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A

PROJECT

ON

CREATI NG A W ARE NESS ABOUT M UTUAL FU NDSAND

UNIT LI NK I NSURAN CE PLA NAS A N IN VE STM EN TO PTIO N & A GATE W AY TO

O P T IM IZE YO UR E AR N IN G S

FOR

K AR V Y ST O C K BR O KIN G LTD.

IN PARTIAL FULFILLMENT

OF

MASTER IN BUSINESS ADMINISTRATION (MBA)

->-

SRINI VAS AKULAMBA

CO LL EGE OF MA NAGEM ENT RES EARC H &ENG IN EERI NG(CMRE), PUNE-52

(2005-2007)

SRINIVAS AKULACollege of Management Research & Engineering, Pune-52

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ACKNOWLDGEMENT

I wish to express my Thankful to one and all who helped me while I

complete this project as a part of my Master Business Administration (MBA)

course.

It was a great learning experience and I came to know about the various

sides of the finance business and the marketing also.

I wish to express my acknowledgment to Mr. Ravi Gaikwad for giving me a

good opportunity to fully explore in his company. A successful project can never be

prepared by a singular effort of person, Its a group efforts.

I wish to express my sincere Thankful to our Director Mr.Anshul Sharma

for allowing me to carry on this project.

Finally, I would like to thank Prof. Shusmita Nande and co-ordinator

Mr.Chanrdashaker Ranade for always being there when I needed them during the

project.

SRINIVAS AKULA


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INDEX

S.NO CONTENTS PAGE NO

1 EXCUTIVE SUMMARY 4

2 COMPANY PROFILE 7

3 OBJECTIVE & SCOPE 10

4 INTRODUTION 115 WHAT IS MUTUAL FUND 14

6 ORGANISATION OF A MUTUAL FUND 16

7 MUTUAL FUND INDUSRIES IN INDIA 18

8 TYPES OF MUTUAL FUND SCHEMES 23

9 MUTUAL FUND COMPANIES 28

10 ADVANTAGES OF MUTUAL FUNDS 38

11 DISADVANTAGES OF MUTUAL FUNDS 41

12 PROJECT PROFILE 42

13 RESEARCH METHODOLOGY 45

14 OPERATIONS AND DATA COLLECTION 47

15 RISK MANAGEMENT AND THE MUTUAL FUND 5116 PERFOMENCE OF MUTUAL FUNDS 55

17 SUGGESTION 61

18 UNIT LINK INSURANCE POLICY(ULIP) 65

19 ULIP DOES THE MARRIAGE WORK? 68

20 AWARENESS OF THE RISKIN ULIP 72

21 CONCLUSION 73

22 PERSONAL INFORMATION 75

23 BIBLIOGRAPHY 76


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EXCUTIVE SUMMARY


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EXCUTIVE SUMMARY

Today an investor is interested in tracking the value of his investments, whether he

invests directly in the market or indirectly through Mutual Funds. This dynamic

change has taken place because of Liberalization, Privatization and globalization

and the growing competition in the investments opportunity available he would

have to make guided and rational decisions on whether he gets an acceptable

return on his investments in the funds selected by him, or if he needs to switch to

another fund.

The basis of appropriate In order to achieve such an end the investor has to

understand preference measurement for the fund, and acquire the basic

knowledge of the different measures of evaluating the performance of the fund.

Only then would he be in a position to judge correctly whether his fund is

performing well or not, and make the right decision.

This project t is undertaken to help the investors in tracking the performance of

their investments in Mutual Funds and has been carried out with the objective of

giving and understanding of Mutual Fund as a financial product, the meaning,

importance, working etc. of Mutual Fund, the current position of Mutual Fund

Industry in India, the number of competitors and other Mutual Fund position.

The methodology for carrying out the project was very simple that is through

secondary data obtained through various mediums like fact sheet of the funds, the

Internet, Business magazines, Newspaper, etc. the analysis of Principal PNB

Funds has been done with respect to its various competitors on the basis of its

ranking system mentioned in the Analysis and Findings part, which is formulated

keeping the benefits and convenience to the investors in mind. The funds havebeen analyzed under various types such as Equity Funds, Income Funds and

Balanced Funds.

It is of paramount importance to keep in mind the risk involved while investment as

bearing or rather being able to bear risks is as important as analyzing the profit of


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the investment. Investments that have the greatest return potential tend to give the

greatest risk potential.

This project represents a information regarding companys brand

awareness and the customer perceptions about the various services which the

organization provides. The main objective of the project is to understand the

customer investment preferences more effectively and efficiently. For execution of

the project methodology adopted is the collection of data through questionnaire,

processing and analyzing the data.

The natures of respondent, which are selected, are the professionals and

having a handsome salary. The area of the project work is pune city and its location

where the survey has been undertaken those are Hinjewadi IT Park, Magarpatta IT

Park, WNS, Baner Symphony Soft Ware, Zenser IT Park, and Senapati Bapat

Road. Karvy is the only personalized service provider offering a range of

investment services depending on the customer needs and wants.

The idea behind the project is to find the customer awareness and

perception regarding mutual funds that are available in market.


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COMPANY PROFILE

COMPANY PROFILE

KARVY, is a premier integrated financial services provider, and ranked among thetop five in the country in all its business segments, services over 16 million

individual investors in various capacities, and provides investor services to over

300 corporate, comprising the who is who of Corporate India. KARVY covers the

entire spectrum of financial services such as Stock broking, Depository

Participants, Distribution of financial products - mutual funds, bonds, fixed deposit,


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equities, Insurance Broking, Commodities Broking, Personal Finance Advisory

Services, Merchant Banking & Corporate Finance, placement of equity, IPOs,

DEMAT services, PAN card application, among others. Karvy has a professional

management team 6500 employees and ranks among the best in technology,

operations and research of various industrial segments. All this complimented with

a nationwide network of 500 Branches, spanned across 350 cities and growing.

The KARVY Group main Branch in Andhra pradesh in Hyderabad,

Mr.C.Parthasarathy is a chairman of KARVY group.

The birth of Karvy was on a modest scale in 1981. It began with the vision and

enterprise of a small group of practicing Chartered Accountants who founded the

flagship company Karvy Consultants Limited. They started with consulting and

financial accounting automation, and carved inroads into the field of registry andshare accounting by 1985. Since then, they have utilized their experience and

superlative expertise to go from strength to strengthto better their services, to

provide new ones, to innovate, diversify and in the process, evolved Karvy as one

of Indias premier integrated financial service enterprise.

Thus over the last more than two decades Karvy has traveled the success route,

towards building a reputation as an integrated financial services provider, offering a

wide spectrum of services. And its employees have made this journey by taking the

route of quality service, path breaking innovations in service, versatility in service

and finallytotality in service.

Karvys highly qualified manpower, cutting-edge technology, comprehensive

infrastructure and total customer-focus has secured for it the position of an

emerging financial services giant enjoying the confidence and support of an

enviable clientele across diverse fields in the financial world.

On market trends, investment options, opinions etc. Thus empowering the

investor to base every financial move on rational thought and prudent analysis and

embark on the path to wealth creation. Their monthly magazine, Finapolis,

provides up-dated market information.


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The major achievements of Karvy are:

1. Ranking among the top 3 stock broking firms in India

2. India's No. 1 Registrar & Securities Transfer Agents

3. Among the to top 3 Depository Participants4. Largest Network of Branches & Business Associates

5. First ISO- 9002 certified operations by DNV

6. Among top 10 Investment bankers

7. Largest Distributor of Financial Products

8. Adjudged as one of the top 50 IT uses in India by MIS Asia

9. Full Fledged IT driven operations

10.The most admired and preferred financial advisor

Basic Strategy of Karvy

1. Focus on retail segment.

2. Build a strong pan-India network managed by experienced

Professionals build presence across metros & class A/B town.

3. Build full-service capabilities leveraging the network-offer the

Entire gamut of financial services, backed by strong transaction

Processing and high volume handling capability.

4. Established a high degree of customer ownership and top-of-mind recall

in the local markets- ensures steady customer traffic and repeat

business.

5. Build a trusted brand; ensure high visibility.

OBJECTIVES AND SCOPE

The project was conducted for the following objective: -

To gain an understanding and knowledge of Mutual Funds as an

Investment Tool.


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To study the product profile of the company.

To evaluate the performance of selected schemes of Mutual Fund of

different companies.

To compare the Mutual fund schemes on different parameters such as

Annualized Returns, Standard Deviation and Sharpe Ratio.

To analyze the performance factor of the Fund based on different drivers

associated with the specific fund.

SCOPE

The Indian securities market is the scope of this project and funds floated therein

.The whole project was based with the agenda to analyze existing mutual funds

and determine their performance factors .In depth analysis of individual fund is not

the scope but on the other hand Performance of funds and finding their reasons as

in general is the primary motive behind this project


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INTRODUCTION

INTRODUCTION

Mutual funds are being perceived as a complete service provider for the investing

public. The stature of mutual funds has been growing among the professional

investors in recent times unlike earlier times when mutual funds were associated

with risk. Today mutual funds are considered to be vehicles for risk control and the


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entire focus has been on this theme. Also, as regards risk, the investing community

has begun to realize that even debt carries nominal risk. Specialization of money

management, which has an impact on all aspects of life, is being instilled and is

beginning to dawn on investors. Mutual funds are no longer a matter of choice but

are rather imperative to the investment decision. Mutual funds provide critical

advantages such as risk control-by which safety is ensured, convenience-wherein

professional investment management is facilitated, flexibility-by which switch over

from debt to equity and vice-versa is facilitated and transparency-whereby

investors know on a day to day basis what their investment is worth.

The response has been stronger from the generally uninformed investing

population. As ironical again it has been found that for financial advisors, brokers,

chartered accountants etc, the awareness level was low even in the case of thiscommunity which one would expect to be enlightened to these facts.

Expectation management is one of the most crucial aspects of running a mutual

fund. At present, the mutual fund IPO segment is witnessing the same frenzy that

the IPO market was witnessing in the early to mid-nineties. However, the potential

investor should be fully aware that there exists no common cure for all ailments.

Mutual funds are a vehicle for managing the investment goals of an individual

provided he/she does his/her homework as to identifying the needs and goals that

are to be attained. The philosophy to work on is that the investor should buy rather

than the funds sell.

Mutual fund-Concept

Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is then invested

in capital market instruments such as shares, debentures and other

securities. The income earned through these investments and the capital

appreciation realized are shared by its unit holders in proportion to the


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number of units owned by them. Thus a Mutual Fund is the most suitable

investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low

cost. The flow chart below describes broadly the working of a mutual fund:


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WHAT IS MUTUAL FUND?

What is a Mutual Fund?

A Mutual Fund is a trust that pool of the savings of a number of investors whoshare a common financial goal. The money thus collected is invested by the fundmanager in different types of securities depend upon the objective of the scheme.These could range from shares to the debentures to money market instruments.The income earned through these investments and the capital appreciationrealized by the scheme is shared by its unit holders in proportion to the number ofunits owned by them. Thus a mutual fund is the most suitable investment for thecommon man as it offers an opportunity to invest in a diversified, professionallymanaged portfolio at a relatively low cost. The small savings of all the investors are


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put together to increase the buying power and hire a professional manager toinvest and monitor the money. Anybody with an investible surplus of as a little as afew thousand rupees can invest in mutual fund. Each Mutual Fund scheme has adefined investment objective and strategy.

Characteristics of Mutual Funds

A Mutual Fund actually belongs to the investors who have pool their funds.The mutual fund is in the hands of the investors.

Investment professionals and other service providers, who earn a fee fortheir service from the fund, manage a mutual fund.

The pool of fund is invested in a portfolio of marketing investments. Thevalue of the portfolio is updated every day.

The investors shares in the fund is denominated by units . The value ofthe unit changes with change in the portfolio value, every day. The value ofone unit of investment is called as the net asset value (NAV).

The investment portfolio of the mutual fund is created according to the

stated investment objectives of the fund.

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:


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Legislation, the Unit Trust of India Act, 1963. In 1987 public sector banks andinsurance companies were permitted to set up mutual funds and accordingly since1987, 6 public sector banks have set up mutual funds. Also the two Insurancecompanies LIC and GIC established mutual funds. Securities Exchange Board ofIndia (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first timeestablished a comprehensive regulatory framework for the mutual fund industry.

Since then several mutual funds have been set up by the private and joint sectors.


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MUTUAL FUND INDUSTRIES IN

INDIA

Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of

mutual fund by UTI in the year 1963. The initiative of the Government of India and

The mutual fund industry in India began with the setting up of the Unit Trust In India

(UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown


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to be a dominant player in the industry with assets of over Rs. 76,547 Crores as of

March 31, 2000. A special Reserve Bank of India governs the UTI. The history of

mutual funds can be divided into four distinct phases.

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was

set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from

the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched by

UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 corers of assets

under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by could

bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian

Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund

(Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as

assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into

being, under which all mutual funds, except UTI were to be registered and


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governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)

was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual

fund houses went on increasing, with many foreign mutual funds setting up funds

in India and also the industry has witnessed several mergers and acquisitions. As

at the end of January 2003, there were 33 mutual funds with total assets of Rs.

1,21, 805 corers. The Unit Trust of India with Rs.44, 541 corers of assets under

management was way ahead of other mutual funds.

Fourth Phase - Since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate

entities. One is the Specified Undertaking of the Unit Trust of India with AUM of

Rs.29, 835 corers (as on January 2003). The Specified Undertaking of Unit Trust of

India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund

Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It

is registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI, which had in March 2000 more than Rs.76, 000

corers of AUM, and with the setting up of a UTI Mutual Fund, conforming to the

SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current

phase of consolidation and growth. As at the end of September 2004, there were

29 funds, which manage assets of Rs.153108 corers under 421 schemes.

The second is the UTI Mutual Fund Ltd., sponsored by SBI, PNB, BOB and LIC.

It is registered with SEBI and functions under the Mutual Fund Regulations. With

the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76000

Crores of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations and with recent mergers taking


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place among different private sector funds, the mutual fund industry has entered its

current phase of consolidation and growth. As at the end of September, 2004,

there were 29 funds, which manage assets of Rs.153108 Crores under 421

schemes.

The Graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT


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Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified

Undertaking of the Unit Trust of India Effective from February 2003. The Assets

under management of the Specified Undertaking of the Unit Trust of India has

therefore been excluded from the total assets of the industry as a whole from

February 2003 on wards.

TYPES OF MUTUAL FUND

SCHEMES


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Interval Schemes

Interval funds combine the features of open-ended and close-ended schemes.

They are open for sale or redemption during pre-determined intervals at NAV

related prices.

By Investment Objective

Growth Schemes

The aim of growth fund is to provide capital appreciation over the medium to

long term. Such schemes normally invest a majority of their corpus in equities. It

has been provided that returns from stock, have out performed most other kind of

investments held over the long term outlook seeing growth over a period of time.

Income Schemes

The aim of income fund is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities

such as Bonds, Corporate Debentures and Government securities.

Income funds are ideal for capital stability and regular income.

Balanced Schemes

The aim of balanced fund is to provide both growth and regular income.

Such schemes periodically distribute a part of their earnings and invest

both equities and fixed income securities in the proportion indicated in

their offer documents. Ina rising stock market, the NAV of these schememay not normally keep pace, or fall equally when the market falls.

These are ideal for investors looking for a combination of income and

moderate growth.


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Money Market Schemes

The aim of money market fund is to provide easy liquidity, preservation

of capital and moderate income. These schemes generally invest in

safer short-term instruments such as treasury bills, certificate of

deposits, commercial papers and inter bank call money. Returns on this

scheme may fluctuate depending upon the interest rate prevailing in the

market. These are ideal for Corporate and individual investors as a

means to park their surplus funds for short period.

Other Schemes

Tax Saving Schemes

These schemes offer tax rebate to the investors under specific

provisions of the Indian income tax laws as the Government offers tax

incentives for the investment in specified avenue. Investment made in

Equity linked Savings schemes (ELLS) and pension schemes are

allowed as deduction under section 88 of the Income Tax Act, 1961. The

Act also provides opportunities to investors to save capital gains under

section 54EA and 54EB by investing in Mutual Funds.

Special Schemes

Index Schemes

Index funds attempts to replicate the performance of a particular

index such as BSE sensex or the NSE 50.


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Sector Specific Schemes

Sectoral funds are those, which invest exclusively in a specific

sector. This could be an Industry or a group of industries or

various segments such as A Group shares or initial public

offerings.

Industry specific schemes

Industry specific Schemes invest in only in the offer document.The investment of these funds is limited to specific industries likeInfoTech, FMCG, pharmaceuticals etc.


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MUTUAL FUND COMPANIES

Mutual Fund companies

The concept of mutual funds in India dates back to the year 1963. The era between

1963 and 1987 marked the existence of only one mutual fund Company in India

with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the

Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund

companies in India took their position in mutual fund market.


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The new entries of mutual fund companies in India were SBI Mutual Fund, Can

bank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund,

Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By

the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private

sector funds started penetrating the fund families. In the same year the first Mutual

Fund Regulations came into existence with re-registering all mutual funds except

UTI. The regulations were further given a revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India, which

has now merged with Franklin Templeton. Just after ten years with private sector

players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33

mutual fund companies in India.

Major Mutual Fund Companies: -

Franklin Templeton India Mutual Fund

HDFC Mutual Fund

Reliance Mutual Fund

State Bank of India Mutual Fund

Tata Mutual Fund

Unit Trust of India Mutual Fund

Bank of Baroda Mutual Fund (BOB Mutual Fund)

HSBC Mutual Fund

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund


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ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

Sahara Mutual Fund

Kotak Mahindra Mutual Fund

Standard Chartered Mutual Fund

Morgan Stanley Mutual Fund India

Escorts Mutual Fund

Alliance Capital Mutual Fund

Benchmark Mutual Fund

Chola Mutual Fund

Can bank Mutual Fund

LIC Mutual Fund

GIC Mutual Fund

Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA) based companywith a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest

financial services groups in the world. Investors can buy or sell the Mutual Fund

through their financial advisor or through mail or through their website. They have

Open end Diversified Equity schemes, Open end Sector Equity schemes, Open

end Hybrid schemes, Open end Tax Saving schemes, Open end Income and


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Liquid schemes, Closed end Income schemes and Open end Fund of Funds

schemes to offer.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely

Housing Development Finance Corporation Limited and Standard Life Investments

Limited.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act,

1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital

Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance

Capital Mutual Fund, which was changed on March 11, 2004. Reliance Mutual

Fund was formed for launching of various schemes under which units are issued to

the Public with a view to contribute to the capital market and to provide investors

the opportunities to make investments in diversified securities.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch

offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately.

Today it is the largest Bank sponsored Mutual Fund in India. They have already

launched 35 Schemes out of which 15 have already yielded handsome returns to

investors. State Bank of India Mutual Fund has more than Rs. 5,500 Corers as

AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors

for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The

investment manager is Tata Asset Management Limited and its Tata Trustee


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Company Pvt. Limited. Tata Asset Management Limited is one of the fastest in the

country with more than Rs. 7,703 corers (as on April 30, 2005) of AUM.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003,

manages the UTI Mutual Fund with the support of UTI Trustee Company Private

Limited. UTI Asset Management Company presently manages a corpus of over

Rs.20000 Corer. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB),

Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance

Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds,

Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance

Funds.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992

under the sponsorship of Bank of Baroda. BOB Asset Management Company

Limited is the AMC of BOB Mutual Fund and was incorporated on November 5,

1992. Deutsche Bank AG is the custodian.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital

Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual

Fund acts as the Trustee Company of HSBC Mutual Fund.

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee

(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset


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Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL.

It is presently having more than 1,99,818 investors in its various schemes. KMAMC

started its operations in December 1998. Kotak Mahindra Mutual Fund offers

schemes catering to investors with varying risk - return profiles. It was the first

company to launch dedicated gilt scheme investing only in government securities.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by

Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company

Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC

which was incorporated with SEBI on December 20,1999.

Morgan Stanley Mutual Fund India

Morgan Stanley is a worldwide financial services company and its leading in the

market in securities, investment management and credit services. Morgan StanleyInvestment Management (MISM) was established in the year 1975. It provides

customized asset management services and products to governments,

corporations, pension funds and non-profit organizations. Its services are also

extended to high net worth individuals and retail investors. In India it is known as

Morgan Stanley Investment Management Private Limited (MSIM India) and its

AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified

equity scheme serving the needs of Indian retail investors focusing on a long-term

capital appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as

its sponsor. The


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contributed Rs. 2 Corers towards the corpus of the Fund. LIC Mutual Fund was

constituted as a Trust in accordance with the provisions of the Indian Trust Act,

1882. . The Company started its business on 29th April 1994. The Trustees of LIC

Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company

Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a

Government of India undertaking and the four Public Sector General Insurance

Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co.

Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co.

Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the

Indian Trusts Act, 1882


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ADVANTAGES AND

DISADVANTAGES OF MUTUAL

FUNDS

ADVANTAGES OF INVESTIN IN MUTUAL FUNDS

Diversification:Mutual Funds invest in a broad range of securities.

This limits investment Risk by reducing the effect of a possible decline inthe value of any one security. Mutual Fund shareowners can benefits from

diversification techniques usually available only to buy significant positions

in a wide variety of securities.


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Low cost: If you tried to create your own diversified portfolio of stocks,

youd need at least $100000 and youd pay thousands of dollars in

commission to assemble your portfolio. A mutual fund lets you participate in

a diversified portfolio for as little as 1000, and sometimes less. And if you

buy a no-load, you pay or no sales changes own them.

Professional Management: Most mutual funds pay topflight

professionals to manage their investments. These managers decide what

securities the fund will buy and sell.

Liquidity: It's easy to get your money out of a mutual fund. Write a

check, make a call, and you've got the cash.

Regulatory oversight: Mutual funds are subject to many government

regulations that protect investors from fraud.

Convenience:You can usually buy mutual fund shares by mail, phone,

or over the Internet.

Online service: The Internet provides facts, convenient way or

investors access financial information. Hosts of service are available to theonline investors including direct access to no-load companies.

Automatic Direct Deposit: You can usually arrange to have regular,

third party paymentssuch as social security or pension checks

deposited directly into your fund account. This puts your money to work

immediately, without waiting to clear your checking account, and it saves

you from worrying about cheques being lost in mail.

Record keeping Service

With your own portfolio of stocks and bonds, you would have to do your own

record keeping of purchases, sales, dividends, interest, short-term and long-

term gains and losses. Mutual funds provide confirmation of your transactions


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and necessary tax forms to help you keep track of your investments and tax

reporting.

Safekeeping

When you own shares in a mutual fund, you own securities in many companies

without having to worry about keeping stock certificates in safe deposit boxes

or sending them by registered mail. You dont even have to worry about

handling the mutual fund stock certificates; the fund maintains your account on

its books and sends you periodic statements keeping track of all year

transactions.

Retirement and College Plans

Mutual funds are well suited to Individual Retirement Accounts and most funds

offer IRA-approved prototype and master plans for individual retirement accounts

(IRAs) and Keogh. 403(b), SEP-IRA and 401(k) retirement plans. Funds also

make it easy to Invest-for College. Children or other long-term goals. Many offer

special investment products or programs tailored specifically for investments for

children and college.

Asset Management Accounts

These master accounts, available from many of the larger fund groups, enable you

to manage all your financial service needs under a single umbrella from unlimited

check writing and automatic bill paying to discount brokerage and credit card

accounts.

Margin

Some mutual fund shares are marginal. You may buy them on margin or use them

as collateral to borrow money from your bank or broker. Call your fund company

for details.


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PROJECT PROFILE

PROJECT PROFILE

A major portion of the people in India is not aware of the mutual funds and its

benefits. The main objective of the project was to educate the people about mutual

fund industry and to make them aware about the different types of mutual funds

and also educate them for AMFI examination. Which is mandatory to clear for

becoming a mutual fund advisor. A major portion of the household savings in India


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is concentrated in bank, providents, life insurance funds etc. Only 2-3 in invested in

mutual fund and stock market. The following graph gives an idea of distribution of

household savings.

Distribution of Household Savings 2001

2% 6%

42%

3%13%

21%

13%

Shares&mutual

fund

Currency

Bank Deposits

Non Bank Deposits

Life Insurance

Provident&Pension

Government

Unlike the other developed markets where bank deposits constitutes around 10%,in India the concentrated of the savings is highly towards currency and bankdeposits (Approximately 50%). A shift of only 10% of the house hold savingstowards mutual funds can give a growth of over 25000 Crores on a year on yearbasis with the current base. The motive of the project was to change the mind setof the people regarding the mutual funds and to move their savings from depositsand currency to mutual funds. Keeping this in view our company in to the training

and development of independent financial advisor who can give advise on mutualfunds and create awareness among the household about his investmentopportunity. To know response and to gather knowledge about the various financialadvisors we have conducted a survey.


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RESEARCH

METHODOLOGY


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RESEARCH METHODOLOGY

A research is a careful investigation or enquiry, especially through search foe

new facts in any branch of knowledge. It is a systemized effort to gain more

knowledge.

Research Methodology is a way to systematically solve the research problem.

It includes not only the research methods, but also the logic behind using the

methods.

The methods of research used in this project were as follows:-

Analytical Research

Applied Research

Analytical Research: -

In analytical research the researcher has to use the facts already available,

and analyze these to make the critical evaluation of the material.

In this project I have used many raw data from the varioussources and analyzed it for underlying trends.

Applied Research:-

Applied Research aims at finding a solution for an immediate problem.

Research aimed at certain conclusions (say a solution) facing a concrete social or

business problem is an example of applied research. Thus the central aim of

applied research is to find a solution for some pressing practical problem.

In this project, in the last section, by means of assumptions I have found the

feasibility of a project that the organization means to undertake.

The analysis of the trends followed by the mutual funds was Analytical

Research.


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OPERATIONS AND DATA

COLLECTION


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Top 10 Funds - Period (Last 1 Month)

R

ank

Scheme Name DateNAV

(Rs.)

% Return

as on NAV

date

1 UTI Mahila Unit SchemeMay 30,

200625.9723 2.0266

2Franklin India

International Fund

May 29,

200610.1491 1.8444

3Reliance Regular Savings

Fund - Hybrid - Growth

May 30,

200611.0149 1.728

4

Prudential ICICI Blended

Plan - Option A -

Dividend

May 30,2006

10.5433 1.3711

5Prudential ICICI Blended

Plan - Option A - Growth

May 30,

200610.8058 1.3687

6

HDFC Fixed Maturity

Plan - 13 Month - March

2006 - Regular Plan -

Growth

May 30,

200610.1898 1.0722

7

HDFC Fixed Maturity


2006 - Regular Plan -

Dividend

May 30,

200610.1898 1.0722

8

HDFC Fixed Maturity


2006 - Institutional Plan -

Growth

May 30,

200610.1898 1.0722

9

HDFC Fixed Maturity


2006 - Institutional Plan -

Dividend

May 30,

200610.1898 1.0722

10 Kotak Cash Plus - May 30, 10.5198 1.0625


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Growth 2006

Some facts for the growth of mutual funds in India

100% growth in the last 6 years.

Number of foreign AMC's are in the queue to enter the Indian markets like

Fidelity Investments, US based, with over US$1trillion assets under

management worldwide.

Our saving rate is over 23%, highest in the world. Only canalizing these

savings in mutual funds sector is required.

We have approximately 29 mutual funds, which is much less than US

having more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds

are concentrating on the 'A' class cities. Soon they will find scope in the

growing cities.

Mutual fund can penetrate rural like the Indian insurance industry with

simple and limited products.

SEBI allowing the MF's to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.


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RISK MANAGEMENT AND

MUTUAL FUNDS


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RISK MANAGEMENT AND THE MUTUAL FUNDS

The basic objective of a mutual fund is to provide a diversified portfolio so as to

reduce the risk in investments at a lower cost. The mutual fund industry worldwide

is based on this premise. Investors who take up mutual fund route for investments

believe that their risk is minimized at lower costs, and they get an optimum portfolio

of securities that match their risk appetite. They are ignorant about the diverse

techniques and hedging products that can be used for minimizing the market

volatility and hence take the help of the fund managers. It is very daunting to note

that the drop in the NAV of some of the schemes is higher than the erosion of value

in some of the ICE stocks. The recent survey conducted by Price water house

Coopers (PWC) on risk management by mutual funds has posted interesting as

well as worrying results. According to the survey, as many as 50 percent of the

respondent mutual funds are not managing risk properly. If this is not all, 50

percent of the respondents did not even have documented risk procedures or

dedicated risk managers. The respondents included among others, some of the

heavyweights of the Indian MF industry viz. Templeton, Alliance, Prudential and

IDBI Principal MF.


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The Beta of some of the favorite

stocks is shown below. The Table

contains the Beta of some of the

ICE scrips that constitute the top

10 holdings across various

equity funds. DSQ Software Ltd.

2.09 Taurus Libra Leap (5.68%), DSP

ML Tech. (6.06%)

Satyam Computer Services Ltd. 2.00 ING Growth Port (11.2%), Alliance

Equity Fund (9.7%), Chola freedom

Tech (11.51%)

SSI Ltd. 1.98 IL&FS eCom (9.63%), LIC

Dhansamridhi (9.18%)

Wipro Ltd. 1.87 ING Growth (23.8%), Magnum

Sector Fund -InfoTech (15%),

Alliance Alliance New Millennium

(10%)

Himachal Futuristic

Communications Ltd.

1.82 UTI Sector- Services (9.48%),

Taurus Discovery Stock (10.45%)

Global Tele-Systems Ltd. 1.81 UTI US 92 (7.02%), ING Growth

Portfolio (3.8%)

Zee Telefilms Ltd. 1.70 UTI Sector- Services (7.21%), ING

Growth Portfolio (10.06%),

Infosys Technologies Ltd. 1.54 ING Growth Portfolio

(20.5%), Alliance New

Millennium (11.5%)


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As can be seen, some of the stocks are too volatile and can cause wild movements

in the NAVs of funds that have taken exposures in them. The standard deviation of

the returns in some of these funds points to it. While Alliance Equity Fund has aStandard Deviation of 2.53, Birla Advantage has its Standard Deviation at 2.57.

ING Growth has a standard deviation of 3.3, which is relatively high due to its

exposure to two volatile ICE scrips. Birla Advantage has reduced its exposures to

Infosys drastically in the last two months and taken steps to contain volatility. SBI

Mutual Fund that is recasting its equity portfolio to reduce risks as they can scare

investors is planning similar steps.


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PERFORMANCE MEASURES OF

MUTUAL FUNDS


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PERFOMANCE MEASURES OF MUTUAL FUNDS

Mutual Fund industry today, with about 34 players and more than five hundred

schemes, is one of the most preferred investment avenues in India. However, with

a plethora of schemes to choose from, the retail investor faces problems in

selecting funds. Factors such as investment strategy and management style are

qualitative, but the funds record is an important indicator too. Though past

performance alone cannot be indicative of future performance, it is, frankly, the

only quantitative way to judge how good a fund is at present. Therefore, there is a

need to correctly assess the past performance of different mutual funds.

Worldwide, good mutual fund companies over are known by their AMCs and this

fame is directly linked to their superior stock selection skills. For mutual funds to

grow, AMCs must be held accountable for their selection of stocks. In other words,

there must be some performance indicator that will reveal the quality of stock

selection of various AMCs.

Return alone should not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include the risk taken by the

fund manager because different funds will have different levels of risk attached to

them. Risk associated with a fund, in a general, can be defined as variability or

fluctuations in the returns generated by it. The higher the fluctuations in the returns

of a fund during a given period, higher will be the risk associated with it. These

fluctuations in the returns generated by a fund are resultant of two guiding forces.

First, general market fluctuations, which affect all the securities, present in the

market, called market risk or systematic risk and second, fluctuations due to

specific securities present in the portfolio of the fund, called unsystematic risk. The

Total Risk of a given fund is sum of these two and is measured in terms of standard

deviation of returns of the fund. Systematic risk, on the other hand, is measured in

terms of Beta, which represents fluctuations in the NAV of the fund vis--vis

market. The more responsive the NAV of a mutual fund is to the changes in the

market; higher will be its beta. Beta is calculated by relating the returns on a mutual


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fund with the returns in the market. While unsystematic risk can be diversified

through investments in a number of instruments, systematic risk cannot. By using

the risk return relationship, we try to assess the competitive strength of the mutual

funds vis--vis one another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance

indices to evaluate a portfolio by comparing alternative portfolios within a particular

risk class. The most important and widely used measures of performance are:

The Treynor Measure

The Sharpe Measure

Jenson Model

Fama Model

The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the

basis of Treynor's Index. This Index is a ratio of return generated by the fund over

and above risk free rate of return (generally taken to be the return on securities

backed by the government, as there is no credit risk associated), during a given

period and systematic risk associated with it (beta). Symbolically, it can be

represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Biis beta of

the fund.

All risk-averse investors would like to maximize this value. While a high and

positive Treynor's Index shows a superior risk-adjusted performance of a fund, a

low and negative Treynor's Index is an indication of unfavorable performance.


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The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,

which is a ratio of returns generated by the fund over and above risk free rate of

return and the total risk associated with it. According to Sharpe, it is the total risk of

the fund that the investors are concerned about. So, the model evaluates funds on

the basis of reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted

performance of a fund, a low and negative Sharpe Ratio is an indication of

unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we are

evaluating the risk return relationship for well-diversified portfolios. On the other

hand, the systematic risk is the relevant measure of risk when we are evaluating

less than fully diversified portfolios or individual stocks. For a well-diversified

portfolio the total risk is equal to systematic risk. Rankings based on total risk

(Sharpe measure) and systematic risk (Treynor measure) should be identical for a

well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a

poorly diversified fund that ranks higher on Treynor measure, compared with

another fund that is highly diversified, will rank lower on Sharpe Measure.

Jenson Model

Jenson's model proposes another risk adjusted performance measure. This

measure was developed by Michael Jenson and is sometimes referred to as the

Differential Return Method. This measure involves evaluation of the returns that the

fund has generated vs. the returns actually expected out of the fund given the levelof its systematic risk. The surplus between the two returns is called Alpha, which

measures the performance of a fund compared with the actual returns over the

period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)


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Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of the

fund.

Higher alpha represents superior performance of the fund and vice versa.

Limitation of this model is that it considers only systematic risk not the entire risk

associated with the fund and an ordinary investor cannot mitigate unsystematic

risk, as his knowledge of market is primitive.

Fama Model

The Eugene Fama model is an extension of Jenson model. This model compares

the performance, measured in terms of returns, of a fund with the required return

commensurate with the total risk associated with it. The difference between these

two is taken as a measure of the performance of the fund and is called net

selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is

the excess return over and above the return required to compensate for the total

risk taken by the fund manager. Higher value of which indicates that fund manager

has earned returns well above the return commensurate with the level of risk taken

by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then

calculated by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure

and Jenson model use systematic risk based on the premise that the unsystematic

risk is diversifiable. These models are suitable for large investors like institutional

investors with high risk taking capacities as they do not face paucity of funds and

can invest in a number of options to dilute some risks. For them, a portfolio can be

spread across a number of stocks and sectors. However, Sharpe measure and

Fama model that consider the entire risk associated with fund are suitable for small

investors, as the ordinary investor lacks the necessary skill and resources to

diversified. Moreover, the selection of the fund on the basis of superior stock


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selection ability of the fund manager will also help in safeguarding the money

invested to a great extent. The investment in funds that have generated big returns

at higher levels of risks leaves the money all the more prone to risks of all kinds

that may exceed the individual investors' risk appetite


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SUGGESTIONS

SUGGESTIONS


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Self-assessment of ones needs; expectations and risk profile is of prime

importance failing which, one will make more mistakes in putting money in

right places than otherwise. One should identify the degree of risk bearingcapacity one has and also clearly state the expectations from the

investments. Irrational expectations will only bring pain.

The quality of service should be improved with they are providing to the

existing customer.

They have to educate Advisors through conducting seminars, distributing

free broachers, informing about financial planning, mutual fund etc.

Proper care should be taken to motivate the advisor so that they can also

make effort from their side to increase their AUM. Some incentive should beprovided to them for Advertisement and their sales should be measured so

that they can do the promotional activities and regular follow-ups.

The company should take due care in selecting an advisor because they

are the most important person in the process of all. The company should

push them regularly so that they can make their effort to increase their AUM

in their area which at present is not. Advisors are not taking due care, they

are even hesitating to spend small amount on doing a promotional activity.

It is important to identify the nature of investment and to know if one is

compatible with the investment. One can lose substantially if one picks the

wrongkind of mutual fund. In order to avoid any confusion it is better to go

through the literature such as offer document and fact sheets that mutual

fund companies provide on their funds.

One first has to decide what he wants the money for and it is this

investment goal that should be the guiding light for all investments done. It

is thus important to know the risks associated with the fund and align it with

the quantum of risk one is willing to take. One should take a look at the

portfolio of the funds for the purpose. Excessive exposure to any specific

sector should be avoided, as it will only add to the risk of the entire portfolio.

Mutual funds invest with a certain ideology such as the "Value Principle" or

"Growth Philosophy". Both have their share of critics but both philosophies

work for investors of different kinds. Identifying the proposed investment


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Finding funds that do not charge much fees is of importance, as the fee

charged ultimately goes from the pocket of the investor. This is even more

important for debt funds as the returns from these funds are not much.

Funds that charge more will reduce the yield to the investor. Finding the

right funds is important and one should also use these funds for tax

efficiency. Investors of equity should keep in mind that all dividends are

currently tax-free in India and so their tax liabilities can be reduced if the

dividend payout option is used. Investors of debt will be charged a tax on

dividend distribution and so can easily avoid the payout options.

Finding the right fund is important but even more important is to keep track

of the way they are performing in the market. If the market is beginning to

enter a bearish phase, then investors of equity too will benefit by switching

to debt funds as the losses can be minimized. One can always switch back

to equity if the equity market starts to show some buoyancy.

Knowing when to exit a fund too is of utmost importance. One should book

profits immediately when enough has been earned i.e. the initial

expectation from the fund has been met with. Other factors like non-

performance, hike in fee charged and change in any basic attribute of the

fund etc. are some of the reasons for to exit.


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UNIT LINK INSURANCE PLAN

(ULIP)SRINIVAS AKULA

College of Management Research & Engineering, Pune-52

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UNIT LINK INSURANCE POLICIES(ULIPs)

Most insurers in the year 2004 have started offering at least a few unit-

linked plans. Unit-linked life insurance products are those where the benefits are

expressed in terms of number of units and unit price. They can be viewed as a

combination of insurance and mutual funds. The number of units, which the

customer would get, would depend on the unit price when he pays his premium.

The daily unit price is based on the market value of the underlying assets (equities,

bonds, government securities etc.) and computed from the net asset value.

The advantages of Unit linked plans are that they are simple, clear, and

easy to understand. Being transparent the policyholder gets the entire upside on


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the performance of his fund. Besides all the advantages they offer to the

customers, unit-linked plans also lead to an efficient utilization of capital.

According to the IRDA, a company offering unit linked plans must give the

investor an option to choose among debt, balanced and equity funds. If you opt for

a unit-linked endowment policy, you can choose to invest your premiums in debt,

Balanced or equity plans. If you choose a debt plan, the majority of your premiums

will get invested in debt securities like gilts and bonds. If you choose equity, then a

Major portion of your premiums will be invested in the equity market. The plan you

choose would depend on your risk profile and your investment need.

The ideal time to buy a unit-linked plan is when one can expect long-term

growth ahead. This is especially so if one also believes that current market values

(stock valuations) are relatively low. So if you are opting for a plan that invests

primarily in equity, the buzzing market could lead to windfall returns. However,

should the buzz die down, investors could be left stung.

If one invests in a unit-linked pension plan early on, say 25, one can afford

to take the risk associated with equities, at least in the plan's initial stages.

However, as one approaches retirement the quantum of returns should be

subordinated to capital preservation. At this stage, investing in a plan that has an

equity tilt may not be a good idea. Onside ring that unit-linked plans are relatively

new launches, their short history does not permit an assessment of how they will

perform in different phases of the stock market. Even if one views insurance as a


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long-term commitment, investments based on performance over such a short time

span may not be appropriate.

ULIPs: DOES THE MARRIAGE WORK?

Unit-linked insurance plans (ULIPs) have become something of a rage with

their 'promise' of market-linked returns combined with the dual benefit of insuring

your life from eventualities.

To put it simply, ULIPs attempt to fulfill investment needs of an investor with

protection/insurance needs of an insurance seeker. ULIPs work on the premise

that there is class of investors who regularly invest their savings in products like

fixed deposits (FDs), coupon-bearing bonds, debt funds, diversified equity funds

and stocks. There is another class of individuals who take insurance to provide for

their family in case of an eventuality. So typically both these categories of

individuals (which also overlap to a large extent) have a portfolio of investments as

well as life insurance. ULIP as a product combines both these products

(investments and life insurance) into a single product. This saves the

investor/insurance-seeker the hassles of managing and tracking a portfolio of

products.


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Novel and noble as it appears, investor/insurance-seekers rarely

understand the cost implications of the marriage between investments and life

insurance. To be sure, it is intricate and not everyone is able to unravel it. Abhishek

Bhatia (Head Marketing ICICI Prudential Life Insurance) explains, Unit-linked

products are designed to put control in the hands of the customer. While some

customers are comfortable with this, there are others who require some more

explanation about the features. This is provided by the insurance agent. All the

charges are clearly disclosed in the product brochures that are given to customers.

Moreover, customers get a benefit il lustration, which clearly illustrates the up-front,

investment and mortality charges that are levied on the premium, and shows how

the monies will grow over time, under a certain set of assumptions.

In this backdrop lets understand the costs of owning a ULIP. For illustration

purpose, we have taken ULIPs of ICICI Prudential and HDFC Standard Life, two

leading private insurers. Investors need to understand that this should only give

them an indicative idea about the costs associated with a ULIP as different insurers

have varying cost structures.

We will start with the investment costs. Since ULIPs manage a portfolio of

investments for clients, they incur a cost known as the fund management cost. This

is similar to a mutual fund that incurs costs on managing the equity and debt

portfolio for investors. In this regard, ICICI Prudential ULIP has a three-tier cost

structure.


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SO INVESTORS OPT FOR ULIPs?

First and foremost, investors need to understand that a ULIP is a bundled

product of their investments and their insurance proceeds. So if you have a ULIP

invested in equities, you are exposing your life insurance monies as well as your

investible surplus to the vagaries of equity markets. While it is fine and even

sensible to let your investible assets get an equity flavor, the same cannot be said

about your life insurance monies, which to a large extent should be sacred. The

volatility in equity markets can disturb the calmest of minds and the last thing youwant to see is your nest egg being eroded by the latest slide in equity markets.

Abhishek Bhatia elaborates, A ULIP policyholder has the option to invest in a

variety of funds, depending on his risk profile. If one does not have the appetite to

invest in equity, they can choose a debt or balanced fund.

However, the structure of a ULIP takes care of quite a bit of the uncertainty

in the markets. Insurance companies understand the need to give insurance-

seekers the flexibility to rethink their investment strategy in view of market

histrionics. There is an option for the insurance-seeker to switch to another plan

with a lower or zero equity component to stem the loss in a falling equity market.

Abhishek points out, the switch option allows customers to switch between fund


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options, thereby making adjustments to any perceived risks. ICICI Pru allowspolicyholders to make this switch four times a year at no cost, with Rs 100 at every

additional switch after that. HDFC Standard Life allows policyholders to make as

many switches as they like. However, for investors to make the right switch they

need to track markets actively and be well informed, which is actually the job of the

investment advisor/consultant.

ULIPs are suitable for individuals who are already adequately insured and

are reasonably well-informed and savvy to take active investment decisions by

using the switch option that is provided to a ULIP policyholder. Also policyholders

with regular endowment plans who are not satisfied with the 4-6% returns can

consider taking a ULIP with a lower equity component. It is best if insurance-

seekers tread the middle path and choose balanced plans (with about 50-60%

equity component). Ideally they need to avoid taking the aggressive 100% equity

ULIP, which could needlessly expose their assets to market volatility. So if

insurances-seekers/investors play their cards right, they can make this marriage

work.


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AWARENESS OF THE RISK IN ULIPs

Unit Linked Insurance Plans (ULIPs) all of sudden became a popular

investment vehicle with investors in the past one year. The reason: perhaps the

bull phase or the lure of market-linked returns that insurance companies have been

advertising. But with the markets now having corrected significantly, many

investors are wondering whether they should have opted for a ULIP in the first

place.

A single cornerstone advantage ULIPs offer is that they leave the asset

allocation decision in the hands of investors themselves. You are in control of how

you want to distribute your money across the broad asset classes and how and

when you want to reallocate. You can withdraw from these plans (after the initial

lock in period) without any tax implication as withdrawals and death claim proceeds

under ULIPs qualify for (capital gains) tax exemption under Section 10 (10D) of the

Income Tax Act.

But such flexibility can be a big disadvantage if you are not an expert. You

could choose to be more in equities (like you probably did late last year or early

this year), when the time is probably right to go into low risk debt. Or vice versa.

The impact of such incorrect decisions could be significant.


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CONCLUSION


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CONCLUSION

From the data base of advisors we have collected during the survey

255 of them interested to come in the mutual fund. We were able to

convert more than 50% of them for the AMFI Examination.

We have seen that 75% people were not interested to come in to

the field of mutual fund. The reason was that they dont want to

come out of their shell and dont want to diversify their field of

service. They also dont have the proper knowledge of mutual funds.

There is a scarcity of independent financial advisors are not taking

advisory service as a full time profession.

Life insurance as a form of protection is the single-most important

financial product any earning member of a family must have. Having

said this, a well-diversified portfolio is one of the first rules of

financial planning, and as such one should consider different

instruments as the ability to save increases. Certainly ULIPs

successfully combine the first and most important need of

protection, with savings, and hence are an excellent addition to your

portfolio. These can be combined with various other products, after

taking into account your risk appetite, financial goals and need for

portfolio diversification. Possible investment options range from

bank deposits and government small saving schemes to mutual

funds, stocks and property.


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PERSONAL INFORMATION

1) NAME:

2) ADDRESS:

3) MOBILE NO:

4) HOW MANY CLIENTS DO YOU HAVE:

1) 0-50 2) 50-200 3) 200-500 4) 500-Above

5) HOW MANY YEARS YOU ARE IN THIS FIELD:

1) 0-3 2) 3-5 3) 5-10 4) 10-Above

6) WHAT TYPE OF SERVICE DO YOU PROVIDE:

1,INSURANCE a) LIFE b) GENERAL

2) MUTUAL FUND a) EQUITY MARKET

b) RBI RELIEF BONDS c) POSTAL SCHEMES

7) ARE YOU INTERESTED FOR TAKING AMFI EXAM?

1) YES 2) NO


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8) OTHER ADVISORS WHOM YOU KNOW

BIBLIOGRAPHY

COMPANY PRODUCT CATALOGUES & WEBSITE.

SEBI WEBSITE.

WWW.MUTUALFUNDINDIAN.COM.

WWW.KARVY.COM.

AMFI INDIAN WEBSITE.
http://www.mutualfundindian.com/http://www.karvy.com/http://www.mutualfundindian.com/http://www.karvy.com/

srinivas akula

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