock Market is also the other name for Indian
Equity Market or Indian Share Market. The forces of the market depend on
the monsoons, global funding flowing into equities in the market and the
performance of various companies. The market of equities is transacted on
the basis of two major stock indices, National Stock Exchange of India Ltd.
(NSE) and The Bombay Stock Exchange (BSE), the trading being carried on
in a dematerialized form. The physical stocks are in liquid form and cannot
be sold by the investors in any market.

The equity indexes are correlated beyond the boundaries of different

countries with their exposure to common calamities like monsoon which
would affect both India and Bangladesh or trade integration policies and
close connection with the foreign investors. From 1995 onwards, both in
terms of trade integration and FIIs India has made an advance.

Indian Equity Market at present is a lucrative field for the investors and
investing in Indian stocks are profitable for not only the long and medium-
term investors, but also the position traders, short-term swing traders and
also very short term intra-day traders. In terms of market capitalization,
there are over 2500 companies in the BSE chart list with the Reliance
Industries Limited at the top. The SENSEX today has rose from 1000 levels to
8000 levels providing a profitable business to all those who had been
investing in the Indian Equity Market. There are about 22 stock exchanges in
India which regulates the market trends of different stocks. Generally the
bigger companies are listed with the NSE and the BSE, but there is the
OTCEI or the Over the Counter Exchange of India, which lists the medium
and small sized companies.
In the Indian market scenario, the large FMCG companies reached the top
line with a double-digit growth, with their shares being attractive for
investing in the Indian stock market. Such companies like the Tata Tea,
Britannia, to name a few, have been providing a bustling business for the
Indian share market. Other leading houses offering equally beneficial stocks
for investing in Indian Equity Market, of the SENSEX chart are the two-
wheeler and three-wheeler maker Bajaj Auto and second largest software
exporter Infosys Technologies.

Thus, the growing financial capital markets of India being encouraged by

domestic and foreign investments is becoming a profitable business more
with each day. If all the economic parameters are unchanged Indian Equity
Market will be conducive for the growth of private equities and this will lead
to an overall improvement in the Indian economy.

Now apart from all these, the first question that comes in our mind is,

Why do so many people invest in shares?

Simply put, you want to invest in order to create wealth. While investing is
relatively painless, its rewards are plentiful. To understand why you need to
invest, you need to realize that you lose when you just save and do not
invest. That is because the value of the rupee decreases every year due to
inflation. Historically shares have outperformed all the other investment
instruments and given the maximum returns in the long run. In the twenty-
five year period of 1980-2005 while the other instruments have barely
managed to generate returns at a rate higher than the inflation rate
(7.10%), on an average shares have given returns of about 17% in a year
and that does not even take into account the dividend income from them.
Were we to factor in the dividend income as well, the shares would have
given even higher returns during the same period.
[Inflation: general rise in prices and wages caused by an increase in the
money supply and demand for goods, and resulting in a fall in the value of
money. Inflation occurs when most prices rise by some degree across the
Investment options Returns per annum

Stock market 17%

Bank fixed deposits 8%

Gold 5.7%

Advantages of investing in shares:

There are lots of advantages of investment in share market. Some of these

Dividend income: investments in shares are attractive as much for the

appreciation in the share prices as for the dividends their companies pay

Tax advantages: shares appear as the best investment option if you also
consider the unbeatable tax benefits that they offer. First, the dividend
income is tax-free in the hands of investors. Second, you are required to pay
only a 10% short term capital gains tax on the profits made from
investments in shares, if you book your profits within a year of making the
purchase. Third, you don't need to pay any long-term capital gains tax on
the profits if you sell the shares after holding them for a period of one year.
The capital gains tax rate is much higher for other investment instruments: a
30% short-term capital gains tax (assuming that you fall in the 30% tax
bracket) and a 10% long-term capital gains tax.

Easy liquidity: shares can also be made liquid anytime from anywhere (on you can sell a share at the click of a mouse from anywhere
in the world) and the gains can be realized in just two working days.
Considering the high returns, the tax advantages and the highly liquid
nature, shares are the best investment option to create wealth.
How people earn from the investment in shares?
Shares can give us returns in two forms.

A. Appreciation in share prices: You buy shares with the belief that their
price will increase and that when this happens you will be able to sell off
your shares and earn profit. For example, if you bought a share for Rs100
three years ago and it is Rs500 today, then you have earned Rs400 in three

B. Dividend: when a company makes profits, it can choose to share part of

its profits with its shareholders by paying out dividend. This dividend is paid
as a percentage of the face value of the share. For example, a company may
declare a dividend of 25%. Then if the face value of its share is Rs10 you will
get Rs2.50 for every share you own of that company, irrespective of the
market price. In itself this might not be much, but over a longer period of
time or if you have a lot of shares, you could earn quite a bit from the
dividend itself. The best thing about dividends is that they are tax-free in the
hands of investors. Dividend yield stocks are known to give returns higher
than fixed deposits [dividend yield = (dividend per share / market price of
the share) x 100].

What are the expenses during transaction?

Every share transaction attracts some tax or the other. Some of the main
expenses are as follows.

A. Capital gains tax: If you purchase a share and sell it at a price higher
than the purchase price and if this sale is within a year of the purchase, then
a 10% capital gains tax is levied on the profit that you make. For example, if
you bought a share for Rs100 on January 1, 2005 and sold it for Rs150 on
July 1, 2005, then you have to pay a tax of 10% on the Rs50 profit that you
make. If you sell after a year of purchase, there is no tax on the long-term
B. Securities transaction tax: Securities transaction tax (STT) is levied by
the government on every transaction you do on a stock exchange. You don’t
have to pay this separately; it’s collected by your broker. As per the Union
Budget 2005 the STT will be 0.10% on delivery-based transactions and
0.02% on intra-day transactions.

C. Brokerage: Brokers get a commission on every trade that they do for

you. This commission varies from broker to broker; at the
brokerage is 0.5% for delivery-based transactions and 0.10% for intraday
transactions. On the brokerage amount you are required to pay a service tax
to the government (to be collected by the broker). The brokerage varies
depending on the service that the broker provides you. Some brokers, such
as Sharekhan, offer its clients regular updates on companies, multiple
means to transact and customer service support.

D. Depository fees: Since most of the shares exist in a dematerialized

form, every time you buy or sell shares the transactions are being noted by
your DP. The DPs normally levy a charge which is an annual charge or a
charge on each transaction.

Risks ---the only disadvantage in investing in shares:

There are two types of risk associated with this kind of investment:
company specific risk and market risk.

Set of risks that deals with a company and its sector are referred to as
company specific risk.
Examples of company specific risk: bad management, bad marketing
strategies, sector disturbances that have an impact on industry etc.

External factors (economic, global factors) that affect the market as a whole
are referred to as market risk.
Examples of market risk: political instability, high inflation, rupee
depreciation, rising interest rates, global incidents like wars and disasters
that throttle the nation's economy etc.
How company specific risk can be identified?
With careful scrutiny and proper homework, it might be easy to identify and
be forewarned of the risks a company may be carrying. Specifically check
out for the mergers and acquisitions that do not have a real synergy or are a
nightmare after reconciliation (A O L - Time Warner, Hewlett Packard-

Also is suspicious of diversifications that do not really add value to a

company's core offering. A third kind of risk would be with the companies
that have bet their stakes on a single product offering and are high on debt.
Likewise companies that depend on research could be prone to higher risk, if
the research doesn't come to fruition.
How to identify sector driven risk?
If steel prices rise, auto companies get affected. If low cost Chinese products
invade the country's market, then local fast moving consumer goods
companies might find no takers for their products. The changing nature of
the industry itself may lead to dipping stock prices; a print publication may
see revenue loss if everyone moves to reading on the Internet.

How to predict market risk?

It is difficult to predict market risks. The only thing we can say here is that
start noticing all the small signs early. If the election results are feared to
lead to a fall in the stock market, notice the signals beforehand. Read Sebi's
bulletins and track companies whose shares prices are very volatile.
How people can minimize their risk and maximize their return?
Buy when stocks are falling, sell when these are rising. This works well when
you are a long-term investor and there is an extended bear or Bull Run.
Don't try to second guess or predict that the market will fall today and rise
tomorrow. Even seasoned investors cannot do that!

2. Don't try to guess the market's favorites

Your instincts might tell you that pharma or technology stocks are hot due to
certain policies or events, but remember millions of investors have already
guessed that and bought these stocks. The prices of these stocks would
therefore be at a higher level when you buy them. Instead focus on the long
term and don't get swayed by short-term events.

3. Aim for the long haul

Short-term investing is prone to higher risks. When investing in stocks, aim
to get good returns after a period of three to five years at the minimum. Also
churn your portfolio periodically and based on the progress that a company
makes in a quarter or in six months, decide whether to hold the stock or get
out of it.
4. Avoid hot tips
You may have overheard some news about a stock or your friend may
advise that a particular stock is all geared to move up. Avoid such tips like
the plague and your investments will remain safe.
5. Blue-chips are safe bets
Blue-chip companies are there because they have done well in the past and
have a high market capitalization. It is a likely guess that they will maintain
their track record and give you higher returns even in future. Therefore
invest in companies that have a good track record.
6. Slow and steady stream of investments
Set aside a certain portion of your earnings every month and invest that
sum in shares irrespective of the market conditions. This way, over a period
of time you can amass a substantial number of shares of the stocks in your
7. Think portfolio
Don't put all your earnings in a single stock. Try to have a diverse portfolio
of stocks. This way even if one stock doesn't do well, you are still well
protected. Also invest across sectors, since any problem in one sector would
affect all stocks in the sector. As a thumb rule, if you have investments of up
to Rs50, 000 invest in two to three stocks. For about Rs150, 000 invest in
Mutual funds:

three to five stocks, for around Rs500, 000 have five to seven stocks and
around ten stocks for higher amounts.

8. Don’t invest all your savings

Always maintain a core set of reserves. You should never touch these
reserves for investing, so that even in the worst case you still have some
money. Typically these reserves should be your salary of about six months.

9. Be level-headed
Invest wisely, don't get swayed by rumors and allow Sharekhan to be your
guide at all times. Investment success won't happen overnight, so avoid
overreacting to short term market swings.

Mutual Funds are essentially investment vehicles where people with

similar investment objective come together to pool their money and then
invest accordingly. Each unit of any scheme represents the proportion of
pool owned by the unit holder (investor).

Mutual Funds in India are financial instruments. These funds are collective
investments which gather money from different investors to invest in stocks,
short-term money market financial instruments, bonds and other securities
and distribute the proceeds as dividends. The Mutual Funds in India are
handled by Fund Managers, also referred as the portfolio managers. The
Securities Exchange Board of India regulates the Mutual Funds In India. The
share value of the Mutual Funds in India is known as net asset value per
share (NAV). The NAV is calculated on the total amount of the Mutual Funds
in India, by dividing it with the number of shares issued and outstanding
shares on daily basis.


• The Mutual Funds in India offer flexibility by means of dividend

reinvestment, systematic investment plans and systematic withdrawal
• These funds are available in small units, so they are affordable to the
small investors.
• The fees charged for to the custodial, brokerage and others services
are very low in case of Mutual Funds in India.
• These funds have the option of redeeming or withdrawing money at
any point of time.
The Mutual Funds in India have low risk as it is managed professionally.

Like most developed and developing countries the mutual fund cult has been
catching on in India. The important reasons for this interesting occurrence

• Mutual funds make it easy and less costly for investors to satisfy their
need for capital growth, income and/or income preservation.
• Mutual fund brings the benefits of diversification and money
management to the individual investor, providing an opportunity for
financial success that was once available only to a select few.
Understanding Mutual funds is easy as it's such a straightforward concept. A
mutual fund is a company that pools the money of many investors, its
shareholders to invest in a variety of different securities.
Investments may be in stocks, bonds, money market securities or some
combination of these.
For the individual investor, mutual funds propose the benefit of having
someone else manage your investments and diversify your money over many
different securities that may not be available or affordable to you otherwise.
A mutual fund, by its very nature, is diversified -- its assets are invested in
many different securities. Beyond that, there are many different types of
mutual funds with different objectives and levels of growth potential,
furthering your odds to diversify.

Benefits of mutual

Investing in mutual has various benefits, which makes it an ideal investment


Professional investment management :

One of the primary benefits of mutual funds is that an investor has access to
professional management. A good investment manager is certainly worth the
fees you will pay. Good mutual fund managers with an excellent research
team can do a better job of monitoring the companies they have chosen to
invest in than you can, unless you have time to spend on researching the
companies you select for your portfolio. That is because Mutual funds hire
full-time, high-level investment professionals. Funds can afford to do so as
they manage large pools of money. The managers have real-time access to
crucial market information and are able to execute trades on the largest and
most cost-effective scale. When you buy a mutual fund, the primary asset you
are buying is the manager, who will be controlling which assets are chosen to
meet the funds' stated investment objectives.
Diversification :

A crucial element in investing is asset allocation. It plays a very big part in

the success of any portfolio. However, small investors do not have enough
money to properly allocate their assets. By pooling your funds with others,
you can quickly benefit from greater diversification. Mutual funds invest in a
broad range of securities. This limits investment risk by reducing the effect of
a possible decline in the value of any one security. Mutual fund unit-holders
can benefit from diversification techniques usually available only to investors
wealthy enough to buy significant positions in a wide variety of securities.
Low Cost :

A mutual fund let's you participate in a diversified portfolio for as little as

Rs.5, 000, and sometimes less.

Convenience and Flexibility :

Investing in mutual funds has its own convenience. While you own just one
security rather than many, you still enjoy the benefits of a diversified portfolio
and a wide range of services. Fund managers decide what securities to trade
collect the interest payments and see that your dividends on portfolio
securities are received and your rights exercised. It also uses the services of a
high quality custodian and registrar. Another big advantage is that you can
move your funds easily from one fund to another within a mutual fund family.

Liquidity :

In open-ended schemes, you can get your money back promptly at net asset
value related prices.

Transparency :

Regulations for mutual funds have made the industry very transparent. You
can track the investments that have been made on your behalf and the
specific investments made by the mutual fund scheme to see where your
money is going. In addition to this, you get regular information on the value
of your investment.
Variety :

There is no shortage of variety when investing in mutual funds. You can find
a mutual fund that matches just about any investing strategy you select.
There are funds that focus on blue-chip stocks, technology stocks, bonds or a
mix of stocks and bonds. The greatest challenge can be sorting through the
variety and picking the best for you.

Mutual fund risks:

Having understood the basics of mutual funds the next step is to build a
successful investment portfolio. Before you can begin to build a portfolio, one
should understand some other elements of mutual fund investing and how
they can affect the potential value of your investments over the years. The
first thing that has to be kept in mind is that when you invest in mutual funds,
there is no guarantee that you will end up with more money when you
withdraw your investment than what you started out with.
That is the potential of loss is always there. Even so, the
opportunity for investment growth that is possible through investments in
mutual funds far exceeds that concern for most investors. Here's why.

At the cornerstone of investing is the basic principal that the greater the risk
you take, the greater the potential reward. Risk then, refers to the volatility --
the up and down activity in the markets and individual issues that occurs
constantly over time. This volatility can be caused by a number of factors --
interest rate changes, inflation or general economic conditions. It is this
variability, uncertainty and potential for loss, that causes investors to worry.
We all fear the possibility that a stock we invest in will fall substantially.
Different types of mutual funds have different levels of volatility or potential
price change, and those with the greater chance of losing value are also the
funds that can produce the greater returns for you over time. You might find
it helpful to remember that all financial investments will fluctuate. There are
very few perfectly safe havens and those simply don't pay enough to beat
inflation over the long run.

Number of available options:

• Diversification
• Professional Management
• Potential of returns
• Liquidity
Besides these important features, mutual funds also offer several other key
Important among them are:
• Well Regulated
• Transparency
• Flexible
• Affordable and a Low Cost affair
Structure of the Indian mutual fund industry:
The Indian mutual fund industry is dominated by the Unit Trust of India, which
has a total corpus of Rs. 700bn collected from more than 20 million investors.
The UTI has many schemes in all categories i.e. equity, balanced, income etc
with something open ended and some being closed ended. The unit scheme
1964 commonly referred to as US 64, which is a balanced fund, is the biggest
scheme with a corpus of about Rs. 200bn. UTI was floated by financial
institution and is govern by a special act of parliament. Most of its investors
believe that the UTI is government owned and controlled, which, while legally
uncorrected, is true for all practical purposes.
Recent trends in mutual fund industry:
The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline of the
companies floated by nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early
nineties and got off to a good start due to the stock market boom prevailing
them. These banks did not really understand the mutual fund business and
they just viewed it as another kind of banking activity. Few hired specialized
staff and generally chose to transfer staff from the parent organizations. The
performance of most of the schemes floated by these funds was not good.
Some schemes had offered guaranteed returns and their parent organizations
had to bail out these AMCs by paying large amounts of money as the
difference between the guaranteed and actual returns. The service levels
were also very bad. Most of these AMCs have not been to retain staff, float
new schemes etc, and it is doubtful whether, barring a few exceptions, they
have serious plans of continuing the activity in a major way.

The foreign owned companies have deep pockets and have come in here with
the expectation of a long haul. They can be credited with introducing many
new practices such as new product innovation, sharp
Improvement in service standards and disclosure, usage of technology,
broker education and support etc. In fact, they have forced the industry to
upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided by

Schemes of a Mutual Fund:

• The asset management company shall launch no scheme unless the
trustees approve such scheme and a copy of the offer document has been
filed with the Board.

• Every mutual fund shall along with the offer document of each scheme pay
filing fees.
• The offer document shall contain disclosures which are adequate in order to
enable the investors to make informed investment decision including the
disclosure on maximum investments proposed to be made by the scheme in
the listed securities of the group companies of the sponsor A close-ended
scheme shall be fully redeemed at the end of the maturity period. “Unless a
majority of the unit holders otherwise decide for its rollover by passing a

Rules Regarding Advertisements:

• The offer document and advertisement materials shall not be misleading or
contain any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

• The price at which the units may be subscribed or sold and the price at
which such units may at any time be repurchased by the mutual fund shall be
made an available to the investors.

Restrictions on Investments:
• A mutual fund scheme shall not invest more than 15% of its NAV in debt
instrument issued by a single issuer, which are rated not below investment
grade by a credit rating agency authorized to carry out such activity under
the Act. Such investment limit may be extended to 20% of the NAV of the
scheme with the prior approval of the Board of Trustees and the Board of
Asset Management Company.

• A mutual fund scheme shall not invest more than 10% of its NAV in unrated
debt instruments issued by a single issuer and the total investment in such
instruments shall not exceed 25% of the NAV of the scheme. All such
investments shall be made with the prior approval of the Board of Trustees
and the Board of Asset Management Company.

• No mutual fund under all its schemes should own more than ten percent of
any company’s paid up capital carrying voting rights.
• Such transfers are done at the prevailing market price for quoted
instruments on spot basis. The securities so transferred shall be in conformity
with the investment objective of the scheme to which such transfer has been

Introduction to insurance:

The business of insurance is related to the protection of the economic values

of the assets. Every asset has a value. The asset would have been created
through the efforts of the owner. The asset is valuable to the owner, because
he expects some benefits from it. It is a benefit because it meets some of his
needs. But every asset is expected to last for a certain period of time during
which it will provide the benefits. After that the benefit may not be available.
The owner is aware of this and he can so manage his affairs that by the end
of that period or life-time, a substitute made available. Thus he makes sure
that the benefit isn’t lost. Here comes the thought of insurance.
Purpose and needs of insurance:

Assets are insured, because they are likely to be destroyed or made non-
functional before the expected life time, through accidental occurrences are
called perils. Fire, floods, breakdowns, lightning, and earthquakes such
things are called perils. If such perils can cause damage to the assets, we say
that the asset is exposed to that risk. Perils are the events. Risks are the
consequential losses or damages.

The risk only means that there is a possibility of loss or damage. The damage
may or may not happen, but the word ‘possibility’ implies uncertainty.
Insurance is relevant only if there are uncertainties. If there is no uncertainty
about the occurrence of an event, it can’t be insured against.

Insurance doesn’t protect the asset. It does not prevent its loss due to the
peril. The peril can’t be avoided through the insurance. The risk can
sometimes be avoided, through better safety and damage control measures.
Insurance only tries to reduce the impact of the risk on the owner of the asset
and those who depend on that asset. They are the ones who benefit from the
asset and therefore, would lose, when the asset is damaged. Insurance only
compensates for the losses-and that too, not fully.

Classification of risks:

Risks are classified in various ways. One classification is based on the extent
of the damage likely to be caused. They are,

a) Critical or catastrophic risks: this may lead to the bankruptcy of the


b) Important risks: may not spell doom, but may upset family or business
finances badly, require a lot of time to recover.

c) Unimportant risks: like temporary illness or accidents.

d) Financial risks : Financial risk is an umbrella term for

any risk associated with any form of financing.
e) Non-financial risks

f) Dynamic risks: caused by perils which have national consequence, like

inflation, technology etc.

g) Static risks: caused by perils which have no consequence on the

national economy, like a fire or theft?

h) Fundamental risks: that affects large populations.

I) Particular risks: affects only specific persons.

j) Pure risks

k) Speculative risks

An example of how insurance works:

In a village, there are 4000 houses, each valued at Rs.20000. Every year, on
an average, 4 houses get burnt, resulting into a total loss of Rs.80000.if all
the 400 owners come together and contribute Rs.200 each, the common
fund would be Rs. 80000. This would be enough to pay Rs.20000 to each of
the 4 owners whose houses got burnt. Thus the loss of Rs.20000 each of 4
owners is shared by 400 house-owners of the village, bearing Rs.200 each.
This works out to 1% of the value of the house, which is the same as the
probability of risk (4 out of 400 houses).

The business of insurance:

Insurance companies are called insurers. The business of insurance is to,

• Bring together persons with common insurance interests (sharing the

same risks)
• Collect the share or contribution (called premium) from all of them
• Pay out compensations (called claims) to those who suffer from the

The premium is determined on the same lines, but with further refinements.
In India, insurance business is classified primarily as life and non-life or
general. Life insurance includes all risks related to the lives of human beings
and general insurance covers the rest. General insurance has 3
classifications viz. fire (dealing with all fire related risks), marine (dealing
with all transport related risks and ships) and miscellaneous (dealing with all
others like liability, fidelity, motor, crop, etc). Personal accident and sickness
insurance, which are related to human beings, is classified as ‘non-life’ in
India but is classified as ’life’, in many other countries. What is ‘non-life’ in
India is termed ‘property and casualty’ in some other countries.

In India, the IRDA has, in 2005, issued regulations enabled micro insurance
(broadly meaning insurance for small sums assured, like 5-50 thousands) to
be done by both life and general insurers on the basis of mutual tie-ups. A
policy may be issued by a life insurer covering both life and non-life risks,
but premium on account of the non-life business will be passed on to a
general insurer and the claim amount collected from the latter.

The insurer is in the position of a trustee as it is managing the common fund,
for and on behalf of the community of policyholders. It has to ensure that
nobody is allowed to take undue advantage of the arrangement. That means
that the management of the insurance business requires care to prevent
entry (into the group) of people whose risks are not of the same kind as well
as playing claims on losses that are not accidental. The decision to allow
entry is the process of underwriting of risk. Underwriting includes assessing
the risk, which means, making an evaluation of how much is the exposure to
risk. The premium to be charged depends on this assessment of the risk.
Both underwriting and claim settlements have to be done with great care.

Insurance companies are taking risks they have to pay claims as and when
they occur. They cannot be sure when the claim will occur and how big the
claim may be. This is so because of the very nature of the perils. Insurers
normally are financially sound enough to be able to pay claims. But there
are limits. An event like the tsunami or hurricane may generate claims
amounting of crores of rupees, which may put a very heavy strain on the
reserves of the insurer. Insurers protect themselves from such situations,
which may be beyond their capacity, by reinsuring the risk with other
insurers. If there is a claim, the burden is shared by the primary insurer and
the reinsurers.

Advantages of life insurance:

Life insurance has no competition from any other business. Many people
think that life insurance is an investment or a means of saving. This is not
the correct view. When a person saves, the amount of fund available at any
time is equal to the amount of money set aside in the past, plus interest.
This is so in the fixed deposit in a bank, in national savings certificate, in
mutual funds or any other savings instruments. If the money is invested in
buying shares and stocks, there is the risk of the money being lost in the
fluctuations of the stock market. Even if there is no loss, the available
money at any time is the amount invested plus appreciation. In life
insurance, however, the fund available is not the total of the savings already
made (premiums paid), but the amount one wished to have at the end of the
savings period (which is next 20/30 years). The final fund is secured from
the very beginning. One is paying for it over the years, out of the savings.
One has to pay for it only as long as one life or for a lesser period, if so
chosen. The assured fund is not affected. There is no other scheme which
provides this kind of benefit. Therefore life insurance has no substitute.

A comparison with other forms of savings will show that life insurance has
the following advantages:

• In the event of death, the settlement is easy. The heirs can collect the
moneys quicker, because of the facility of nomination and assignment.
The facility of nomination is now available for some bank accounts,
provident fund etc…
• There is a certain amount of compulsion to go through the plan of the
savings. In other forms, if one changes the original plan of savings,
there is no loss. In insurance, there is a loss.
• Creditors can’t claim the life insurance moneys. They can be protected
against the attachments by courts.
• There are tax benefits, both in income tax and in capital gains.
• Marketability and liquidity are better. A life insurance policy is property
and can be transferred or mortgaged. Loans can be raised against the
• It is possible to protect a life insurance policy from being attached by
debtors. The beneficiaries’ interest will remain secure.

The following tenets help agents to believe in the benefits of the life
insurance. Such faith will enhance their determination to sell and their

• Life insurance is not only the best possible way for family protection.
There is no other way.
• Insurance is the only way to safeguard against the unpredictable risks
of the future. It is unavoidable.
• The terms of life are hard. The term of insurance is easy.
• The value of human life is far greater than the value of any property.
Only life insurance can preserve it.
• Life insurance is not surpassed by any other savings or investment
instrument, in terms of security, marketability, stability of value or
• Insurance, including life insurance, is essential for the conservation of
many businesses, just as it is in the preservation of homes.
• Life insurance enhances the standards of living.
• Life insurance helps people live financially solvent lives.
• Life insurance perpetuates life, life, liberty and the pursuit of
• Life insurance is a way of life.

Life insurance products:

There are various products available in the market. Life insurance products
are usually referred to as ‘plans’ of insurance. These plans have two basic
elements. One is the ‘death cover’ providing for the benefit being paid on
the death of the insured person within a specific period. The other is the
‘survival benefit’ providing for the benefit being paid on survival of a
specific period.

Plans of insurance that provide only death cover are called ‘term
assurance ’plans. Those that provide only survival benefits are called
‘pure endowment’ plans.

All traditional life insurance plans are combinations of these two basic plans.
A term assurance plan with an unspecified period is called a ‘whole life
policy’ under which the sum assured is paid on death, whenever it may

In recent times, ‘linked’ policies have become popular. These are very
different from the traditional plans of insurance.

Some popular plans:

The cheapest form of assurance is the term assurance plan. Under this,
the SA is payable on the death of the insured during the specified period. If
death doesn’t occur, there is no payment from the insurer. The SA may be
kept constant throughout the period, or be made to increase or decrease
during the period.

Term assurances, by themselves, are not very popular, as there is no saving

content. Surviving policyholders feel that they got nothing out f the policy.
They are useful only when death cover is required and other arrangements
are available for survival benefits. Term assurances form part of linked

In a whole life plan, the SA becomes payable only on death whenever it

may occur. But unlike a term assurance plan, some payment will be made at
some time. Although n case of whole life policies, the sum assurance is
payable on death, some insurers pay the sum assured, when the life assured
completes say, 80 years. In an endowment plan, the sum assured is
payable on survival to the end of term on earlier death.

A marriage endowment plan has nothing to do with the contingency of

the marriage. It only stipulates the date on which the sum assured will be
paid, even if the life insured dies early. That date can be chosen to coincide
with the age of a son or daughter, for whose marriage the sum assured
would come in handy.
Similarly, the educational annuity plan is not an annuity. It is an ordinary
endowment plan, which states that the sum assured would be paid on
installments, commencing from a date, which may be chosen as the likely
date when the child may be old enough for higher education.

An interesting plan is a term assurance plan for a specified term, at the

end of which the premiums paid till date is refunded, but cover continues
indefinitely thereafter. To a layman, this looks like a free cover being
granted gratis. In effect, the premium is calculated in such a way that the
interest accumulated on the premium during the term, is enough to meet
the single premium cost of the extended cover.

Convertible plans:
Convertible plans of assurance are plans, which provide, in its terms and
conditions, that it can be changed to another plan after, or within, a certain
period after commencement. For example, a convertible term assurance
plan can be converted into a whole life policy or an endowment policy,
within a period specified in the original plan.

The advantage of convertible plan is that, when the right of conversion

is exercised, there would be no further underwriting decision to be made.
There would be no medical examination at that time. So, even if the insured
has an adverse medical condition at that time, the policy of his choice will
not be denied to him. Such policies usually taken by persons in the early
stages of their careers, who expect their financial conditions to improve
soon, but would not like to delay the benefits of insurance till then.
With profit and without profit plans:
‘Without profit’ or ‘non-participating’ policies are not entitled to bonuses,
which are declared after actuarial valuations. ‘With profit’ or ‘participating’
policies pay a slightly higher premium for the right to participate in the
progress of the insurer. Participating policies are popular as the bonuses are
expected to be more than the extra premium paid. Participating policies,
where the premium is payable for a limited period, will continue to
participate even after the premium have ceased.

Joint life policies:

2 or more life can be covered under 1 policy. Such policies usually cover
married couples or partners. The sum assured paid on the death of any of
the insured persons during the term or at the end of the term. Some plans
also provide payment of sum assured, on the death of one life and the policy
is continued to cover the second life till maturity, without payment of further

Children plans:
Insurance can be taken on the lives of children, who are minors. The
proposal will have to make by a parent or guardian.

In these plans, risk on the life of the insured child will begin only when the
child attains a specific age. The time gap between the date of
commencement of the policy and the commencement of the risk is called
the ‘deferment period’.

There is no insurance cover during the deferment period. If the child dies
during the deferment period, the premiums will be returned. Risk will
commence automatically on the deferred date, without any medical
examination. The main advantage of these plans is that the premium
would be relatively low and cover will be obtained irrespective of the state of
health of the child.
These policies have conditions whereby the title will automatically pass on to
the insured child, on his attaining to the age of majority. This process is
called ‘vesting’. The policy anniversary after attaining the age of majority
that is the age of 18, or any later date may be chosen will be the ‘vesting
date’. After vesting, the policy becomes a contract between the insurer and
the insured person.

The vesting date cannot be earlier than 18. This is because there cannot be
a valid contract with a minor. The deferred date however, can be fixed
without such limitation. The vesting date and the deferred date need not be
the same.

Industrial assurance plans:

Industrial assurance plans are designed for the workers with low incomes.
The policies are issued for small sum assures, with weekly premiums. The
arrangements are that the agents will visit the house or place of work of the
policy holder to collect the premiums for every week. The administrative
costs are high for this. Agents have to remunerate differently because they
are expected to visit every policyholder every week, to collect the premium.

Salary savings scheme (sss) policies:

Sss policies, sometimes also called ‘payroll insurance’, are also intended
to cater to the needs of the working classes. The insurer arranges with the
employer to deduct the premium from the salary of the worker policyholder
and remit the same to the insurer’s office every month. This scheme

• To the policyholder, because the premium is deducted, making

premium payment easy and without a default.
• The insurer, as he is assured of the premium without a default and
receives in one remittance the premium of many workers in that
establishment. This makes for lesser administrative costs, and
therefore, the extras, any for monthly modes are not charged although
the collections made monthly.
• The agent, because the chances of lapses are less and he can be
assured of his renewal commission coming regularly.

Because of these benefits, the sss is popular. The amount to be deducted

from the salary is worked out by calculating the premium without adding
extras for monthly mode. The employer makes deduction on the basis of an
authority letter signed by the employee, who is collected with the proposal
and is sent to the employer by the insurer, when the policy is accepted.

An added advantage of sss is that there is a group pressure to buy life

insurance, making the job of an agent slightly easier. The resistance would
be less and the relationship with the group can be strong.

A rider is a clause or condition that is added on to a basic policy providing an
additional benefit, at the choice of the proposer. For example, a provision
that in the event of death of the life assured by accident, the sum assured
would be double can be a rider of an endowment policy. This rider can be
added on to a policy under any plan.

Some of the riders offered by insurers in India are as follows:

• Increased death benefit, being twice or even bigger multiple of the

survival benefit.
• Accident benefit allowing double the sum assured if death happens
due to the accident.
• Permanent disability benefits, covering loss of limbs, eyesight,
hearing, speech etc.
• Premium waiver, which would be useful in the case of children’s
assurances, if the parent die before vesting date or in the case of
permanent disability or sickness.
• Dreaded disease or critical illness cover, providing additional
payments, if the life insured requires medical attention because of
specified ailments like cancer, cardiac or cardiovascular surgeries,
stroke, kidney failure, major organ transplants, major burns, total
blindness caused by illness or accidents etc.
• Cover to meet major surgical expenses.
• Guaranteed increase in cover at specified periods or annually.
• Cover to continue beyond maturity age for same sum assured or
higher sum assured.
• Option to increase cover within specified limits or dates.
• Option to cover spouse without medical examination.

As per the regulations made by IRDA in April 2002 and amended in October

• The premium in all the riders relating to health or critical illnesses, in

the case of term or group products shall not exceed 100% of the
premium of the main policy.
• The premiums on all the riders put together should not exceed 30% of
the main policy.
• The benefits arising under each of the riders shall not exceed the sum
assured under the basic product.

Annuities are practically same as the pensions. Pensions provide regular
periodical payments (usually every month) to employees, who have retired.
They are paid as long as the recipient is alive. Sometimes the pension is also
paid to the dependents after the pensioner’s death. Annuities are also
periodical payments, not necessarily monthly, and are not related to

Annuities are also called ‘reverse’ of life insurance. In annuity contracts, a

person agrees to pay to the insurer a specified capital sum in return for a
promise from the insurer to make a series of payments to him so long as he
lives, while in insurance, the insured pays a series of payments in return for
a promise of a lump sum on his death.

Annuities are paid by insurers in monthly, quarterly, half-yearly or annual

installments, as may be preferred by the annuitant. An annuity can be made

• During the life time of the annuitant, in which case it ceases on his
death. This is called a ‘life annuity’ or ‘annuity for life’
• During the life time of the annuitant or his spouse, whichever is longer
• For a fixed number of years like 5, 10, 15, 20 or 25 years and
thereafter, as long as the annuitant is alive. This is called an ‘annuity
• For a fixed number of years and thereafter till the death of the
annuitant or the annuitant’s spouse
• As long as the annuitant lives and thereafter, at 50% to the spouse as
long as the spouse lives.
• Annuity for life and return of premium on annuitant’s death
• On any of the above terms, but with the annuity increasing every year
by a fixed rate or amount

The annuity may commence immediately after the contract is concluded.

Such annuity is called ‘immediate annuity’. The purchaser of an
immediate annuity pays the purchase price in lump sum. The first
installment will start at the end of the month, quarter, and half year or at the
end of the year as the case may be.

The alternative of an immediate annuity is called ‘deferred annuity’. In

this case, the annuity payment will start after the lapse of a specified period,
called the deferment period. The purchase price can be paid as a single
premium at the commencement or may be paid in installments during the
deferment period.
The annuity will commence at the end of the deferment period, which is
called the vesting date. The amount due on that date can be used to buy
annuities at the rate prevalent on that date, from the same or another
insurer. The annuitant may have the option to receive as a lump sum, a
certain portion of the amount due on that date and use only the balance for
the purchase of annuity. This is called commutation. The lump sum is
called the commuted value.

Group insurance:
Group insurance is a plan of insurance, which provide cover to large number
of individuals under a single policy called the ‘master policy’.

Salient Features:
1. GIS-05 provides a life insurance cover as given in table below to Officers,
Airmen and NCs(E) respectively. Disability insurance cover would be half of
life cover for 100% disability and reduces proportionately up to 20%.

2. With the increased cover, the amount of monthly contribution has also
been increased correspondingly. Thus Officers/Airmen/NCs (E) pay a basic
contribution of Rs. 1365/-, Rs. 700/- and Rs. 250/- per month respectively.
Additional Contribution will be recovered from aircrew as “Flying Extra”.

3. The Survival Benefit under GIS-05 will consists of Saving Element and

4. The facility of final withdrawal from Survival Benefit to meet any financial
commitment before their retirement is available provided the individual is a
member of GIS-05 Scheme.

Insurance Cover and Monthly Contribution:

The amount of insurance cover and monthly contribution are indicated
Category Covers (Rs. Risk Flying Saving Total subs
of In lacs) element extra element


(i) serving 22 330 635 1035 2000

up to 20

(ii) serving 22 330 170 1035 1535

above 20
years but
up to 30

Flying 22 330 nil 1035 1365

with more
than 30
years of

Airmen 11 160 nil 540 700

NCs (E) 4.40 64 nil 186 250

Recovery of Contribution:
The scheme will be effective from 01 Nov 2005. Contribution for the first
month will be recovered through IRLA from the pay and allowances for the
month of Oct 2005.

Death Benefit:
Death benefit includes the cover assured and accumulated balance of
Saving Element of contribution up to the month of death together with
interest and bonus as applicable.

Disability Benefit:
Member who is invalidated out of Indian Air Force by an Invalidating Medical
Board (NOT the Released Medical Board held at the time of
retirement/release) on account of a disability, whether attributable to
service or not, will be eligible for disability benefit at half the life insurance
cover for 100% disability. The disability benefit will be reduced
proportionately depending upon the percentage of disability. In case of
disability of less than 20%, a member will not be eligible for any disability
benefit. Disability benefit is in addition to accumulated balance of saving
element, together with interest and bonus, payable on invalidment from

Members invalidated out of Indian Air Force due to reasons mentioned below
will not be entitled to any disability benefit, irrespective of percentage of
their disability:-

(a) Alcoholism
(b) Drug addiction
(c) Self inflicted injuries.
(d) Disability as a result of attempted suicide.
(e) Any disability arising out of intentional acts resulting in criminal
(f) Invalidment within one year of enrolment due to disability, which is not
attributable to service.

No disability benefit is admissible, if the individual with disability is retained

in service till their completion of term of engagement, dismissal,
superannuation, release on own request or is released from service on his
refusal to accept a change in Branch/ Trade.

Survival Benefit:
Survival Benefit constitutes the saving element of contribution and the
interest earned on it as per the rates declared by the Society every year.
The rate declared at the beginning of each year will be as approved by BoT
of AFGIS based on the likely interest earnings of the Society for the year and
its requisite allocation. The scheme does not cater for the concept of refund
of contribution or the saving element along with interest whichever is higher
as survival benefit.

Survival Benefit accumulated under the earlier schemes will be retained by

the Society till such time the same is repayable to the members on account
of his death/ retirement/ release. The Survival Benefit (excluding Bonus)
accumulated under the old schemes will continue to earn interest as
applicable to GIS-05.

after requisite allocation to various funds and payment of the interest on
saving element as declared at the beginning of the year, if the society
generates excess income by way of interest earnings during the year the
same will be distributed to members as Bonus for the year. The quantum of
such surplus available will decide the quantum/rate of bonus to be paid to
the members. The bonus will be admissible to all those who were members
of the scheme on the last day of year. Bonus does not earn any interest
since the effort of the society will be to maximize interest on Saving
Element. Separate letter will be issued by AFGIS as and when bonus for a
year is approved by Board of Trustees.

Withdrawals from Survival Benefit:

GIS-05 Scheme provides the facility of periodical withdrawal of accumulated
Survival Benefit (including the old schemes but excluding FPLI and Bonus) by
members, without assigning any reason.

Only members of GIS-05 scheme are eligible for withdrawal facility. Any final
withdrawal from Survival Benefit restricts your quantum of loan from AFGIS.
Individuals applying for Final Withdrawal should not have any AFGIS loan

Re-employed Personnel:
Re-employed personnel who are member of GIS-97 Scheme shall
automatically be made members of the GIS-05 Scheme. Personnel who are
reemployed after introduction of the scheme will have the option to become
member, in which case, they will have to refund the survival Benefit element
paid to them at the time of release from regular employment along with the
contribution due for the period from the date of retirement / cessation of
reemployment to the date of re-employment.

In the event of death of a member, the death benefit will be payable to the
beneficiaries nominated by the member for his/ her Provident Fund.

In the absence of valid nomination, the beneficiaries would be wife, minor

children and major unmarried daughters. 50% of the share will be paid to
the wife and the balance will be shared equally between minor children and
major unmarried daughters. In the case wife has pre-deceased, the amount
will be equally shared by minor children and major unmarried daughters. In
case of minor children the amount will be payable to the guardian appointed
by the court. In the absence of such family members, the beneficiaries
would be father and mother in that order. In all other cases a Succession
Certificate from a court of competent jurisdiction would be required to
determine the beneficiary.

Nomination by Exception:
Members who avail House Building Advance from specified Financial
Institutions may execute nomination (AFGIS 225) up to 100% of death/
disability/ survival benefit in favor of the organization advancing the loan.

A member can also nominate any person other than beneficiaries nominated
in DSOP/AFPP Fund by executing AFGIS 223 up to 100% of death benefits.
Prescribed beneficiaries who can be nominated are:-
(a) Male Members: Wife, Parent(s), children, minor brother(s), Unmarried
sister(s), deceased son’s widow and children, paternal grandparent (when no
parent of member is alive).
Survey report:

I had conducted a survey (online) of sample size 54 and got the following

Age Invest

Sl No NAME 18 24- 30- 40 fixed stock mut insura

- 30 40 and depos market ual nce
24 abov its fund
e s

1 Achala y y y

2 Amit y y Y

3 Bimlesh y y Y

4 Bharat Y y

5 Nitesh y y Y

6 Rakesh y y y

7 Rani y y y

8 Divya y y y y

9 Kamles y y Y

10 mukesh Y y y

11 Sayyd y y y
12 Purva y y Y

13 Suman y y

14 Milind y y y

15 Uday Y y y

16 Siddhar y y y

17 Minaxhi y y y y

18 Pranali y y y

19 Dipti y y y

20 Nlita y y y

21 Manisha y y

22 manas Y y y y y

23 Anil y y

24 Ravi y y y

25 Nitin y y

26 Azhar y y y

27 Surya y y y

28 Sai nath Y y y

29 Pankaj Y y y

30 Atul y y y

31 Pratixa y y y

32 Himans y y

33 Harnes Y y y

34 Kadar y y

35 Pradeep y y y y

36 Aman y y y

37 Mehul Y y

38 Sancho y y

39 Ankur y y y

40 Mansi y y y y

41 Aniket Y y

42 Venka y y y

43 Taresh Y y y

44 Nandini y y y

45 Palash y y y

46 Tilak y y

47 Rahul Y y

48 Prashan y y y

49 Supriya y y y

50 Sneha Y y y

51 Richa y y

52 Saloni y y y y y

53 Nokolka y y y

54 Naj y y y

So, after decorating the above data age wise and choice of investment
option wise, we get the following table:

age no of investment
people options

fixed stock market mutual insuranc

deposit funds e

18-24 14 7 10 7 3

24-30 12 8 6 4 4

30-40 16 3 13 5 6

40 & 12 8 8 5 5

total 54 26 37 21 18

So, if we draw a graph of table-2, then we get,

Therefore, we can easily see from the chart that majority of people like to
invest in the stock market, even though market situation is not so good and
there is so much risk available.

Now, if we see what % of people like to invest in which investment option in

the following pie chat, then,
So, we can see from the above pie chart that 36% people like to
invest in the stock market, irrespective of the volatility of the
market. Then comes fixed deposit with 25% people likes to play
safe, as it is the safest option available in the market.

Now, let us see which age group is more prone to play safe,
which is, like to invest in fixed deposits.

Therefore, we can see from the above chart that people

of age group 24-30 and above 40 years don’t like to take
much risk may be because these are the settlement
periods of their life.

Now, let us see which age group likes to take the highest
possible risk in the following chart.
So, we can see from the above chart that people of age group 30-40 likes to
take more risk, as they became more financially stable by that age and have
fewer responsibilities.

Now, we will see that which age group likes to take moderate risk in the
following chart.

So, we can see that people of age group 18-24 like to invest in mutual fund,
as it has moderate risk.

Lastly, in the following chart, we will see that which age group likes to take
very less risk and wants higher return in the long term.

So, we can see from the above chart that people of age group 30-40 more
likely to invest in insurance, as by that time they think about the future and
long term return.
Conclusions &
Conclusions & Recommendations:

Therefore from the survey, whatever I got, here is the

gist of all of them:
• People are more inclined to invest in the stock
market, irrespective of the market scenario and the
level of risk.
• Majority of the people wants higher return in short
period of time that is why they prefer to invest in
stock markets and mutual funds rather than any
other form of investments.
• People between ages 30-40 think about long term
returns as well as higher return in short period of
time that is why they invest in stock market for short
period of time and in insurance for long term return.
• People between ages 18-24 don’t have much money
to invest and they can’t take higher risk, so they
invest in mutual funds which are of moderate risk.
• People between ages 24-30 wants to be financially
stable that is why they don’t like to take risk at all.
So, they invest in the bank’s fixed deposit scheme
which has almost no risk and lower return.
• Three tips for all type Investor:
I. Invest early
II. Invest regularly
III. Invest in long-terms


• IRDA book
• Various bank’s websites