Roles and Functions of AMC and

Insurance Firms
By
Santosh Kumar
Advisory for students
You may register for mutual fund exam
( advanced ) ....................NCFM

Keep reading articles in Valueresearchonline.com

Good value addition especially for prospective

recruiters
1. HDFC AMC
2. ICICI Bank
3. HDFC Bank
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
Look like this
Mutual Funds Equity Market

Net Asset Values (NAV) Market Price (MP)

Unit Holder Shareholder

Managed by fund managers Managed by brokers or myself

Management of Mutual Funds
Mutual fund is set up in the form of a trust, which has
sponsors (promoters), trustees ( policy making and
monitoring), AMC (operation) and custodians
( inventory)
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 of View
Growth Fund...
1. Capital appreciation over medium to long term period.
2. Equity Oriented.
3. Highly Risky
Fund manager may invest like this
Growth Blend Value

Large

Medium

Small
You know basic finance jargons
CAGR ( compounded annual growth rate)...high
Beta..............it depends
Sharpe Ratio...........( Excess Return per unit of risk)
Treynor Ratio ( Excess return per unit of systematic
risk
Jensen Alpha ( Contribution of managers)
Double Indexation
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
Fund of Fund
Confused between similar types of fund

Similar rating

Similar performance of fund manager

Same sector or theme

Better to go for fund of funds to avoid confusion and

reduce risk
ETF Helpline
Exchange traded fund

Gold ETF

NIFTY 50 ETF

NIFTY next 50 ETF

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)
Helpline
SIP............systematic investment plan

SWP .....systematic withdrawal plan

STP......systematic transfer plan

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.