Roles and Functions of AMC and

Insurance Firms
By
Santosh Kumar
Agenda of the Discussion
 Let us understand the role of mutual funds, products and its
role in capital market
 Role and functions of insurance firms and their products
What is mutual fund
 Mechanism of pooling resources from the public by issuing
units to them and investing the funds , so collected in
securities in accordance with objectives as disclosed in an
offer document.
 Investors are called as unit holder
 Profit or loss in the funds are on pro-rata basis
 Mutual funds are registered with SEBI and subjected to the
approval under SEBI guidelines
Management of Mutual Funds
 Mutual fund is set up in the form of a trust, which has
sponsors, trustees, AMC and custodians
 Trust is established by a sponsor or more than one
 Sponsor is analogous to promoter of the company
 Trustees of the mutual fund hold its property for the benefit
of the unit holders
 AMC invests the funds in various securities
Cont.
 Custodian registered with SEBI holds the securities of the
various schemes of the fund in its custody
 Trustees are entrusted with the responsibility of
superintendence and direction over the AMC
 2/3 of trustee directors are independent
 50% of the directors of AMC must be independent
Types of Mutual Funds Scheme
From Maturity Point
 Open Ended: available for subscription and repurchase any time.
Liquidity is continual in nature. No fixed maturity period.
 Closed Ended: Specified maturity period. Open for subscription
for a limited period
From Investment Objective Point ofView
 Growth Fund...
1. Capital appreciation over medium to long term period.
2. Equity Oriented.
3. Highly Risky
Cont.
 Income Fund
1. Debt Oriented Scheme
2. Regular and Steady Income
3. Invested in fixed income securities
4. Less Risky
5. Less sensitive to market
6. NAV depends on interest rate prevailing in the market (
Lower interest rate leads to higher NAV)
Cont.
 Balanced Plan/Scheme
1. Equity and debt invested
2. Growth and income both
3. Moderate volatility and moderate return
 Money Market/Liquid Fund
1. Income funds with higher liquidity
2. Invested in T bills, CD, CP and call money market
 Gilt Fund: Exclusive investment in Govt. Securities with
zero default risk.
Cont.
 Index Fund: Replicate the portfolio of a particular index.
Weightage of securities in the fund will be similar to that of
index.
 Sector Specific Funds
 Tax Savings Scheme (ELSS): Growth oriented with min lock
in period
 Fund of Funds: Invests in other schemes of mutual fund
 Gold ETF : Invested in Gold
Rajiv Gandhi Equity Savings Scheme
 New equity tax advantage savings scheme with the objective
of encouraging the savings of small investors in the domestic
capital markets
 Permitted in 2012-13
 Tax benefits up to Rs 50000 for new investors for the
individuals with less than Rs 12 lakhs income per year.
Mode and Place of Investment
 One time
 Systematic Investment Plan (SIP), SWP, and STP

Redemption Value: NAV – exit load

But for mutual fund investment, we need a large network of

distributors with customers interface. Mutual funds pay around
1.5-2.5 % of the business canvassed to the distributors. Thus banks
seem to accommodate best as the financial supermarket.
Advisors should pass the AMFI Certification Test (advisory module)
to sell mutual fund products ( SEBI Guidelines)
Insurance Companies
 Very old industry in India ( started in 1818 in Kolkata)
 LIC had monopoly till late 90s
 Last two decades, many private players entered
 But the penetration and density in Indian Insurance Industry
is still less than optimum
 Till 2000, two main players:
1. Life Insurance Corporation of India Ltd. In life insurance
segment
2. General Insurance Corporation of India Ltd. In general
insurance segment
Cont.
 GIC has four subsidiaries
1. The Oriental Insurance Company Limited
2. The New India Assurance Company Limited
3. National Insurance Company Limited
4. United India Insurance Company Limited

From 2000 onwards, GIC has been made reinsurer and the four
subsidiaries have been delinked from parent company and
made independent entities.
Opening up of the Insurance Sector
 Since 1999 , insurance sector was opened up for private players
 We can check the status of recent in IRDA report
 Total Life Insurance Firms: 24
 Total General Insurance Firms: 28
 Total Reinsurance Firm: 1
IRDA is an autonomous body to regulate and develop the
business of insurance and reinsurance. It is entrusted
with the responsibility of requisite regulations in the
areas of registration of insurers, their conduct of
business, solvency margins, conduct of reinsurance
business, licensing and code of conduct of
intermediaries.
What is Insurance
 Contract between two parties, where one promises the other
to indemnify or make good any financial loss suffered by the
latter ( the insured) in consideration for an amount received
by way of ‘premium’.
 Contract is called as policy
 Used to protect the economic value of the asset or life under
consideration
Types of Insurance
 Life Insurance:
1. deals with insurance of individuals, groups or pension plans.
2. Risk covered is death, sickness, disability
3. Not a contract of indemnity ( exact value can’t be determined)
4. Premium = f( mortality table)
 Non-Life Insurance:
1. Deals with property, liability and miscellaneous insurance
2. Premium =f( past loss experience, probable risk factors, and fixed
tariff plan)
3. Contract of indemnity ( exact loss can be determined)
Insurance available as
 Life
1. term plan.....only death benefits till maturity
2. endowment plan.....death and investment benefits
3. pension plan.....retirement benefits only
 Health ( individual or family floater)
 Travel ( domestic/overseas)
 Motor ( Liability Only Policy and Damages to the vehicle)
 Property/ Fire/Burglary
 Marine Cargo Insurance.....insurance for transit by rail, road, air,
water, courier, parcel etc.
 Group Insurance: for well being of a group of people
Other Aspects of Business
 Insurance Intermediaries: individual or broking firm licensed
by IRDA
 Insurance Ombudsman: Handles insurance grievances (
located in 12 cities)
 FDI 49% permitted in Insurance
 Social Security Scheme .....Swablamban, Swabhiman, Jan
Dhan Account Features
Bancassurance
 Selling of insurance products through banks
 In 2000, Govt. Of India amended the Banking Regulation Act
allowing Indian banks to participate in insurance distribution
channel subjected to RBI approval.
 It is another source of income for the banks with advanced
convenience to the customers
 It is win-win situation for banks and insurance firms. It is
complementary in nature.