Vous êtes sur la page 1sur 86

INTRODUCTION

1.1 Asset Allocation Asset Allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon. The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time. There is no simple formula that can find the right asset allocation for every fund. However, the consensus among most financial professionals is that asset allocation is one of the most important decisions that fund managers make. In other words, the selection of individual securities is secondary to the way fund managers allocate the fund assets in stocks, bonds, and cash and equivalents, which will be the principal determinants of the funds performance. Asset-allocation of funds, also known as life-cycle, or target-date, funds, are an attempt to provide customers with portfolio structures based on the variety of funds that address a customers age, risk appetite and investment objectives with an appropriate apportionment of asset classes. However, critics of this approach point out that arriving at a standardized solution for allocating portfolio assets is problematic because every fund managers invests differently. 1.2 Fund Management Fund Management is the professional management of various securities and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment

contracts and more commonly via collective investment schemes e.g. mutual funds or Insurance). The term Fund management is often used to refer to the investment management of collective investments, while the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of 'investment management services' includes elements of financial statement analysis, asset selection, stock selection, plan

implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of yen, dollars, euro, pounds and yen. Coming under the ambit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Fund manager refers to both a firm that provides investment management services and an individual who directs fund management decisions.

1.3 Fund Manager The person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the fund's average assets under management.

1.4 Size of the global fund management industry Conventional assets under management of the global fund management industry increased by 14% in 2009, to $71.3 trillion. Pension assets accounted for $28.0 trillion of the total, with $22.9 trillion invested in mutual funds and $20.4 trillion in insurance funds. Together with alternative assets (sovereign wealth funds, hedge funds, private equity funds and exchange traded funds) and funds of wealthy individuals, assets of the global fund management industry totaled over $105 trillion, an increase of 15% on the previous year. The increase in 2009 followed a 18% decline in the previous year and was largely a result of the recovery in equity markets during the year. Part of the reason for the increase in dollar terms was the depreciation in the value of the US dollar against a number of currencies in 2009. The US remained by far the biggest source of funds, accounting for around a half of conventional assets under management or some $36 trillion. The UK was the second largest centre in the world and by far the largest in Europe with around 9% of the global total.

1.5 Performance measurement Fund performance is often thought to be the acid test of fund management, and in the institutional context, accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms compile aggregate industry data, e.g., showing how funds in general performed against given indices and peer groups over various time periods.

In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quartile and decile data and close attention would be paid to the ranking of any fund. Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions). An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realized capital gains (and not unrealized). It is thus possible that successful active managers may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer.

1.6 Risk-adjusted performance measurement


Performance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement: evaluating if managers have succeeded in reaching their objective, i.e. if their return was sufficiently high to 4

reward the risks taken; how they compare to their peers; and finally whether the portfolio management results were due to luck or the managers skill. The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate in modern portfolio theory. Modern portfolio theory established the quantitative link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance measure. It measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it does not allow the separation of the performance of the market in which the portfolio is invested from that of the manager. The information ratio is a more general form of the Sharpe ratio in which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it evaluates portfolio performance in reference to a benchmark, making the result strongly dependent on this benchmark choice. Portfolio alpha is obtained by measuring the difference between the return of the portfolio and that of a benchmark portfolio. This measure appears to be the only reliable performance measure to evaluate active management. In fact, we have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to the managers skill (or luck), whether through market timing, stock picking, or good fortune. The first component is related to allocation and style investment choices, which may not be under the sole control of the manager, and depends on the economic context, while the second component is an evaluation of the success of the managers decisions. Only the latter, measured by alpha, allows the evaluation of the

managers true performance (but then, only if you assume that any outperformance is due to skill and not luck). Portfolio return may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on the CAPM and explains portfolio returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns very well and that other factors have to be considered. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and a more accurate evaluation of a portfolio's performance. For example, Fama and French (1993) have highlighted two important factors that characterize a company's risk in addition to market risk. These factors are the book-to-market ratio and the company's size as measured by its market capitalization. Fama and French therefore proposed three-factor model to describe portfolio normal returns (Fama-French three-factor model). Carhart (1997) proposed to add momentum as a fourth factor to allow the short-term persistence of returns to be taken into account. Also of interest for performance measurement is Sharpes (1992) style analysis model, in which factors are style indices. This model allows a custom benchmark for each portfolio to be developed, using the linear combination of style indices that best replicate portfolio style allocation, and leads to an accurate evaluation of portfolio alpha. In life insurance the funds collected for traditional policies go to life fund. Those funds are managed by the insurance company based on the IRDA regulations. The new form of investment in insurance is through ULIPs (Unit Linked Insurance Policies). These are also regulated by IRDA but here the collected fund is invested in various assets to generate high return compared to normal policies which provide risk cover and a small return. Here the role of fund manager is to make such a portfolio, which will generate a continuous return to the investors. Fund manager has to have a close look on the portfolio growth and structure. Because the investors invest in ULIPs only when they need both risk cover and return. Most of them dont have the needed knowledge to invest in equity market 6

efficiently. Here the fund manager comes in to help. He will be a knowledgeable person who should be aware of the market behavior.

1.7 Theoretical Back Ground ULIPs Meaning A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy varies according to the current net asset value of the underlying investment assets. It allows protection and flexibility in investment, which are not present in other types of life insurance such as whole life policies. The premium paid is used to purchase units in investment assets chosen by the policyholder How ULIPs work ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance companies. Units are bought according to the plan chosen by the policyholder. On every additional premium, more units are allotted to his fund. The policyholder can also switch among the funds as and when he desires. While some companies allow any number of free switches to the policyholder, some restrict the number to just three or four. If the number is exceeded, a certain charge is levied. Individuals can also make additional investments (besides premium) from time to time to increase the savings component in their plan. This facility is termed "topup". The money parked in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy. In case of the insured person's untimely death, the amount that the beneficiary is paid is the higher of the sum assured (insurance cover) or the value of the units (investments). However, some schemes pay the sum assured plus the prevailing value of the investments.

Types of ULIPs ULIPs for retirement planning ULIPs for long term wealth creation ULIPs for child education ULIPs for health solutions

Recent modification in ULIPs by IRDA Initial charges: Premium paid by investors in ULIPs is partly used for insurance and partly for making investments. However, for the first 2 -3 years of the term of the policy, insurance companies charged heavily. Sometimes insurance companies diverted as much as 80 percent of the premium payments towards these charges. Initial charges are basically used for administration charges, processing fees etc. Therefore the charges should be extremely low. Facility to surrender policy: Sometimes policyholders need immediate funds, and then they opt to surrender their policy. But the problem is, the long term consequences of surrendering the policy early had an adverse impact on the policyholder's investments. The surrender charges on policy were high. Some companies confiscated up to 60 per cent of the policy value in case the policyholder surrendered his policy. ULIPs give back most when its invested as long term basis. Hence early withdrawal should be discouraged. Advantages 1. The accretion to the fund invested can be checked on daily basis unlike the traditional policies.

2. There is lot more flexibility like partial withdrawal, switching, redirection, early withdrawal, Sum Assured reduction, top up contribution, etc.... 3. Charges are transparent in nature, with the latest AML guidelines insisting on common nomenclature of charges for all insurance companies. 4. The customer can time the market by exercising switch options and make the most when markets are zooming or choose to be conservative when markets are falling. Its thus win-win situation 5. He gets a life cover at a nominal cost unlike mutual funds, 6. Stages in one life like education of children, marriage, and retirement needs can be soundly planned by the help of ULIPs. 7. Tax advantages are also offered by the ULIPs.

Disadvantages 1. Investors find it difficult to understand capital market and how ulips works 2. ULIPS are attractive for risk taking people and less attractive for risk adverse people 3. Some consider taking term insurance and a mutual fund as a combination to beat the ULIP. 4. Some consider charges levied exorbitant and not commensurate to the returns offered. 5. The complicated design of the policies makes them less aware of the product features and chances of misuse by agents are very high.

The Role of a fund Manager The Prime Goal of a Fund Manager is to monitor and manage the securities (in the form of stocks, bonds amongst others) to meet the investment goals and objectives of the customers (investors). The services include financial analysis on the investments, the assets that are invested upon and the stocks selected. The plan and strategy that is implemented is also to be closely monitored so that in 9

the longer run, risks on loosing out on major dividends can be avoided. A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments. The art of managing investments is an important aspect in its own right and involves a lot of money at a single moment taking care of trillions of dollars, euro, pounds and yen and other major Global economies. The budget of an investment management firm directly depends on the Asset Allocation that is made by the Fund Manager for the investors. Asset Allocation involves a lot of money at stake at a go, because at one time you are investing one more than one commodity. Moreover Asset Allocation has more predictive power than the choice of individual holdings in determining portfolio/investment return. The real test and skill proof of a Fund Manager truly lies in handling asset allocations and individual investments separately so that the competition that the investment faces from other competing funds is handled with care. Another important factor that a Fund Manager has got to take care of is the diversification in assets once an investment is being made. It is always advisable to investors to invest in more then one commodities at a time. A fund does fluctuate and varies with market conditions, so if an investor looses out on the dividend from one investment he has the other to gain from. As it is people investing in Mutual Funds do gain from long term returns. There are numerous ways to invest in a Fund. It depends upon the risk you are willing to undertake and your expected dividends from your investments. Fund performance is the main test of fund management and for the investment management firm as well. In order to be sure that fund they are monitoring, the firm measures the performance of each fund they are managing. The performance of a Fund shouldn't be decided on the returns provided alone, as there are several other factors associated with it. Whether the return was worth the risk taken, Performance of the fund compared to their competitors and finally whether the portfolio management results were due to luck or the manager's skill. A Fund Manager is hence compared to God when it comes to Fund Investments. 10

ULIPs is almost similar to Mutual funds. Only difference in ULIPs is it covers the risk also.

Major Problems For fund Management Companies

revenue is directly linked to market valuations, so a major fall in asset prices causes a precipitous decline in revenues relative to costs;

above-average fund performance is difficult to sustain, and clients may not be patient during times of poor performance;

successful fund managers are expensive and may be headhunted by competitors;

above-average fund performance appears to be dependent on the unique skills of the fund manager; however, clients are loath to stake their investments on the ability of a few individuals- they would rather see firmwide success, attributable to a single philosophy and internal discipline;

Analysts who generate above-average returns often become sufficiently wealthy that they avoid corporate employment in favor of managing their personal portfolios.

11

INDUSTRY PROFILE

THE INSURANCE INDUSTRY IN INDIA AN OVERVIEW With the largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. Its a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 1560.41 billion .Together with banking services, it adds about 7% to the countrys Gross Domestic Product (GDP). The gross premium collection is nearly 2% of GDP and funds available with LIC for investments are 8% of the GDP. Even so nearly 65% of the Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. A large part of our population is also subject to weak social security and pension systems with hardly any old age income security. This in itself is an indicator that growth potential for the insurance sector in India is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and strengthens the risk taking ability of individuals. It is estimated that over the next ten years India would require investments of the order of one trillion US dollars. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain the economic growth of the country. 12

HISTORICAL PERSPECTIVE The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non - Indian lives, as Indian lives were considered more risky to cover. The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge the same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can trace its roots to Triton Insurance Company Limited, the first general insurance company established in the year 1850 in Calcutta by the British. Till the end of the nineteenth century insurance business was almost entirely in the hands of overseas companies. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during the 1920's and 1930's sullied insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict State Control over the insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon. The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Nationalization was justified on the grounds that it would create the much needed funds for rapid industrialization. This was in conformity with the Government's chosen path of State led planning and development.

13

The non-life insurance business continued to thrive with the private sector till 1972. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies- National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC).

KEY MILESTONES a) 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

b) 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. c) 1938: Earlier legislation consolidated and amended by the Insurance Act with the objective of protecting the interests of the insuring public. d) 1956: 245 Indian and foreign insurers along with provident societies were taken over by the central government and nationalized. LIC was formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.

INDUSTRY REFORMS Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations.

14

The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products.

PRESENT SCENARIO - LIFE INSURANCE INDUSTRY IN INDIA

The life insurance industry in India grew by an impressive 47.38%, with premium income at Rs. 1560.41 billion during the fiscal year 2006-2007. The 17 private insurers increased their market share from about 15% to about 19% in a year's time. The figures for the first two months of the fiscal year 200708 also speak of the growing share of the private insurers. The share of LIC for this period has further come down to 75 percent, while the private players have grabbed over 24 percent. With the opening up of the insurance industry in India many foreign players have entered the market. The restriction on these companies is that they are not allowed to have more than a 26% stake in a companys ownership. Since the opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured into the Indian market and 19 private life insurance companies have been granted licenses. Innovative products, smart marketing, and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer. Some of these products include investment plans with insurance and good returns (unit linked plans), multi purpose insurance plans, pension plans, child plans and money back plans. 15

LIFE INSURANCE CORPORATION OF INDIA (LIC) Life Insurance Corporation of India (LIC) was formed in September, 1956 by an Act of Parliament, viz., Life Insurance Corporation Act, 1956, with capital contribution from the Government of India. The then Finance Minister, Shri C.D. Deshmukh, while piloting the bill, outlined the objectives of LIC thus: to conduct the business with the utmost economy, in a spirit of trusteeship; to charge premium no higher than warranted by strict actuarial considerations; to invest the funds for obtaining maximum yield for the policy holders consistent with safety of the capital; to render prompt and efficient service to policy holders, thereby making insurance widely popular.

Since nationalisation, LIC has built up a vast network of 2,048 branches, 100 divisions and 7 zonal offices spread over the country. The Life Insurance Corporation of India also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. LIC is associated with joint ventures abroad in the field of insurance, namely, Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance Company Limited, Kuala Lumpur and Life Insurance Corporation (International) E.C. Bahrain. The Corporation has registered a joint venture company in 26th December, 2000 in Kathmandu, Nepal by the name of Life Insurance Corporation (Nepal) Limited in collaboration with Vishal Group Limited, a local industrial Group. An off-shore company L.I.C. (Mauritius) Offshore Limited has also been set up in 2001 to tap the African insurance market.

SOME AREAS OF FUTURE GROWTH Life Insurance The traditional life insurance business for the LIC has been a little more than a savings policy. Term life (where the insurance company pays a predetermined amount if the policyholder dies within a given time but it pays nothing if the policyholder does not die) has accounted for less than 2% of the insurance

16

premium of the LIC (Mitra and Nayak, 2001). For the new life insurance companies, term life policies would be the main line of business.

Health Insurance Health insurance expenditure in India is roughly 6% of GDP, much higher than most other countries with the same level of economic development. Of that, 4.7% is private and the rest is public. What is even more striking is that 4.5% are out of pocket expenditure (Berman, 1996). There has been an almost total failure of the public health care system in India. This creates an opportunity for the new insurance companies. Thus, private insurance companies will be able to sell health insurance to a vast number of families who would like to have health care cover but do not have it.

Pension The pension system in India is in its infancy. There are generally three forms of plans: provident funds, gratuities and pension funds. Most of the pension schemes are confined to government employees (and some large companies). The vast majority of workers are in the informal sector. As a result, most workers do not have any retirement benefits to fall back on after retirement. Total assets of all the pension plans in India amount to less than USD 40 billion. Therefore, there is a huge scope for the development of pension funds in India. The finance minister of India has repeatedly asserted that a Latin American style reform of the privatized pension system in India would be welcome (Roy, 1997). Given all the pros and cons, it is not clear whether such a wholesale privatization would really benefit India or not (Sinha, 2000).

List of insurance companies in India Life Insurer in Public Sector 1. SBI Life Insurance 2. Metlife India Life Insurance

17

3. ICICI Prudential Life Insurance 4. Bajaj Allianz Life 5. Max New York Life Insurance 6. Sahara Life Insurance 7. Tata AIG Life 8. HDFC Standard Life 9. Birla Sun life 10. Kotak Life Insurance 11. Aviva Life Insurance 12. Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar LIC 13. ING Vysya Life Insurance 14. Shriram Life Insurance 15. Bharti AXA Life Insurance Co Ltd 16. Future Generali Life Insurance Co Ltd 17. IDBI Fortis Life Insurance 18. AEGON Religare Life Insurance 19. DLF Pramerica Life Insurance 20. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE 21. India First Life insurance company limited 22. Star Union Dia-ichi Life Insurance Co. Ltd

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad. It was formed by an act 18

of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."In 2010, the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the market regulator Securities and Exchange Board of India

DUTIES, POWERS AND FUNCTIONS OF IRDA Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in subsection (1), the powers and functions of the Authority shall include, 1. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; 2. protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; 4. specifying the code of conduct for surveyors and loss assessors; 5. promoting efficiency in the conduct of insurance business; 6. promoting and regulating professional organizations connected with the insurance and re-insurance business; 19

7. levying fees and other charges for carrying out the purposes of this Act; 8. calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; 9. control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938); 10. specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; 11. regulating investment of funds by insurance companies; 12. regulating maintenance of margin of solvency; 13. adjudication of disputes between insurers and intermediaries or insurance intermediaries; 14. supervising the functioning of the Tariff Advisory Committee; 15. specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f); 16. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and 17. Exercising such other powers as may be prescribed from time to time.

20

Protection of the interest of policy holders: IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving this objective, the Authority has taken the following steps:

IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposal documents in easily understandable language; claims procedure in both life and non-life; setting up of grievance redressal machinery; speedy settlement of claims; and policyholders' servicing. The Regulation also provides for payment of interest by insurers for the delay in settlement of claim.

The insurers are required to maintain solvency margins so that they are in a position to meet their obligations towards policyholders with regard to payment of claims.

It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and conditions under the policy. The advertisements issued by the insurers should not mislead the insuring public.

All insurers are required to set up proper grievance redress machinery in their head office and at their other offices.

The Authority takes up with the insurers any complaint received from the policyholders in connection with services provided by them under the insurance contract.

The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system.The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers.

21

Insurance Ombudsman The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance council comprises of members of the Life Insurance council and general insurance council formed under Section 40 C of the Insurance Act, 1938. The governing body of insurance council consists of representatives of insurance companies. Terms of office An insurance Ombudsman is appointed for a term of three years or till the incumbent attains the age of sixty five years, whichever is earlier. Reappointment is not permitted.. Territorial jurisdiction of Ombudsman The governing body has appointed twelve Ombudsmen across the country allotting them different geographical areas as their areas of jurisdiction. The Ombudsman may hold sitting at various places within their area of jurisdiction in order to expedite disposal of complaints. The offices of the twelve insurance Ombudsmen are located at (1) Bhopal, (2) Bhubaneswar, (3) Cochin, (4) Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9) Ahmedabad, (10) Lucknow, (11) Mumbai, (12) Hyderabad. The area of jurisdiction of each Ombudsman has been mentioned in the list of Ombudsman. Office Management The Ombudsman has a secretarial staff provided to him by the insurance council to assist him in discharging his duties. The total expenses on Ombudsman and his staff are incurred by the insurance companies who are members of the insurance council in such proportion as may be decided by the governing body. 22

Removal from office An Ombudsman may be removed from service for gross misconduct committed by him during his term of office. The governing body may appoint such person as it thinks fit to conduct enquiry in relation to misconduct of the Ombudsman. All enquiries on misconduct will be sent to Insurance Regulatory and Development Authority which may take a decision as to the proposed action to be taken against the Ombudsman. On recommendations of the IRDA, the Governing Body may terminate his services, in case he is found guilty. Power of Ombudsman Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award making. The insurance Ombudsman is empowered to receive and consider complaints in respect of personal lines of insurance from any person who has any grievance against an insurer. The complaint may relate to any grievance against the insurer i.e. (a) any partial or total repudiation of claims by the insurance companies, (b) dispute with regard to premium paid or payable in terms of the policy, (c) dispute on the legal construction of the policy wordings in case such dispute relates to claims; (d) delay in settlement of claims and (e) nonissuance of any insurance document to customers after receipt of premium. Ombudsman's powers are restricted to insurance contracts of value not exceeding Rs. 20 lakhs. The insurance companies are required to honour the awards passed by an Insurance Ombudsman within three months Manner of lodging complaint The complaint by an aggrieved person has to be in writing, and addressed to the insurance Ombudsman of the jurisdiction under which the office of the insurer falls. The complaint can also be lodged through the legal heirs of the insured. Before lodging a complaint:

23

i)

the complainant should have made a representation to the insurer named in the complaint and the insurer either should have rejected the complaint or the complainant have not received any reply within a period of one month after the concerned insurer has received his complaint or he is not satisfied with the reply of the insurer

ii)

The complaint is not made later than one year after the insurer had replied.

iii)

The same complaint on the subject should not be pending with before any court, consumer forum or arbitrator.

Recommendations of the Ombudsman When a complaint is settled through the mediation of the Ombudsman, he shall make the recommendations which he thinks fair in the circumstances of the case. Such a recommendation shall be made not later than one month and copies of the same sent to complainant and the insurance company concerned. If the complainant accepts recommendations, he will send a communication in writing within 15 days of the date of receipt accepting the settlement.

Award The ombudsman shall pass an award within a period of three months from the receipt of the complaint. The awards are binding upon the insurance companies. If the policy holder is not satisfied with the award of the Ombudsman he can approach other venues like Consumer Forums and Courts of law for redressal of his grievances. As per the policy-holder's protection regulations, every insurer shall inform the policy holder along with the policy document in respect of the insurance Ombudsman in whose jurisdiction his office falls for the purpose of grievances redressal arising if any subsequently. Steady increase in number of complaints 24

received by various Ombudsman shows that the policy-holders are reposing their confidence in the institution of Insurance Ombudsman.

APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR There is a evolutionary change in the technology that has revolutionized the entire insurance sector. Insurance industry is a data-rich industry, and thus, there is a need to use the data for trend analysis and personalization. With increased competition among insurers, service has become a key issue. Moreover, customers are getting increasingly sophisticated and tech-savvy. People today dont want to accept the current value propositions, they want personalized interactions and they look for more and more features and add ones and better service The insurance companies today must meet the need of the hour for more and more personalized approach for handling the customer. Today managing the customer intelligently is very critical for the insurer especially in the very competitive environment. Companies need to apply different set of rules and treatment strategies to different customer segments. However, to personalize interactions, insurers are required to capture customer information in an integrated system. With the explosion of Website and greater access to direct product or policy information, there is a need to developing better techniques to give customers a truly personalized experience. Personalization helps organizations to reach their customers with more impact and to generate new revenue through cross selling and up selling activities. To ensure that the customers are receiving personalized information, many organizations are incorporating knowledge databaserepositories of content that typically include a search engine and lets the customers locate the all document and information related to their queries of request for services. Customers can hereby use the knowledge database to manage their products or the company information and invoices, claim records, and histories of the service inquiry. These products also may be able to learn 25

from the customers previous knowledge database and to use their information when determining the relevance to the customers search request. There is a probability of a spurt in employment opportunities. A number of websites are coming up on insurance, a few financial magazines exclusively devoted to insurance and also a few training institutes being set up hurriedly. Many of the universities and management institutes have already started or are

contemplating new courses in insurance. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. A well-regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is, therefore, essential if we desire to progress towards a worry-free future.

26

COMPANY PROFILE
ORIGIN OF THE ORGANIZATION

Introduction HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to increasing value to shareholders.

About HDFC HDFC is Indias leading housing finance institution and has helped build more than 23, 00,000 houses since its incorporation in 1977. In Financial Year 2003-04 its assets under management crossed Rs. 36,000 Cr. As at March 31, 2004, outstanding deposits stood at Rs. 7,840 crores. The depositor base now stands at around 1 million depositors. Rated AAA by CRISIL and ICRA for the 10th consecutive year Stable and experienced management High service standards Awarded The Economic Times Corporate Citizen of the year Award for its long-standing commitment to community development. Presented the Dream Home award for the best housing finance provider in 2004 at the third Annual Outlook Money Awards. It entered into various sectors and offering services like banking, mutual funds etc, and with the privatization in insurance sector, it also entered into insurance market. 27

Features of HDFC

1. Investment returns: Investment returns and business growth provided by HDFC is validated by Bajaj Capital report. HDFC pacify the need of investors up to healthy level and make the strong relationship with them. 2. Financial Background and Experience: HDFC is a key market player since 1977. It has a very handsome experience in the field of finance because it completely involved in finance Sector only where as the others are running in many other field also like Reliance (Petroleum, Textile, Telecom etc.) 3. Ethics and Values: HDFC is an ethical and cultural organization, which prevents the false selling and prohibits the false commitment to the customer. 4. Sales Force: Properly trained, licensed and educated people are the strength of the company. Such personnel can provide the best customer service. 5. Branch: Huge branch network HDFC is having 450 branches in all over the country. 6. Online accessibility: It makes the process faster and adds to customer delight.

28

Family companies: HDFC Limited HDFC Bank Ltd HDFC Asset Management Co. Ltd HDFC Securities Ltd HDFC Chubb General Insurance Co Ltd

About Standard Life

The Standard Life group has been looking after the financial needs of customers for over 180 years. Standard life currently has a customer base of around 7 million people who rely on the company for their insurance, pension, investment, banking and health-care needs. Its investment manager currently administers 125 billion in assets It is a leading pensions provider in the UK, and is rated by Standard & Poor's as 'strong' with a

rating of A+ and as 'good' with a rating of A1 by Moody's. Standard Life was awarded the 'Best Pension Provider' in 2004, 2005 and 2006 at the Money Marketing Awards, and it was voted a 5 star life and pensions provider at the Financial Adviser Service Awards for the last 10 years running. The '5 Star' accolade has also been awarded to Standard Life Investments for the last 10 years, and to Standard Life Bank since its inception in 1998. Standard Life Bank was awarded the 'Best Flexible Mortgage Lender' at 2006. Its business operates within six

the Mortgage Magazine Awards in

areas: UK Life & pensions, Bank, Healthcare, Investments, Canada and International.

29

The partnership: HDFC and standard life insurance first came together for a possible joint venture, to enter life insurance market, in January 1995. It was clear from the outset both companies shared values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3-year joint venture agreement. Around this time standard life purchased a 5% stake in HDFC, further strengthening the relationship. The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development Authority) Act passed in parliament. Despite this both companies remained firmly committed to the venture. In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time standard life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC) standard Life also started to use the services of the HDFC Treasury department to advise them upon their investment in India. Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to moves the operation to the next level. Therefore in January 2000 an export team from the UK joined pocked team from HDFC to r\from the core project team, based in Mumbai. Around this time standard life purchased a further 5% stake in HDFC and 5% stake in HDFC Bank. In a further development standard life agreed to participates in the Asset Management Company promoted by HDFC to enter the mutual fund market. The mutual fund was launched on 20th July 2000.

30

Incorporation of HDFC Standard Life Insurance Company Limited:

The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. Companys ambition from as far back as October 1995, was to be first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realized when HDFC Standard Life Insurance was the only life company to be granted a certificate of registration. HDFC and Standard Life are the main shareholders of HDFC Standard Life, HDFC with 81.4%while standard Life owns 18.6% Given Standard Lifes existing investment in the HDFC Group, this is the maximum investment under current regulations. HDFC and standard life have a long and relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance companies in India are measured. HDFC Standard Life Insurance Company Limited. is one of India's leading private insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Limited), India's leading housing finance institution and a Group Company of the Standard Life Plc, UK. As 31

on February 28, 2009 HDFC Ltd. Holds 72.43% and Standard Life (Mauritius Holding) 2006, Ltd. holds 26.00% of equity in the joint venture, while the rest is held by others.

Key Strengths

Financial Expertise As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage your long-term investments safely and efficiently. Range of Solutions HDFC has a range of individual and group solutions, which can be easily customized to specific needs. Its group solutions have been designed to offer you complete flexibility combined with a low charging structure. Vision Statement The most successful and admired life insurance company, which means that we are the most trusted company, the easiest to deal with, offer the vest values for money, and easiest the standards in the industry, In short, The most obvious choice for all.

Growth and Development of the Organization:

Current position: Our gross premium income, for the year ending March 31, 2009 stood at Rs. 5,564.69 Crores.

32

As on March 31, 2009, the company has more than 27 lakh policies in force. Vision & Values Our Vision 'The most successful and admired life insurance company, which means that we are the most trusted company, the easiest to deal with, offer the best value for money, and set the standards in the industry'. 'The most obvious choice for all'. Values observed at work: Integrity Innovation Customer centric People Care One for all and all for one Team work Joy and Simplicity

Associate Companies HDFC Limited HDFC Bank HDFC Mutual Fund HDFC Sales HDFC ERGO General Insurance

Strong promoter HDFC Standard Life is a strong, financially secure business supported by two strong and secure promoters HDFC Ltd and Standard Life. HDFC Ltds excellent brand strength emerges from its unrelenting focus on corporate governance, high standards of ethics and clarity of vision. 33

Standard Life is a strong, financially secure business and a market leader in the UK Life & Pensions sector. Preferred and trusted brand Our brand has managed to set a new standard in the Indian life insurance communication space. We were the first private life insurer to break the ice using the idea of self-respect instead of death to convey our brand proposition (Sar Utha Ke Jiyo). Today, we are one of the few brands that customers recognize, like and prefer to do business. Moreover, our brand thought, Sar Utha Ke Jiyo, is the most recalled campaign in its category. Investment philosophy We follow a conservative investment management philosophy to ensure that our customers money is looked after well. The investment policies and actions are regularly monitored by a formal Investment Committee comprising non-executive directors and the Principal Officer & Executive Director. As a life insurance company, we understand that customers have invested their savings with us for the long term, with specific objectives in mind. Thus, our investment focus is based on the primary objective of protecting and generating good, consistent, and stable investment returns to match the investors long-term objective and return expectations, irrespective of the market condition. Need based selling approach Despite the criticality of life insurance, sales in the industry have been characterized by over reliance on tax benefits and limited advice-based selling. Our eight-step structured sales process Disha however, helps customers understand their latent needs at the first instance itself without focusing on product features or tax benefits. Need-based selling process, 'Disha', the first of its kinds in the industry, looks at the whole financial picture. Customers see a plan not piecemeal product selling. 34

Risk control framework HDFC Standard Life has fully implemented a risk control framework to ensure that all types of risks (not just financial) are identified and measured. These are regularly reported to the board and this ensures that the company management and board members are fully aware of any risks and the actions taken to ensure they are mitigated Transparent dealing One of the few companies whose product details, pricing, clauses are clearly communicated to help customers take the right decision. Strict compliance with regulation We have initiated and implemented many new processes, some of which were found useful by the IRDA and later made mandatory for the entire industry. The agents who successfully completed this training only, were authorized by the company to sell ULIPs. This has now been made compulsory by IRDA for all insurance companies under the new Unit Linked Guidelines. Accolades and Recognition Rated by 'Business world' as 'India's Most Respected Private Life Insurance Company' in 2004. Rated as the "Best New Insurer - 2003" by Outlook Money magazine, Indias number 1 personal finance magazine.

35

PRODUCT PROFILE: HDFC offers products as per the life stages of the customers and their respective needs.

Your insurance need will change as your life does, from starting to work to enjoying your golden years and all the stages in between. Each one of these stages may pose a different insurance need/cover for you. In this section, we have drawn up the basic life stages and help you analyze various insurance needs accordingly.

36

Products
In operation Financial Year Name of the Product From To Remarks, if any, by IRDA

(opening (closing date*) date)

2000-01 2001-02

HDFC Endowment Assurance HDFC Endowment Assurance

12-Dec-00 13-Mar-02 13-Mar-02 12-Dec-00 30-Mar-01 16-Feb-06

HDFC2000-01BachHDFC Money Back Money 2000-01 HDFC Development Insurance Plan HDFC Development Insurance Plan HDFC Single premium Whole of Life Insurance HDFC Group Term Insurance HDFC Group Term Insurance HDFC Protection Series HDFC Protection Series HDFC Protection Series HDFC Immediate Annuity HDFC Immediate Annuity HDFC Personal Pension Plan HDFC Bima Bachat Yojana HDFC Bima Bachat Yojana HDFC Children's Plan HDFC Group Unit Linked Plan HDFC Group Unit Linked Plan Option A HDFC Deposit Insurance Plan HDFC Home Loan Protection

2005-06

16-Feb-06

2000-01 2001-02 2006-07 2001-02 2001-02 2008-09 2001-02 2004-05 2001-02 2002-03 2007-08 2002-03 2003-04 2005-06 2003-04 2003-04

30-Mar-01 7-Jun-01 6-Dec-06 13-Sep-01 15-Mar-02 15-Mar-02 3-Mar-09 31-Jan-02 21-Feb-07 21-Feb-07 8-Feb-02 27-Nov-02 6-Dec-06

14-Feb-03 31-May-03 28-Mar-06 28-Mar-06 31-Aug-10 19-Sep-03 28-Mar-05 6-Oct-03 5-Aug-04 37 Withdrawn Withdrawn

Plan 2004-05 2003-04 2003-04 HDFC Home Loan Protection Plan HDFC Savings Assurance Plan HDFC Unit Linked Endowment Plan 5-Aug-04 23-Dec-03 30-Dec-03 23-Jun-06

Financial Year

Name of the Product

In operation From To

Remarks

(opening (closing date*) 2006-07 2003-04 2003-04 2004-05 2004-05 2006-07 2005-06 HDFC Unit Linked Endowment HDFC Unit Linked Pension Plan HDFC Leave Encashment Plan HDFC Assurance Plan HDFC Unit Linked Young Star Plan HDFC Unit Linked Young Star HDFC Group Flexible Term Insurance HDFC Group Variable Term Insurance HDFC Group Unit Linked Plan Option B HDFC Group Unit Linked Plan Option B HDFC Unit Linked Young Star Plus HDFC Unit Linked Endowment Plus date) withdrawn

23-Jun-06 1-Mar-08 30-Dec-03 26-Jun-06 29-Jan-04 1-Jul-06 7-May-04 21-Jun-04 22-Jun-06 22-Jun-06 1-Mar-08 23-Jun-05

Withdrawn

withdrawn

2005-06

26-Dec-05

2005-06

28-Mar-06 31-Aug-10

Withdrawn

2005-07

1-Feb-11

2006-07

22-Jun-06 1-Mar-08

withdrawn

2006-07

23-Jun-06 1-Mar-08

withdrawn

38

2006-07

HDFC Unit Linked Young Star Suvidha HDFC Unit Linked Young Star Suvidha Plus HDFC Unit Linked Endowment Suvidha HDFC Unit Linked Endowment Suvidha Plus HDFC Unit Linked Pension Plus HDFC Unit Linked Enhanced Life Protection II HDFC Unit Linked Endowment Plus II HDFC Unit Linked YoungStar Plus II HDFC SimpliLife HDFC SimpliLife HDFC SimpliLife HDFC Unit Linked Wealth Maximiser Plus HDFC Critical Care Plan Name of the Product HDFC Young Star II

23-Jun-06 15-Dec-08

withdrawn

2006-07

23-Jun-06 15-Dec-08

withdrawn

2006-07

26-Jun-06 15-Dec-08

withdrawn

2006-07 2006-07 2007-08

26-Jun-06 15-Dec-08 26-Jun-06 8-Oct-08 4-Feb-08 1-Jan-10

withdrawn Withdrawn Withdrawn

2007-08

4-Feb-08

1-Jan-10

Withdrawn

2007-08 2008-09 2008-09 2009-10 2008-09 2008-09 Financial Year 2008-09

5-Feb-08

1-Jan-10

Withdrawn

14-Jul-08 16-Dec-09 16-Dec-08 30-Dec-09 30-Dec-09 31-Aug-10 14-Jul-08 1-Jan-10 14-Jul-08 In operation 31-Jul-08 1-Jan-10 From To Remarks Withdrawn Withdrawn

Withdrawn

(opening (closing date*) 2008-09 2008-09 HDFC Unit Linked Endowment II HDFC Unit Linked Pension II date) Withdrawn Withdrawn

31-Jul-08 1-Jan-10 17-Sep-08 1-Jan-10

39

2008-09

HDFC Unit Linked Pension Maximiser II HDFC Unit Linked Endowment Winner HDFC Unit Linked Young Star Champion HDFC Standard Life Surgicare Plan HDFC Unit Linked Wealth Multiplier HDFC Gramin Bima Kalyan Yojana HDFC Gramin Bima Kalyan Yojana HDFC Premium Guarantee Plan HDFC Pension Super HDFC Young Star Super HDFC Endowment Super

17-Sep-08 1-Jan-10

Withdrawn

2008-09

17-Nov-08 1-Jan-10

Withdrawn

2008-09

17-Nov-08 1-Jan-10

Withdrawn

2008-09

10-Feb-09

2009-10

27-May-09 1-Jan-10

Withdrawn

2009-10

7-Oct-09

2009-11 2009-10 2009-10 2009-10 2009-10 2009-10 2009-10 2009-10

7-Oct-09 3-Nov-09 31-Aug-10 4-Nov-09 31-Aug-10 8-Dec-09 31-Aug-10 Withdrawn Withdrawn Withdrawn Withdrawn Withdrawn Withdrawn

HDFC Young Star Super Suvidha 8-Dec-09 31-Aug-10 HDFC Endowment Super Suvidha 15-Dec-09 31-Aug-10 HDFC Young Star Supreme Suvidha HDFC Endowment Supreme Suvidha HDFC Wealth Builder HDFC Pension Supreme HDFC Pension Maximiser II HDFC Pension Champion HDFC Endowment Supreme HDFC Young Star Champion 15-Dec-09 31-Aug-10

2009-10 2009-10 2009-10 2009-10 2009-10 2009-10 2009-10

15-Dec-09 31-Aug-10 24-Dec-09 31-Aug-10 31-Dec-09 31-Aug-10 18-Jan-10 31-Aug-10 18-Jan-10 31-Aug-10 28-Jan-10 31-Aug-10 11-Feb-10 31-Aug-10

Withdrawn Withdrawn Withdrawn Withdrawn Withdrawn Withdrawn Withdrawn

40

Suvidha 2009-10 2009-10 2010-11 HDFC YoungStar Supreme HDFC Endowment Champion Suvidha HDFC SL Group Savings Plan 26-Feb-10 31-Aug-10 8-Mar-10 31-Aug-10 14-Jun-10 In operation Financial Year Name of the Product From To Remarks Withdrawn Withdrawn

(opening (closing date*) date)

2010-11 2010-11 2010-11 2010-11 2010-11

HDFC SL New Money Back Plan 20-Aug-10 HDFC SL Group Conventional Plan HDFC SL Endowment Gain 22-Nov-10 9-Dec-10

HDFC SL Group Traditional Plan 10-Feb-11 HDFC SL Classic Assure Insurance Plan 10-Feb-11

New ULIPs to be offered for sale w.e.f. 01.09.2010 2010-11 2010-11 2010-11 2010-11 2010-11 2010-11 2010-11 2010-11 HDFC SL Crest HDFC SL Youngstar Super II HDFC SL ProGrowth Super II HDFC SL ProGrowth Maximiser HDFC SL Young Star Super Premium HDFC SL ProGrowth Flexi HDFC SL Group Unit Linked Option I HDFC SL pension Maximus 27-Aug-10 30-Aug-10 13-Sep-10 21-Oct-10 1-Nov-10 21-Dec-10 3-Jan-11 14-Jan-11

Table 1 Products available in HDFC SL

41

List of funds in HDFC Standard Life 1. Blue chip wealth builder fund. 2. Income wealth builder fund. 3. Opportunities wealth builder fund. 4. Vantage wealth builder fund. 5. Bond opportunities Fund 6. Large Cap Niche Life Fund 7. Mid Cap Niche Life Fund 8. Managers Fund 9. Money Plus Fund 1. Blue chip wealth builder fund: The fund aims to provide medium to long term capital appreciation by investing in a portfolio of pre-dominantly large cap companies which can perform through economic and market cycles. The fund will invest at least 80% in companies which have a market capitalization greater than the company with the least weight in BSE100 index. The fund may also invest up to 20% in money market instruments/cash. 2. Income wealth builder fund: The fund aims to provide superior returns through investments in high credit quality debt instruments while maintaining an optimal level of interest rate risk. The fund may also invest up to 20% in money market instruments/cash. 3. Opportunities wealth builder fund: The fund aims to generate long term capital appreciation by investing predominantly in mid cap stocks which are likely to be the blue chips of tomorrow. The fund will invest in stocks which have a market capitalization equal to or lower than the market capitalization of the highest weighted stock in the NSE CNX Midcap Index. The fund may also invest up to 20% in money market instruments/cash. 42

4. Vantage wealth builder fund: This is a fund of funds which will invest in the Income Wealth Builder Fund, Blue chip Wealth Builder Fund and Opportunities Wealth Builder Fund. The allocation to each fund will depend on the fund manager's market view and will be within the limits. 5. Bond opportunities Fund: To provide reasonable returns through investments in high credit quality debt instruments while maintaining an optimal level of interest rate risk. 6. Large Cap Niche Life Fund: To generate long term capital appreciation from a diversified portfolio of predominantly in large cap equity and equity related securities. 7. Mid Cap Niche Life Fund: To generate long term capital appreciation from a diversified portfolio of predominantly in mid cap equity and equity related securities 8. Managers Fund: This is a fund of funds which will invest in Money Plus Niche Life Fund, Bond Opportunities Niche Life Fund, Large Cap Niche Life Fund and Mid Cap Niche Life Fund. The allocation to each fund will depend on the fund manager's market view and will be within the limits. 9. Money Plus Fund: To generate optimal returns from investments biased to the highest credit quality at the short end of the yield curve, such that interest rate risks and credit risks are low.

43

RESEARCH METHODOLOGY

Objectives of study: To study the funds available for investment in HDFC Standard Life. To suggest better investment policy for the funds collected through insurance policies in insurance products in order to get maximum returns. To help in optimum portfolio construction.

Research design Research design is the plan, structure and strategy of investigation conceived so as to obtain answer to research questions and to control variance. Research design is in fact the conceptual structure with in which the research is conducted. Bernard Phillips has described the research design as blue print for the collection, measurement and analysis of data.

Sources of data Primary sources: Interactions with the employees of the organization. Secondary sources: When an investigator uses the data which has already been collected by others, such data is called secondary data. This data is primary data for the agency that collects it and it becomes secondary data for someone else who uses this data for his own purpose. Secondary data for the study is collected from Internet, Government publication, publication of professionals and research organizations. Following are few sources for secondary data. 44

Model of Research: The present research is conducted for analyzing a quantitative data. Hence, the research model selected is Analytical Research.

Analytical Research: Analytical research tests a pre-planned hypotheses basing on existing knowledge. It is a procedure or technique of analysis applied to quantitative data. It may consist of a system of mathematical models or statistical techniques applicable to numerical data. It concentrates on analyzing data in depth and examining relationship for various angels by bringing in as many relevant variables as possible in the analysis plan. This method is extensively used in business and other fields in which quantitative numerical data are generated.

Scope of study: This study will help to understand portfolio construction, Evaluation, Revision of insurance funds of HDFC standard life insurance, at the same time gives an idea whether company is gaining maximum returns.

Limitation of the study:

Secondary data can be general and vague and may not really help companies with decision making.

The information and data may not be accurate. The source of the data must always be checked.

The data maybe old and out of date. The sample used to generate the secondary data maybe small. The company publishing the data may not be reputable. The analysis is mainly done for two quarters(i.e for a short period of time) 45

Analysis and Interpretation

1. Formula for calculating Stock return for specified period of time

(Current price Base price) Return = Base price *100

2. Formula for calculating Portfolio Return

Portfolio Return = w1*R1+w2*R2+w3*R3.. Where,w1= Weight of stock 1 in portfolio. w2= Weight of stock 2 in portfolio. R1= Return of stock 1. R2 = Return of stock 2

46

1. Variation in premium collection for 3 years.

Year 2010 2011 2012

Premium (in cr.) 4858.56 5564.69 7005.10

Table 2 Variation in premium collection for 3 years

Premium (in cr.)


8000.00 7000.00 6000.00 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 2010 2011 2012 Premium (in cr.)

Figure+ 1 Premium collection for 3 years.

Analysis: The above graph clearly shows that there is a growth in premium collection of the HDFC SL over the past 3 years.

47

2.Net investment for 3 years.

Year 2010 2011 2012

Premium (in cr.) 36020822 39057231 48767468

Table 3 Net investment for 3 years

Premium (in cr.)


60000000 50000000 40000000 30000000 20000000 10000000 0 2010 2011 2012 Premium (in cr.)

Figure 2 Net investment for 3 years Analysis: The graph shows that there is a continuous increase in the net investment made by the HDFC SL over the past 3 years.

48

3. Blue chip wealth builder fund 3.1 Sector wise Investment in Equity of Blue Chip Wealth Builder Fund
SECTOR INVESTMENT% 14.60 13.70 10.44 10.00 8.95 6.31 5.65 4.12 3.67 3.33 2.93 2.49 2.40 2.25 1.93 1.85

Finance oil and Gas Capital Goods FMCG Information Technology Health care Transport Equipments Banks Metal and Mining Power Cement Marine port and services Media and publishing Telecom IT Consulting and Software Pharmaceuticals

49

Automobiles 2,3 Wheelers Consumer Durables SECTOR Agrochemical Electric Utilities Others

1.48 1.36 INVESTMENT% 1.10 1.05 0.39

Table 4 Sector wise Investment Blue Chip Wealth Builder Fund

50

Percentage of investment in various sectors


0 Others Electric Utilities Agrochemical Consumer Durables Automobiles 2,3 Wheelers Pharmaceuticals IT Consulting and Software Telecom Media and publishing Marine port and services Cement Power Metal and Mining Banks Transport Equipments Health care information Technology Fast moving consumer goods Capital goods oil and gas Finance INVESTMENT% 5 10 15 20

Figure 3 Blue Chip Wealth Builder Fund Investments Analysis: From the graph it is evident that the company has invested a large portion of its pooled money in the finance sector and least of 1.05% in Electric Utilities when blue chip wealth builder fund is considered.

51

3.2 Portfolio Structure of Blue chip wealth builder fund Portfolio Component Equity Debt %investment 92.71 7.29

Table 5 Portfolio Structure

7.29%

Equity 92.71% Debt

Figure 4 Portfolio Structure of Blue chip wealth builder fund

Analysis: In blue chip wealth builder fund the company has invested up to 92.71% in equity market and just 7.29% in debt market.

52

4. Income Wealth Builder Funds Portfolio component Debentures/Bonds Government securities Deposits and money market instruments %investment 60.43 12.39 18.18

Table 6 Portfolio Structure of Income wealth Builder Fund

18.18% 12.39% 60.43%

Debentures/Bonds Government securities Deposits and money market instruments

Figure 5 Income Wealth Builder Funds Expected portfolio Yield: 9.32% Analysis: From the graph we can say that in Income wealth builder fund portfolio the company has invested majorly in debentures and bonds and least of 12.39% in government securities.

53

5. Opportunities Wealth Builder Fund Portfolio Component Investment in percentage Equity Money Instruments Market 89.56 10.16

Table 7 Portfolio Structure of Opportunities wealth Builder Fund

10.16% Equity 89.46% Money Market Instruments

Figure 6 Opportunities Wealth Builder Fund Analysis: In opportunities wealth builder fund portfolio 89.46% investment is made in equity market and 10.16% of investment is made in money market and other investment avenues. 54

5.1 Sector wise Investment in Equity of Opportunities Wealth Builder Fund


Sector Finance Oil and Gas Health care Cement Consumer Durables Pharmaceuticals Media and Publishing Bank Electric utilities Fertilizers Diversified Others %investment 29.95 16.99 14.11 9.73 7.37 4.87 4.51 3.62 2.98 2.22 2.05 1.58

Table 8 Sector wise Investment in Equity of Opportunities Wealth Builder Fund

55

Others Diversified Fertilizers Electric utilities Bank Media and Publishing Pharmaceuticals Consumer Durables Cement Health care Oil and Gas Finance 0 5 10 15 20 25 30 35

Figure 7 Opportunities Wealth Builder Fund Investments

Analysis: Out of 89.84% of opportunities wealth builder fund, 29.95% is in finance sector and a least of 2.22% in Fertilizer sector is allocated.

56

6. Vantage Wealth Builder Fund Portfolio component Income Wealth Builder fund Bluechip Wealth Builder Fund Opportunities Wealth Builder Fund %Investment 49.35 25.90 24.75

Table 9 Portfolio Structure of Vantage wealth Builder Fund

24.75% 49.35% 25.9%

Income Wealth Builder fund Bluechip Wealth Builder Fund Opportunities Wealth Builder Fund

Analysis: Vantage wealth builder fund is a fund of funds in which 49.35% of investment is made in Income wealth builder Fund and 25.9% each in blue chip wealth builder fund and 24.75% in Opportunities Wealth Builder fund.

57

7. Bond opportunities Fund Portfolio Component Debentures/Bonds Government securities Deposits and money market instruments %investment 25.18 56.31 18.51

Table 10 Portfolios Structure of Bond opportunities Fund

18.51%

25.18%

Debentures/Bonds Government securities

56.31% Deposits and money market instruments

Figure 8 Portfolio structure of Bond opportunities Fund

58

Analysis: In bond opportunities fund 56.31% investment is in government securities, 25.18% in debentures and bonds and 18.51% in Deposits and money market instruments is made. Expected Portfolio Yield is 8.34%.

8. Large Cap Niche Life Fund Portfolio component Equity Deposit and Money market Instruments %investment 95.81 4.19

Table 11 Portfolio Structure of Large Cap Niche Life Fund

4.19%

Equity Deposit and Money market Instruments

95.81%

Figure 9 Portfolio Structure Large Cap Niche Life Fund

59

Analysis: In large cap niche life fund 95.81% of investment is made in equity and only 4.19% in money market instruments.

8.1 Sector wise allocation of funds in equity in Large Cap Niche Life fund Investment in percentage 18.17 15.56 11.63 10.55 8.99 6.82 5.48 4.04 3.65 3.37 2.64 2.07 1.95 1.43 1.30 2.34

Sector Finance Oil and Gas Capital Goods Information Technology Fast moving consumer goods Healthcare Metal, Metal products & Mining Power Transport Equipment Banks Telecom Automobiles Media and publishing Chemical & Petrochemical IT Consulting and Software Others

Table 12 Sector wise allocation of funds in equity in Large Cap Niche Life fund 60

20 18 16 14 12 10 8 6 4 2 0

Figure 10 Investment in different sectors Large Cap Niche Life fund

Analysis: Out of 95.81% of Large Cap Niche Life fund, 18.17% is in finance sector and a least of 1.30% in IT consulting and Software

61

9. Mid Cap Niche Life Fund Portfolio Component Equity Money market and others % investment 97.14 2.86

2.86%

Equity 97.14% Money market and others

Figure 11 Portfolio Structure of Mid Cap Niche Life Fund Analysis: In mid cap niche life fund 97.14% of investment is made in equities and only 2.86 % in money market instruments.

62

10. Managers Fund Component of Portfolio % investment Bond Opportunities Niche Life Fund Large cap Niche Life Fund Mid Cap Niche Life Fund Money Plus Niche Life Fund 44.81 25.64 24.88 4.67

Table 13 Managers Fund

4.67% 24.88% 44.81%

Bond Opportunities Niche Life Fund Large cap Niche Life Fund Mid Cap Niche Life Fund Money Plus Niche Life Fund

25.64%

Figure 12 Portfolio structure of Managers Fund Analysis: It is also a fund of funds where maximum investment is made in Bond opportunities niche life fund and minimum investment is made in Money Plus niche life fund.

63

11. Money Plus Fund: Component of Portfolio Debentures/Bonds Government Securities Deposits and money market Securities % investment 3.72 73.12 23.16

Table 14 Portfolio structure of Money plus Fund

3.72% 23.16% Debentures/Bonds Government Securities 73.12% Deposits and money market Securities

Figure 13 Portfolio structure of Money plus Fund

Analysis: From the chart it is clear that in money plus fund major portion of investment is made in government securities i.e. 73.12%. 23.16% and 3.72% in money market and debentures respectively

64

Funds Considered for in depth Analysis

1. Large cap Niche Life Fund 2. Blue chip Wealth Builder Fund Large cap Niche Life Fund details

Particulars Entry of

March 2012 new Base portfolio*

April 2012 1. Cairn Limited 2. Mphasis Ltd India

May 2012 1. Mundra Port Special Economic Zone ltd. &

security to Portfolio

Exit of the security Base portfolio* from the portfolio

1. Punjab National Bank 2. Siemens Ltd

1. Oil Ltd.

India

Table 15 Large cap Niche Life Fund details *Base portfolio is taken as portfolio on March 31ST 2012 Base index: NIFTY Bench mark return as on March 31 2012(3 months) Fund Return as on March 31 2012(3 months) Bench mark return as on May 31 2012(3 months) Fund Return as on May 31 2012(3 months) Bench mark return from past 2 years as on May 31 2012 : -4.90% : -6.25% : 4.25% : 4.80% : 11.79%

65

Fund Return from past 2 years as on May 31 2012 NAV (June 20th 2012)

: 17.25% : 13.47

Blue Chip Wealth Builder Fund details

Particulars Entry security Portfolio of

March 2012 new Base portfolio* to

April 2012 1. Indian Overseas Bank 2. Cairn India Ltd.

May 2012 1. Bank of Baroda

Exit of the security Base portfolio* from the portfolio

1. Siemens Ltd 2. Kotak Mahindra Bank Ltd 3. Bank of Baroda 4. United Phosphorous Ltd.

1. Mundra Port & Special Economic Zone Ltd. 2. Blue Star Ltd. 3. National Thermal Power Corporation Ltd.

Table 16 Blue chip Wealth Builder Fund *Base portfolio is taken as portfolio on March 31ST 2012 Base index: BSE 100 Bench mark return as on March 31 2012(3 months) Fund Return as on March 31 2012(3 months) : -5.43% : -5.91% 66

Bench mark return as on May 31 2012(3 months) Fund Return as on May 31 2012(3 months) Bench mark return from past 1 years as on May 31 2012 Fund Return from past 1 years as on May 31 2012 NAV (June 20th 2012) (Source: Fund sheet of HDFC SL)

: 4.98% : 6.39% : 7.52% : 9.68% : 9.98

Details of stocks that entered or moved out of the Fund Large Cap Niche Life Fund

Stock Name

Entry Month APR 2012 APR 2012 MAY 2012 -

Exit Month

28-022012 closing 339.1

31-032012 closing 351.25

29-042012 closing 349.25

31-052012 closing 339.35

% growth

Cairn India Ltd.

-3.39

Mphasis Ltd. Mundra Port & Special Economic Zone Ltd. Punjab National Bank

431.25

415.55

469.15

467.6

12.53

APR 2012 APR 2012 MAY 2012

138.4

136.45

144.35

160.85

11.43

1054.75

1220.15

1185.85

1099.7

15.68

Siemens Ltd.

846

881.35

864.3

871.05

4.18

Oil India Ltd.

1233.75

1312.85

1385.45

1286.35

12.3

Table 17 Details of stocks that entered or moved out of the Fund 67

20 15 10 5 0 -5 Cairn India Mphasis Ltd. Ltd. Mundra Punjab Siemens Oil India Port & National Ltd. Ltd. Special Bank Economic Zone Ltd. % growth

Figure 14 Graphical representation of stocks that entered or moved out of the Fund Blue Chip Wealth Builder Fund

Stock Name

Entry Month APR 2012 APR 2012 MAY 2012 -

Exit Month

28-022012

31-032012

29-042012

31-0520112

% growth

closing closing closing closing 132.75 143.6 152.65 142.25

Indian Overseas Bank

-0.94

Cairn India Ltd.

339.1

351.25

349.25

339.35

-3.39

Bank of Baroda

870.85

963.15

912.15

863.4

-5.34

Siemens Ltd. Kotak Mahindra Bank Ltd. Bank of Baroda United Phosphorous Ltd. Mundra Port & Special Economic Zone Ltd.

APR 2012 APR 2012 APR 2012 APR 2012

846 405.35 870.85 135.65

881.35 456.85 963.15 150.4

864.3 430.2 912.15 151.9

871.05 440.55 863.4 162.1

4.18 4.16 10.56 10.87

MAY 2012

138.4

136.45

144.35

160.85

4.3

68

Blue Star Ltd. National Thermal

MAY 2012

322.9

371.85

367

317

13.66

Power Corporation

MAY 2012

170.05

193

181.95

168.95

7.0

Table 18 Details of stocks that entered or moved out of the Fund

16 14 12 10 8 6 4 2 0 -2 -4 -6

% growth

Figure 15 Graphical representation of stocks that entered or moved out of the Fund Analysis: The analysis is done keeping in mind the base portfolio as March 31st 2012. So any portfolio changes in the manner of stocks entering or leaving in April and May is considered. The performance and growth of the stock is calculated as follows. If the stock has entered the fund portfolio then the growth is calculated from the month in which it enters till the month in which it leaves or till the end 69

period of study i.e. May 31st 2012 as the case may be. If the stock has exited from the fund portfolio then the growth is calculated from the month in which it enters or from the previous close of the start of the base portfolio i.e. 28 th February 2012 as the case may be. This is done because if the stock is not present in the fund portfolio then the performance of it is irrelevant to the funds performance. Hence only the period in which the stock performance bears a significant impact on the funds performance is taken into consideration. Hence from the graph it is inferred that the stock performance of Punjab National Bank in case of Large Cap Niche Fund and Blue Star for Blue Chip Wealth Builder Fund was beneficial for the funds growth and Cairn India Ltd. had a negative impact on the growth of both the funds.

Current price of the stock that entered or moved out of the funds: Stock Name Fund Name Large Cap Niche Life Fund/ Blue Chip Wealth Builder Fund Large Cap Niche Life Fund Sector Price on Jun 20th 2012 307.7

Cairn India Ltd.

OIL & GAS

Mphasis Ltd Mundra Port & Special Economic Zone Ltd. Punjab National Bank

IT

426.2

Large Cap Niche Life Fund/ Blue Chip Wealth Builder Fund Large Cap Niche Life Fund Large Cap Niche Life Fund/ Blue

Marine Port & Services Bank

146.85

1050.05

Siemens Ltd.

Chip Wealth Builder Fund Large Cap Niche Life Fund Blue Chip Wealth Builder Fund

CG

846.65

Oil India Ltd. Indian Overseas Bank

OIL & GAS Bank

1251.95 144.55

70

Bank of Baroda Kotak Mahindra Bank Ltd. United Phosphorous Ltd. Blue Star Ltd. National Thermal Power Corporation Ltd.

Blue Chip Wealth Builder Fund Blue Chip Wealth Builder Fund

Bank Bank Agrochemica l

858.65 433.6

Blue Chip Wealth Builder Fund Blue Chip Wealth Builder Fund Blue Chip Wealth Builder Fund

146 307.85 174.45

CD Power

Table 19 Current price of the stock that entered or moved out of the funds Analysis: It can be seen that Cairn India Ltd. is performing badly as its stock price has reduced even further and from the earlier table it can be seen that there is a decreasing trend altogether. Hence it is best that it be removed from both the funds portfolio for better fund performance. Its assets can be allocated in another stock of the same sector which is analyzed in the later stage. Mundra Port & Special Economic Zone has fallen rapidly and its performance must be monitored and exited at the right time.

71

Sector wise return as on May 31st 2012 Name stock AUTO POWER OIL & GAS HEALTH CARE IT FMCG BANK CG CD of the Return 0.97% 1.58% 1.18% 1.87% 0.5% 2.25% 2.13% 1.3% 1.33%

Table 20 Sector wise return as on May31st 2012

Bullish Performance of Sectors


2.50% 2.00% 1.50% 1.00% 0.50% 0.00% AUTO POWER OIL & HEALTH GAS CARE IT FMCG BANK CG CD

Percentage Increase

Figure 15 Sector wise return as on May 31st 2012 Analysis: In the bullish sectors, FMCG sector saw a considerable increase of 2.25% and moderate increase was in the IT Sector of 0.5%. Good time to buy stocks of good 72

return value from top performing sectors in the month of June 2012 to increase the fund value.

Better performers in the considered sectors: Percentage Sector Name Auto Stock Name Mahindra & Mahindra Power Power Oil & Gas Health Care Corporation Petronet LNG Ltd. Fortis Healthcare Ltd. HCL IT FMCG Bank CG Ltd. ITC YES Bank Suzlon Energy Technologies 16.43% 14.41% 17.12% 15.54% Grid 2.08% 23.16% 11.08% growth 9.5%

Table 21 Better performers in the considered sectors


25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Mahindra Power Petronet & Grid Corp. LNG Ltd. Mahindra 9.50% 2.08% 23.16% Fortis HC HCL Tech. Ltd. Ltd. 11.08% 16.43% Suzlon Energy 15.54%

ITC 14.41%

YES Bank 17.12%

Percentage growth

Figure 16 Performance of Good Stocks in the various sectors

73

Analysis: The graph is showing the return of stocks which performed well in the Bullish market trend. Petronet LNG Ltd. showed the highest growth and also the forecast is positive. Hence Cairn India Ltd. can be replaced by this stock for better fund performance. Also YES Bank had outperformed the other banks like Punjab National Bank, Kotak Mahindra Bank, Indian Overseas Bank and Bank of Baroda and hence sufficient assets should be allocated for better fund performance as this Bank does not feature in any of the funds asset allocation.

Graphical comparative analysis of Large Cap Niche Life Fund vs. the Bench Mark Indices (3 months)

Figure 17 S&P CNX Nifty vs. Large Cap Niche Life Fund Performance

74

Analysis: It is seen that the fund performance of the HDFC Large Cap Niche Life Fund is much better than its bench mark index which is the NIFTY and has closely followed its ups and downs. It has done much better when NIFTY was down and has held up moderately when NIFTY was up. The funds performance especially in the month of May 2012 is outstanding when compared to its Bench Mark Index and is showing a high positive trend in the month of June. Hence customers who have invested in this fund have and will benefit to a large extent.Graphical comparative analysis of Blue Chip Wealth Builder Fund vs. the Bench Mark Indices (3 months)

Figure 18 BSE 100 vs. Blue Chip Wealth Builder Fund Performance For the considered 3 months study

75

Analysis: The performance of the HDFC Blue Chip Wealth Builder Fund is a little lower than its bench mark index which is the BSE 100 thought it has closely followed its ups and downs. But towards the end of the study month i.e. in the month of May 2012 and June 2012 it can be seen that the fund is outperforming its bench mark index and is showing a favorable trend.

FINDINGS

Premium collection over the past 3 years has continuously increased. Large Cap Niche Life Fund For the past 2 years the bench mark index return is 11.79%. For the past 2 years the fund return is 17.25%. In the last quarter the bench mark return is 4.25%. For the same quarter fund return is 4.80%. This shows that the fund has been performing well compared to its bench mark index return. The stocks which moved out of this fund showed the following returns after they moved out. This is calculated from the month of exit till the date of study i.e. 20th June 2012:

STOCK NAME Punjab National Bank Siemens Ltd. Oil India Ltd.

RETURN PERCENTAGE -13.94% -3.94% -9.64%

76

While PNB and Siemens exited out of the fund in the month of April 2012, Oil India exited in the month of May 2012. The growth percentage shows negative which in fact is a good sign and reflects on the Fund Managers intelligence in de-allocating the stock from the portfolio. NAV (Net Asset Value) of this fund is 13.47 (on June 20th 2012)

Blue Chip Wealth Builder Fund For the past 1 year the benchmark index return is 7.52%. For the past 1 year the fund return is 9.68%. In the last quarter the bench mark index return is 4.98%. For the same quarter fund return is 6.39%. This shows that the fund has been performing well compared to its bench mark index returns.

77

The stocks moved out of this fund showed the following returns after they are moved out. This is calculated from the month of exit till the date of study i.e. 20th June 2012: STOCK NAME RETURN PERCENTAGE

Siemens Ltd Kotak Mahindra Bank Ltd. United Phosphorous Ltd. Mundra Port & Special economic Zone ltd Blue Star Ltd. National Thermal Power Corporation

-3.94% 5.10% 2.93% 1.73% -16.12% -4.12%

(Bank of Baroda is not considered as it moved out of the fund portfolio on April 2012 but again re-entered the portfolio on May 2012)

Though Kotak Mahindra Bank, United Phosphorous and Mundra Port have positive growth it is a slight marginal increase. The Fund Managers ability is brought out in the exit of Blue Star Ltd. as there is a steep fall in the stock

78

performance and hence the fund manager is right in moving out of the stock thus protecting the fund. NAV (Net Asset Value) of this fund is 9.98(on June 20th 2012).

MARKET ANALYSIS OF THE STOCKS WHICH MOVED OUT OF THE FUNDS Various market triggers might have made the fund manager to exit from the stock to keep the fund performance good. Some of the market updates during the period of study and their analysis have been given below. Punjab National Bank The exit of Punjab National Bank in the month of April is more on an intuitive level by the fund manager than a market triggered cause. Though the bank had been performing very well during the month of March, it was more of a make the best when it is doing well and exit out fast approach which would explain as to why the fund manager choose to exit out of the stock even when most market analyst predicted the better for bank. However whatever the reasons had been it proved for the better because Punjab National Bank went downhill after that. Some of the market updates were: o The company is going to issue 15.10 lakh shares to government at Rs 1218.82 per share, reports CNBC-TV18 on 24th March 2012 o Top loser on the Nifty on April 1st 2012 o CBI has filed a case alleging Venkoba Gujjal, deputy general manager of Punjab National Bank for giving bribes to get loans on April 20th 2012 Siemens Ltd. The market went bullish on Siemens Ltd. No particular reason as to why the fund manager chose to exit out of this but there was some volatile performance. On some days Siemens would be among the top market gainers and other days it would be in the top market losers. 79

Some of the market updates were: o Siemens closed at Rs 857.85 on March 14th 2012 with an intraday high of Rs 860.35. There were pending buy orders of 29,456 shares, with no sellers available. (52-week high Rs 884.95). o Top loser in Nifty on April 11th. o Siemens moves up smartly on April 13th with an intraday high of Rs 879. o Siemens among major losers on April 15th.

Oil India Ltd. Various factors led to the decline in stock prices of Oil India during the close of April 2012 and the beginning of May 2012 which may have resulted in the Fund Manager to pull out of the stock. Some of the market updates during those months were: o Uncertainty due to petrol hike on May 17th 2012. o Share prices of upstream companies, led by ONGC, took a hit on the BSE on 20th May 2012 after the government increased the burden of fuel subsidy payable by the oil firms from one-third to 38.8 per cent. o Morgan Stanleys views on Oil India estimated a fall of 31% on 20 th May 2012.

Kotak Mahindra Bank Ltd. Few factors may have provoked the fund manager to move out of Kotak Mahindra Bank. Some of the market updates during those months triggering the exit might have been: o Kotak Mahindra Bank tripped on selling pressure on 26th April 2012.

80

o RBI penalized the bank for violating rules on derivatives and imposed a fine of 15 lacs. o Kotak Mahindra Bank was among major losers on the Nifty on 2 nd May 2012. The exact reason as to why the fund manager chose to exit from the stock is still confusing because the above reasons hardly make any impact on the stock price at a major level. Kotak Mahindra Bank continued to do well and it would have been better if the fund manager had kept the stock invested to gain good returns. It looks more like an exit before facing a downslide as a precaution without any strong bases.

United Phosphorous Ltd Here also there is no strong reason as to why the fund manager chose United Phosphorous to exit out of the fund even though it had been performing very well in the period of study. Some of the market updates during those months that showed favorable reasons to stay invested in the stock are: o One of Indias largest agrochemical makers United Phosphorous has struck its third overseas acquisition this financial year by acquiring 50% in Sipcam Isagro Brazil (SIB) for an undisclosed value on 7th March 2012. o United Phosphorus Limited had informed the Exchange that "United Phosphorous enters into an agreement to acquire strategic stake in Brazilian Company." The Company has now informed the Exchange that on 4th April 2012 the UPL, through its subsidiary has purchased 50 percent stake in Sipcam Isagro Brasil SA. o United Phosphorus declares dividend at Rs 2 per share on 29 th April 2012.

81

Mundra Port & Special Economic Zone Ltd Highly conflicting decisions here. When one fund manager includes Mundra Port into the portfolio of Large Cap Niche Life Fund, another fund manager exits from Mundra Port in Blue Chip Wealth Builder Fund at the same period i.e. May 2012. The fact is that the stock actually performed very well during May 2012 and there is no strong clue as to why the fund managers decided to exit out of Mundra Port. Some of the market updates during those months that showed favorable reasons to stay invested in the stock are: o The Adani Group-promoted Mundra Port & Special Economic Zone (MPSEZ) has said it will be developing a coal import terminal on the Visakhapatnam Port on 26th March 2012. o Shares of Mundra Port and Special Economic Zone (MPSEZ) rose over 3% and analysts say it could have to do with the companys foray in the eastern coast of the country on 25th March 2012. o Mundra Port crosses a record 50 MT cargo handling on 4 th April 2012. o Mundra Port to consider second interim dividend on 25th April 2012. o Mundra Port earmarks Rs 3200cr to grow across India on 10th May 2012.

Blue Star Ltd According to market analysts during the period of study, investing in Blue Star was meant for short term. So it was more of a get in, take the benefits and get out thing. It was a good decision as the share prices of Blue Star show a downward slope from mid of April 2012 all the way till May and June 2012 with slight variations but it never performed as well as in the month of March 2012. Some of the market updates during the period of study are: 82

o To counter the escalating raw material prices, Blue Star hiked prices of its air-conditioning and refrigeration products on 28th March 2012. o Blue Star to consider dividend on 11th May 2012. o Blue Star announced its fourth quarter results. The company's Q4 standalone net profit was down 28% on 24th May 2012. o Blue Star declared dividend at Rs. 7 per share on 24th May 2012.

National Thermal Power Corporation The stock prices of NTPC had picked up remarkably well during the end of March and beginning of April 2012. But somewhere in the mid of April 2012 the share prices started falling. It only peaked once during 10 th May 2012. It was time to exit out of the stock as market experts were also of the view that it would not perform as good as this for some time to come. Some of the market updates during the period of study are: o India's top power utility NTPC plans joint ventures in three months to build USD 3.5-billion power plants in Bangladesh and Sri Lanka, marking the firm's first overseas venture on 11th March 2012. o NTPC top loser on Nifty on 7th April 2012. o NTPC among the major gainers on the sensex on 10th May 2012. o NTPC declares final dividend at Rs. 0.80 per share on 10 th May 2012. o NTPC top loser on sensex on 11th May 2012. Though market experts had advised to exit out of NTPC predicting it would never do as well for nearly a year because there was negative perception on the Power Sector, NTPC again pulled up and did remarkable well in June 2012. Hence exiting out of NTPC was purely based on the fund managers choice rather than on any market triggers.

83

Inference: From the above market analysis we can infer that though certain parameters might have led the fund manager to exit out of the above stocks to keep the fund performing well, the decision ultimately always rests with the fund manager himself and many times there would be no particular reason to exit out of the stock but rather to just reap the benefits when the stock is performing well and exit out before any downslide begins.

84

CONCLUSION:

From the study it is revealed that the funds considered for analysis has performed well in the past. Here the important thing to be considered is when the market was in a bullish trend both the funds outperformed the benchmark index in the long run. The analysis also shows that the two funds are risky investments compared to the selected benchmark index. It also reveals the efficiency of fund manager who did not allow the fund to suffer loss in the long run by exiting out of the fund much earlier. But careful analysis could be done in order to reap maximum benefits from the portfolio rather than exiting out of the stocks early. Both the insurance investment Blue Chip Wealth Builder Fund and Large Cap Niche Life fund both can be considered as a good avenue. Because both the funds are well diversified hence risk will be less as we have seen in the past two years performance of the fund as compared to their bench mark index were good and worthy of customers buying the funds.

85

RECOMMENDATIONS

Achieving better returns are depended on prudent allocation of assets or can be done with random selection of opportunities. For structuring the right investment portfolio of customers we need to know the risk profile and objective of the customers. The company should perform the study of profiling customers, try to understand their specific needs and work towards providing right solutions to specific requirements like safety, liquidity, return and risk. The company should make the best use of the technology for doing research The company needs to promote the financial products through advertisements and other activities

86