portfolio management

Study of different investment strategies and portfolio management

ACKNOWLEDGEMENT

I wish to express my gratitude to Standard Chartered Bank’s management

for giving us an opportunity to be a part of their esteem organization and

enhance our knowledge by granting permission to do our Summer Internship

Program under their kind guidance.

I am grateful to Mr. NITISH DIPANKAR (Area Sales Manager), our guide, for

his invaluable guidance and cooperation during the course of the program.

He provided us with his assistance and support whenever needed that has

been instrumental in completion of this program.

I am also sincerely thankful to my faculty guide, Mrs. Anupama Raina

(faculty, IBS-Gurgaon) who had an immense patient to take up my all queries

and suggest me her invaluable suggestions. Her guidance and

encouragement has showed the path of fulfillment to my project.

I am grateful to Prof. A.K.Bhattacharya (Faculty, IBS-Gurgaon) for his helpful

guidance to stick to the right path in the project. His guidance during the

questionnaire preparation was very useful and helps me to analyse the

report.

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Table of content

Sl. No. Particulars Page no.

1. Acknowledgement 1

2. Table of content 2

3. Abstract of the Report 3

4. Banking Industry Current scenario 4

5. Company Profile

a. Back ground of Standard Chartered Bank 6

b. Principle and values 7

c. Business offered by Standard Chartered Bank 9

d. Products Offered By Standard Chartered Bank 11

6. Introduction 14

7. Investment & Investment planning 16

8. Study of Financial Products

a. Savings Bank A/c 21

b. Mutual funds 23

c. Life Insurance & ULIPs 35

d. Stock market 45

e. Term Deposits & Bonds 46

9. Field survey 49

10. Analysis 51

11. Recommendation 88

12. Portfolio Management 91

13. Annexure 106

14. Bibliography 119

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Abstract of the Report

This report contains the different investment strategies taken by the investors (mainly small investors) and the trends of investment in different investment instruments. Project focused on findings of risk tolerance of investors and the time horizon they want to remain invested n the market. The project extended to find out the instrument in which different investor is now investing evaluating the projecting risk in the instrument.

To understand the trend of the investor I have gone through a field survey, based on investment strategy questionnaire. The result of the survey depicts a clear picture of current investment trend in Indian market. The analysis shows that the age groups of 18-30 years are more adaptable to the high risk where as the age group of 41-50 are the safe players. Annual income and the disposable income also played a major role in the investment strategies in the investor’s mind. Results reveal that most investor’s first priority to invest is the “Tax Savings”.

The project continues with the portfolio management of the selected respondent of the field survey. To do the portfolio management study have been done on different investment instrument in details, like Savings bank A/c, ULIP (Unit Linked Insurance Policy), Mutual Funds, Stocks, Term Deposits of Standard Chartered Bank and other different private Banks and AMC’s. After the study portfolio is prepared for the selected respondent after revisiting them for the portfolio management discussion. The portfolio is made on the response of the respondent in the last visit.

Introduction to Banking Industry

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The Indian banking can be broadly categorized into Nationalized, Private Banks and Specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the internet has galvanized players at all levels of the banking and financial institutions market grid to look a new at their existing portfolio offerings. Indian banks are now quoting all higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.). The reasons are numerous: the economy is growing at a rate of 8%, Bank credit is growing at 30% per annum and there is an ever-expanding middle class of between 250 and 300 million people (larger than the population of the US) in need of financial services.

Indian markets provide growth opportunities, which are unlikely to be matched by the mature banking markets around the world. Some of the high growth potential areas to be looked at are: the market for consumer finance stands at about 2%-3% of GDP, compared with 25% in some European markets, the real estate market in India is growing at 30% annually and is projected to touch $ 50 billion by 2008, the retail credit is expected to cross Rs 5,70,000 crore by 2010 from the current level of Rs

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1,89,000 crore in 2004-05 and huge SME sector which contributes significantly to India’s GDP.

Banks that employ IT solutions are perceived to be ‘futuristic’ and proactive players capable of meeting the multifarious requirements of the large customer base.

The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams. The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances.

Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. Under the ambit of the nationalized banks come the specialized banking institutions. These co-operatives, rural banks focus on areas of agriculture, rural development etc.

Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively

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The Background of Standard Chartered Bank

he Standard Bank of British South Africa founded in 1863 and the Chartered Bank of India, Australia and China, founded in 1853. The Standard Chartered Group was formed in 1969 through a merger of

these two banks.TBoth companies were keen to capitalize on the huge expansion of trade and to earn the handsome profits to be made from financing the movement of goods from Europe to the East and to Africa.

The Chartered Bank

Founded by James Wilson following the grant of a Royal Charter by Queen Victoria in 1853.

Chartered opened its first branches in Mumbai (Bombay), Calcutta and Shanghai in 1858, followed by Hong Kong and Singapore in 1859.

Traditional business was in cotton from Mumbai (Bombay), indigo and tea from Calcutta, rice in Burma, sugar from Java, tobacco from Sumatra, hemp in Manila and silk from Yokohama.

Played a major role in the development of trade with the East which followed the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871.

In 1957 Chartered Bank bought the Eastern Bank together with the Ionian Bank's Cyprus Branches. This established a presence in the Gulf.

The Standard Bank

Founded in the Cape Province of South Africa in 1862 by John Paterson. Commenced business in Port Elizabeth, South Africa, in January 1863.

Was prominent in financing the development of the diamond fields of Kimberley from 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885.

Expanded in Southern, Central and Eastern Africa and by 1953 had 600 offices.

In 1965, it merged with the Bank of West Africa expanding its operations into Cameroon, Gambia, Ghana, Nigeria and Sierra Leone.

In 1969, the decision was made by Chartered and by Standard to undergo a friendly merger. All was going well until 1986, when a hostile takeover bid was made for the Group by Lloyds Bank of the United Kingdom. When the bid

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was defeated, Standard Chartered entered a period of change. Provisions had to be made against third world debt exposure and loans to corporations and entrepreneurs who could not meet their commitments. Standard Chartered began a series of divestments notably in the United States and South Africa, and also entered into a number of asset sales.

From the early 1990s, Standard Chartered has focused on developing its strong franchises in Asia, the Middle East and Africa using its operations in the United Kingdom and North America to provide customers with a bridge between these markets. Secondly, it would focus on consumer, corporate and institutional banking and on the provision of treasury services - areas in which the Group had particular strength and expertise.

In the new millennium they acquired Grindlays Bank from the ANZ Group and the Chase Consumer Banking operations in Hong Kong in 2000.

Since 2005, they have achieved several milestones with a number of strategic alliances and acquisitions that will extend our customer or geographic reach and broaden our product range.

Principles & Values

At Standard Chartered success is built on teamwork, partnership and the diversity of the people.

At the heart of our values lie diversity and inclusion. They are a fundamental part of our culture, and constitute a long-term priority in our aim to become the world's best international bank.

Today we employ 73,000 people, representing 115 nationalities, and you'll find 61 nationalities among our 500 most senior leaders. We believe this diversity helps to fuel creativity and innovation, supporting the development of exciting new products and services for our customers worldwide.

What Standard Chartered Bank Stand for

Strategic intent

The world's best international bank Leading the way in Asia, Africa and the Middle East

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Brand promise Leading by Example to be The Right Partner

Values Responsive Trustworthy

International

Creative

Courageous

Approach Participation:- Focusing on attractive, growing markets where we can

leverage our relationships and expertise Competitive positioning:- Combining global capability, deep local

knowledge and creativity to outperform our competitors

Management Discipline:- Continuously improving the way we work, balancing the pursuit of growth with firm control of costs and risks Commitment to stakeholders

Customers:- Passionate about our customers' success, delighting them with the quality of our service

Our People:- Helping our people to grow, enabling individuals to make a difference and teams to win

Communities:- Trusted and caring, dedicated to making a difference

Investors:- A distinctive investment delivering outstanding performance and superior returns

Regulators: - Exemplary governance and ethics wherever we are.

Standard Chartered’s Business

Listed on both the London Stock Exchange and the Hong Kong Stock Exchange, Standard Chartered PLC is consistently ranked in the top 25 FTSE 100 companies by market capitalization.

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By combining our global capabilities with deep local knowledge, we develop innovative products and services to meet the diverse and ever-changing needs of individual, corporate and institutional customers in some of the world's most exciting and dynamic markets.

Personal banking

Through our global network of over 1,700 branches and outlets, we offer personal financial solutions to meet the needs of more than 14 million customers across Asia, Africa and the Middle East.

Credit Cards

Accepted worldwide, our credit cards are designed to give you greater financial freedom and flexibility.

Insurance

Enjoy peace of mind with comprehensive protection for you and your family.

Investment Advisory Services

Take advantage of expert advice on how to preserve and enhance your wealth.

International Banking

Our international banking centres provide a confidential banking platform and global investment opportunities.

Savings & Banking Services

We offer a wide choice of savings accounts and banking services to suit you and your lifestyle

Loans & Mortgages

Our personal loans and award-winning mortgages are helping people realise their aspirations in countries across the world.

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SME Banking

SME Banking provides integrated financial solutions to small and medium businesses, through a relationship management approach. Its customer focused product offerings include working capital finance, trade services, foreign exchange, and cash management.

Wholesale Banking

Headquartered in Singapore and London, with on-the-ground expertise that spans our global network, our Wholesale Banking division provides corporate and institutional clients with innovative solutions in trade finance, cash management, securities services, foreign exchange and risk management, capital rising, and corporate finance.

Islamic Banking

Standard Chartered Saadiq's dedicated Islamic Banking team provides comprehensive international banking services and a wide range of Shariah compliant financial products that are based on Islamic values.

Private Banking

Our Private Bank advisors and investment specialists provide customised solutions to meet the unique needs and aspirations of high net worth clients.

Commercial banking

Standard Chartered has maintained a long local presence, since 1858, with particular emphasis on relationship banking. Significant networks have been established with vendors and financial-related organizations to enable it to offer the customers a comprehensive range of flexible financial services, with special focus on transactional banking products. Supported by state-of-the-art operations, Standard Chartered is pro-active in improving every part of services. Electronic Delivery system has been put in place to ensure that transactions are handled speedily.

PRODUCT OFFERED BY STANDARD CHARTERED BANK

Different Types of Savings Bank Account

aXcessPlus

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Unlimited aXcess.

Unlimited Freedom


Get instant cash at over 20,000 ATMs across India and over 1,000,000 ATMs across the world through the Visa network. And get a globally valid Debit Card that lets you shop at over 326,000 outlets in India and at over 14 million outlets across the world.

Unique Feature

FREE Unlimited Visa ATM transactions (Cash withdrawal and balance enquiry)

FREE Standard Chartered Bank branch access across the country. FREE Doorstep Banking FREE Demand Drafts/Pay Orders (drawn at SCB locations) FREE Payable at Par Cheque-book

Other features available are; International Debit Card Phone Banking Net Banking and Extended Banking Hours.

Super Value Account

Unique feature

Free globally valid Debit-cum-ATM card Free Access to 6500 ATMs in India Free Doorstep Banking Free Bill pay Free Inter Bank Funds Transfer Free Foreign Inward Remittance Certificates

Other benefits of the Super Value account:

Globally valid debit card Multicity Banking 24-hour branches, 365 day branches available at select locations Phone banking - available to you 365 days a year on a 24-hour basis in

the metros and everyday of the week at other centers.

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Inter Net banking - access and transact on your accounts through the Internet from any part of the world.

Free Investment Advisory Services to assist you in investing in a range of mutual funds.

Full suite of complimentary banking services including credit cards, loan products and capital market services

No Frills Account

You can now open an account with Standard Chartered Bank, with an average quarterly balance of as low as Rs. 250. What’s more – you can avail of Anywhere Banking, by which you can access your account from any branch of Standard Chartered Bank in India.

Unique Feature

Quarterly Average Balance, as low as Rs. 250. ATM card & Debit Card available. 4 free transactions per month at any Standard Chartered Bank channel

(Internet banking, Phone Banking, ATM & Branch). Anywhere banking– Access your account from any branch of Standard

Chartered Bank. Access to Phone Banking and Internet Banking. Free Cheque deposit at any SCB Branch or ATM.

aaSaan

Unique Feature

No Minimum Balance requirement

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Free unlimited access to any SCB branch across the country for Customer-in-person

Unlimited Free access to Standard Chartered Bank ATM's Up to 4 free cash withdrawal transactions per month at other domestic

VISA ATMs Nominal quarterly fee of Rs. 100 (reversed if the Average Balance in

the quarter is Rs 10,000 or more).

Other Facilities International Debit Card Phone banking Net Banking Extended banking hours Locker facility Door-step banking.

Introduction

Indian economy and Investment Sectorial growth

India economy is developing at a fast rate and every sector of India economy is showing a positive growth. The growth development product in India in the year 2006-07 is 9.2%. The rate of robust growth of in industrial development is 10.6%. ‘The Economists’ have also observed high growth in manufacturing sector and telecommunication sectors. The Infrastructure

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sector is also showing impressive growth in the year 2006-07. The secondary sectors as also shown upward growth, the BSE and NSE sensex has closed at high marks of 21000 and 7000 respectively. In this way all these sectors have contributed to overall growth of Indian economy.

Behind China, India is the second fastest growing economy. According to a survey by Goldman Sachs, India will become the 3rd largest economy by 2035. This is measured in $US. If we use PPP (purchasing power parity) which takes into account local purchasing power, India already has the 3rd largest economy.

The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing a major part of this growth, suggesting the structural transformation underway in the Indian economy.

Within the investment sector the real estate is raising sky high due to

Strong Economic Growth: The world’s fourth largest economy, growing at over 8% the last two years and forecast to grow at over 7% over the next five; Growth measures supported across the political spectrum; a boom in the services sector with a strong revival of industry; powerful internal consumption and demand.

The Rise of the Middle-Class: 300 million and growing with higher disposable incomes and even higher aspirations; educated, professional workforce driving urbanization beyond the traditional metro cities.

.

Before I start I have to explain what investment is and why people want to invest? It is very important for me to understand how people plan before investing. These things are discussed below:

INVESTMENTS

nvestment = Cost Of Capital, like buying securities or other monetary or paper (financial) assets in the money markets or capital markets, liquid real assets, such as gold, real estate, or collectibles. Types of financial investments include I

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http://en.wikipedia.org/wiki/Real_estate

http://en.wikipedia.org/wiki/Gold

http://en.wikipedia.org/wiki/Market_liquidity


shares, other equity investment, and bonds. These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.

People usually invest when they have good amount of ideal money to spend. The main objective is to save money for future uncertainties, capital appreciation, more income and most of all tax savings.

Investing is not guesswork or prediction. It takes more than just a ‘tip’; it needs training to plan, instinct to pick and sheer intellect to make it work for the investor. Human nature is fickle, his wants keep changing.

An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment.

Most investors and advisors spend a great deal of time understanding the merits of the thousands of investments available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

Why people invest?

Investors do invest in different instrument to simplify their lifestyle and to make certain goals in future life. Most investors invest for the long term to fulfill the inflation and for the capital appreciation. By and large the investors have typical requirement to fill, and those are:-

Capital preservation: - The chance of losing some capital has been a primary need. This is perhaps the strongest need among investors in India, who have suffered regularly due to failures of the financial system.

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Wealth generation: - This is largely a factor of investment performance, including both short-term performance of an investment and long-term performance of a portfolio. Wealth accumulation is the ultimate measure of the success of an investment decision.

Life Cover:- Many investors look for investments that offer good return with adequate life cover to manage the situations in case of any eventualities. Recent days investors do invest in the endowment policies and ULIPs.

Tax savings: Legitimate reduction in the amount of tax payable is an important part of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation.

Income: This refers to money distributed at intervals by an investment, which are usually used by the investor for meeting regular expenses. Mostly daily traders invest for income.

Future Uncertainty: - No one has seen the future so every person personally save money for any contingencies. People invest in short term for this. There must be an easy cash withdraw for the contingencies.

Ease of withdrawal: This refers to the ability to invest long term but withdraw funds when desired. This is strongly linked to a sense of ownership. It is normally triggered by a need to spend capital, change investments or cater to changes in other needs.

Beat inflation: - inflation is a major player in the economy. It reduced the valuation of rupee. Investors do in vest to maintain the buying capacity of them.

Retirement planning: - most of the service person do invest to get return after the vesting period, for that the investment such a manner that the returns comes at the time of retirement.

Investment Planning

Investors need to identify the financial goals throughout life or for the next 10 to 15 years depending upon the time horizon selected by the investor, and prioritizing them. Investment Planning is important because it helps in deriving the maximum benefit from the investments.

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Success as an investor depends upon his investment in right instrument in right time and for the right period. This, in turn, depends on the requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and level of return.

Investment Planning also helps to decide upon the right investment strategy. Besides individual requirement, investment strategy would also depend upon age, personal circumstances and risk appetite.

Investment Planning also helps in striking a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, which suits particular needs and requirements.

Investment means putting the ideal money to work to earn more money. Done wisely, it can help you meet financial goals. Investing even a small amount can produce considerable rewards over the long-term, especially if you do it regularly. But one needs to decide about how much he / she wants to invest and where.

Options before investment

Investors choose wisely before investing which solely depends on the present market conditions, future prospect of the instrument, the return offered by the company and the season to invest in that particular instrument. For example, a good investment for a long-term life insurance plan may not be a good investment for higher education expenses. In most cases, the right investment is a balance of three things: Liquidity, Risk tolerance and Return.

Liquidity – How easily an investment can be converted to cash, since part of invested money must be available to cover financial emergencies.

Risk tolerance - The biggest risk is the risk of losing the money that has been invested, but the main thing is to how much investor can cover up and sustain with that. Another equally important risk is that investments may not provide enough growth or income to offset the impact of inflation, which could lead to a gradual increase in the cost of living. There are additional risks as well (like decline in economic growth). But the biggest risk of all is not investing at all.

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Return - Investments are made for the purpose of generating returns. Safe investments often promise a specific, though limited return. Those that involve more risk offer the opportunity to make - or lose - a lot of money.

The Investment Process

Investors like to invest through the instinct and want to gain profit from the market by investing. However, while financial institutions are undoubtedly a part of the process of investing. As investors, it is not surprising that we focus so much of our energy and efforts on investment philosophies and strategies, and so little on the investment process. It is far more interesting to read about how Peter Lynch picks stocks and what makes Warren Buffett a valuable investor, than it is to talk about the steps involved in creating a portfolio or in executing trades. Though it does not get sufficient attention, understanding the investment process is critical for every investor for several reasons:

1. Investment planning centrally depends upon the portfolio of the investor; as a result the primary step of the investment process is to make a portfolio. By emphasizing the sequence, it provides for an orderly way in which an investor can create his or her own portfolio or a portfolio for someone else.

2. The investment process provides a structure that allows investors to see the source of different investment strategies and philosophies. By so doing, it allows investors to take the hundreds of strategies that they see described in the common press and in investment newsletters and to trace them to their common roots.

3. The investment process emphasizes the different components that are needed for an investment strategy but strategies that look good on paper never work for those who use them.

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STEPS INVOLVED IN INVESTMENT PLANNING

Investment is not only prediction it has its own reasons behind every up and down in the market. So it is has its own theory to move in particular directions. To get in to the market investors must go through the following process.

Analysis and profiling of the instrument: - The first step is performing a Need Analysis check. The requirements and expectations of the investor should be met by the instrument. During the profiling investor should consider their age, their profession, the number of dependents, and their income. By doing this check, the risk profile of the investor should be designed.

Evaluating the alternatives: - The next step would be revaluating the needs. Other investment instruments and options should be analyzed. The risk-return profile of investment products is evaluated in this step. Every investment product varies according to its return potential and riskiness. Investment products giving a high rate of return are generally risky and volatile. The products giving a lower rate of return usually are less risky.

Analyse the Profile: - The next step would be analyse the risk-return profile of the investor on to the investment portfolio. The investment instruments are matched with the risk-return profile of the investor. All the investment alternatives that offer expected rate of return are evaluate for consideration.

Preparing an Optimum Portfolio: - Then according to the risk appetite and return pattern an optimum portfolio is designed for the investor. The basket of investment instrument selected in the previous step are given due weightage and appropriate amount of money is invested in each of the investment avenue so as to get maximum return with minimum possible risk.

Consistent Monitoring: - Finally a continuous watch on the portfolio is extremely important. Fundamental analysis of the investment

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products done in the previous stages would only help in selecting the right product but the right time of entry or exit from a particular stream is evaluated by doing a technical analysis. For this professional portfolio management is a must.

STUDY OF FINANCIAL PRODUCTS

Investment options in India

Savings Bank Account (SB A/c)

Saving Bank account (SB account) is meant to promote the habit of saving among the people. It also facilitates safekeeping of money. In this scheme fund is allowed to be withdrawn whenever required, without any condition. Hence a savings account is a safe, convenient and affordable way to save money. Banks generally put some restrictions on the total number of withdrawals permitted during specific time periods. Banks also stipulate certain minimum balance to be maintained in savings accounts. Normally a higher minimum balance is stipulated in cheque operated accounts as compared to non-cheque operated accounts.

Features: The minimum amount to open an account in a nationalized bank is Rs 500. If cheque books are also issued, the minimum balance of Rs 1000 has to be

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Analysis and profiling of the instrument

Evaluating the alternatives

Analyse the Profile

Preparing an Optimum Portfolio

Consistent Monitoring Investment planning


maintained. However in some private or foreign bank the minimum balance is Rs 5,000 or more and can be up Rs. 10,000. One cheque book is issued to a customer at a time.

A Savings account can be opened either individually or jointly with another individual. In a joint account only the sign of one account holder is needed to write a cheque. But at the time of closing an account, the sign of the both the account holders are needed.

Certain non-profit welfare organizations are also permitted to open Savings bank accounts with banks.

ReturnInterest @ 3.5 % p.a. with effect from 1/3/2003.

The amount of interest will be calculated for each calendar month on the lowest balance in credit of any account between the close of the tenth day and the last day of each month. In Savings Bank account, bank follows the simple interest method. The rate of interest may change from time to time according to the rules of Reserve Bank of India.

One can withdraw his/her money by submitting a cheque in the bank and details of the account, i.e. the Money deposited, withdrawn along with the dates and the balance, is recorded in a passbook.

Advantages It's much safer to keep your money at a bank than to keep a large amount of cash in your home.

Bank deposits are fairly safe because banks are subject to control of the Reserve Bank of India with regard to several policy and operational parameters, many of the banks also give internet banking facility through with one do the transactions like withdrawals, deposits, statement of account etc.

Banks provide Auto-Mated Teller machine(ATM) for 24 hours cash withdrawn, some banks also have 24 hours open branches in very few selected cities.

How to open a SB account

Savings Bank Account can be opened in the name of an individual or in joint names of the depositors by filling up the appropriate forms.

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A minor who have completed ten years of age can also open and operate the account.

At the time of opening an account one must submit the documents like photocopy of passport or Electoral card, Postal identification card as address proof and two passport size photos.

Most banks also require an introduction for opening an SB account. The introduction may be obtained either from an existing account holder or from a respectable citizen, well known to the bank, which should normally call on the bank and sign in the column specially provided for the purpose of introduction in the account opening form.

Mutual fund in India

A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

You can make money from a mutual fund in three ways:

1) Income is earned from dividends on stocks and internet on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution.2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Advantages of Mutual Funds:

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Professional Management - The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.

Economies of Scale- Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions.

Liquidity- Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.

Disadvantages of Mutual Funds:

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• Professional Management - Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

• Costs - Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.

• Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

• Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

No matter what type of investor you are, there is bound to be a mutual fund that fits your style. According to the last count there are more than 10,000 mutual funds in North America! That means there are more mutual funds than stocks.

It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk - it's never possible to diversify away all risk. This is a fact for all investments. Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds: 1) Equity funds (stocks)2) Fixed income funds (bonds)3) Money market funds.

All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as

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growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.

Let's go over the many different flavors of funds. We'll start with the safest and then work through to the more risky.

Money Market Funds:The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD).

Bond/Income Funds:Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.

Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities. Furthermore, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down.

Balanced Funds:The objective of these funds is to provide a balanced mixture of safety, income and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixed income. The weighting might also be restricted to a specified maximum or minimum for each asset class.

A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves through the business cycle.

Equity Funds:

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http://www.investopedia.com/terms/b/businesscycle.asp

http://www.investopedia.com/terms/c/capitalappreciation.asp

http://www.investopedia.com/terms/c/certificateofdeposit.asp

http://www.investopedia.com/terms/p/principal.asp


Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use a style box, an example of which is below.

The idea is to classify funds based on both the size of the companies invested in and the investment style of the manager. The term value refers to a style of investing that looks for high quality companies that are out of favor with the market. These companies are characterized by low P/E and price-to-book ratios and high dividend yields. The opposite of value is growth, which refers to companies that have had (and are expected to continue to have) strong growth in earnings, sales and cash flow. A compromise between value and growth is blend, which simply refers to companies that are neither value nor growth stocks and are classified as being somewhere in the middle.

For example, a mutual fund that invests in large-cap companies that are in strong financial shape but have recently seen their share prices fall would be placed in the upper left quadrant of the style box (large and value). The opposite of this would be a fund that invests in startup technology companies with excellent growth prospects. Such a mutual fund would reside in the bottom right quadrant (small and growth).

Global/International Funds:An international fund (or foreign fund) invests only outside your home country. Global funds invest anywhere around the world, including your home country.

It's tough to classify these funds as either riskier or safer than domestic investments. They do tend to be more volatile and have unique country and/or political risks. But, on the flip side, they can, as part of a well-balanced portfolio, actually reduce risk by increasing diversification. Although the world's economies are becoming more inter-related, it is likely

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http://www.investopedia.com/terms/s/stylebox.asp


that another economy somewhere is outperforming the economy of your home country.

Specialty Funds:This classification of mutual funds is more of an all-encompassing category that consists of funds that have proved to be popular but don't necessarily belong to the categories we've described so far. This type of mutual fund forgoes broad diversification to concentrate on a certain segment of the economy.

Sector funds are targeted at specific sectors of the economy such as financial, technology, health, etc. Sector funds are extremely volatile. There is a greater possibility of big gains, but you have to accept that your sector may tank.

Regional funds make it easier to focus on a specific area of the world. This may mean focusing on a region (say Latin America) or an individual country (for example, only Brazil). An advantage of these funds is that they make it easier to buy stock in foreign countries, which is otherwise difficult and expensive. Just like for sector funds, you have to accept the high risk of loss, which occurs if the region goes into a bad recession.

Socially-responsible funds (or ethical funds) invest only in companies that meet the criteria of certain guidelines or beliefs. Most socially responsible funds don't invest in industries such as tobacco, alcoholic beverages, weapons or nuclear power. The idea is to get a competitive performance while still maintaining a healthy conscience.

Index Funds:The last but certainly not the least important are index funds. This type of mutual fund replicates the performance of a broad market index such as the S&P 500 or Dow Jones Industrial Average (DJIA). An investor in an index fund figures that most managers can't beat the market. An index fund merely replicates the market return and benefits investors in the form of low fees.

Costs are the biggest problem with mutual funds. These costs eat into your return, and they are the main reason why the majority of funds end up with sub-par performance.

What's even more disturbing is the way the fund industry hides costs through a layer of financial complexity and jargon. Some critics of the industry say that mutual fund companies get away with the fees they charge only because the average investor does not understand what he/she is paying for.

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http://www.investopedia.com/terms/s/sri.asp


Fees can be broken down into two categories: 1. On-going yearly fees to keep you invested in the fund.2. Transaction fees paid when you buy or sell shares in a fund (loads).

The Expense Ratio

The ongoing expense of a mutual fund is represented by the expense ratio. This is sometimes also referred to as the management expense ratio (MER). The expense ratio is composed of the following:

• The cost of hiring the fund manager(s) - Also known as the management fee, this cost is between 0.5% and 1% of assets on average. While it sounds small, this fee ensures that mutual fund managers remain in the country's top echelon of earners. Think about it for a second: 1% of 250 million (a small mutual fund) is $2.5 million - fund managers are definitely not going hungry! It's true that paying managers is a necessary fee, but don't think that a high fee assures superior performance.

• Administrative costs - These include necessities such as postage, record keeping, customer service, cappuccino machines, etc. Some funds are excellent at minimizing these costs while others (the ones with the cappuccino machines in the office) are not.

• This expense goes toward paying brokerage commissions and toward advertising and promoting the fund.

On the whole, expense ratios range from as low as 0.2% (usually for index funds) to as high as 2%. The average equity mutual fund charges around 1.3%-1.5%. You'll generally pay more for specialty or international funds, which require more expertise from managers.

• Front-end loads - These are the most simple type of load: you pay the fee when you purchase the fund. If you invest Rs.1,000 in a mutual fund with a 5% front-end load, Rs.50 will pay for the sales charge, and Rs. 950 will be invested in the fund.

• Back-end loads (also known as deferred sales charges) - These are a bit more complicated. In such a fund you pay the back-end load if you sell a fund within a certain time frame. A typical example is a 6% back-end load that decreases to 0% in the seventh year. The load is 6% if you sell in the first year, 5% in the second year, etc. If you don't sell the mutual fund until the seventh year, you don't have to pay the back-end load at all.

A no-load fund sells its shares without a commission or sales charge. Some in

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the mutual fund industry will tell you that the load is the fee that pays for the service of a broker choosing the correct fund for you. According to this argument, your returns will be higher because the professional advice put you into a better fund. There is little to no evidence that shows a correlation between load funds and superior performance. In fact, when you take the fees into account, the average load fund performs worse than a no-load fund.

In the Indian economy Mutual funds have grown faster than any other investment instrument.

The table show net capitalization in Mutual fund sector during 2002 to 2007.

Year UTI Bank-sponsored mutual funds

FI-sponsored mutual funds

Private sector mutual funds

Total

2002-03 -9434.1 1033.4 861.5 12122.2 4583.0

2003-04 1049.9 4526.2 786.8 41509.8 47872.7

2004-05 -2467.2 706.5 -3383.5 7933.1 2788.9

2005-06 3423.8 5364.9 2111.9 41581 52481.6

2006-07 7326.1 3032.0 4226.1 76687 91271.2

NET RESOURCES MOBILISED BY MUTUAL FUNDS 2002 to 20071

FEW TERMS IN MUTUAL FUNDS

NAV : -mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share rupee amount of the fund is derived by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.

1 Handbook of Statistics on Indian Economy, Reserve Bank Of India 2006-07

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(Total asset value –liabilities) /no. of units= Net asset value


In terms of corporate valuations, the value of assets less liabilities equals net asset value (NAV), or "book value".

In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual fund’s buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price.

Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return.

Because ETFs and closed-end funds trade like stocks, their shares trade at market value, which can be a dollar value above (trading at a premium) or below (trading at a discount) NAV.

SALE PRICE: - when an investor wants to disinvest from the investment he/she sell the unit(s) of the stock of the shares of mutual fund. The sell results the loss or gain of the capital. The tax law provides special rules for determining how much gain or loss you have, and in what categories, when you sell mutual fund shares. Tax is one of the main concerns during the sell. The tax gain or loss from mutual fund sales is calculated by comparing your tax basis in the shares sold to the sales proceeds net of any transaction costs. In general, the tax-planning objective is to maximize the basis in the shares being sold to minimize the gain, or maximize the loss.

The Tax Code allows four methods:

First-in, first-out (FIFO) method;

Specific identification (specific ID) method;

Single-category or "regular" average basis method; and

Double-category average basis method.

FIFO Method

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This method assumes that shares you sell come out of the earliest-acquired blocks you own. In a rising market, FIFO tends to generate the biggest tax bill, because the oldest, cheapest shares are considered sold first. However, FIFO also increases the odds that your gains will be long term and therefore qualify for the 20% maximum rate.

FIFO is the "default" method. In other words, you must use FIFO to calculate mutual fund gains and losses,

Specific ID Method

Under this method, one specifies exactly which block (or blocks) of mutual fund shares you intend to sell, so you can minimize gains or maximize losses by selling your highest-cost shares first.

Selling the most expensive shares could mean his/her gains will be short term and therefore taxed at regular income tax rate rather than the long-term capital gains rate of 15%. However, if you are selling losers, it's generally better to sell short-term shares. Your short-term losses will then offset short-term gains that would otherwise be taxed at your income tax rate.

Single-Category Average Basis Method

This method is available when one leaves his/her mutual fund shares on deposit in an account with an agent or custodian, but not when he/she actually has possession of share certificates.

Each time investor makes a sale, he simply figures his average presale basis for shares of that fund. For holding period purposes, investor is considered to sell the oldest shares first.

Double-Category Average Basis Method

Here you separate shares into two pools — one consisting of all long-term shares (held over 12 months), and the other consisting of all short-term shares. Then each time you sell, you calculate the average per-share basis for each pool. You can then sell strictly out of one pool or the other, or mix and match as you see fit. The advantage is you have more flexibility to control the basis of the shares being sold and whether the resulting gains will be taxed at 15% or your regular rate.

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Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEMES2

By Structure

o Open - Ended Schemes

o Close - Ended Schemes

o Interval Schemes

By Investment Objective

o Growth Schemes

o Income Schemes

o Balanced Schemes

o Money Market Schemes

Other Schemes

o Tax Saving Schemes

o Special Schemes

Index Schemes

Sector Specific Schemes

2 From finance.indiamart.com

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Fig: changes in the Mutual fund industry in India till 2006

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What is Life Insurance..???

Life insurance is a financial resource for one’s family and loved ones in case of his death. It is a contract between insurer and an insurance company in which the company provides the beneficiaries with a certain amount of money upon insurer death. In return, insurer pays periodic payments (premiums) in an amount that depends on medical history, age, gender, and occupation.

Background3

Though the history of insurance dates back to 1818 with the establishment of the Oriental Life Insurance company in Calcutta, and then when LIC was established in the year 1956. For private life insurance sector in particular things started taking shape after the recommendation of Malhotra committee which put forward a proposal for the establishment of the regulatory body and also encouraged to set up unit linked insurance pension plan. It was after his recommendation that IRDA (Insurance regulatory and development authority) was established in April 2000. After that in the year 2001 the sector was finally opened for the private players and foreign private. They are allowed to have 26% share in Indian company. The real innovation happened in this time only, when Life insurance companies introduced ULIPs with greater flexibilities. After making a magnificent entry and becoming the most popular life insured product.

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’s online service for issue and renewal of licenses to agents.

Due to IRDA the transparency and rules and regulations are still here in the insurance market.

3 (insurance chronicle, Icfai publications & current scenario by jawahar)

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Fig: growth of insurance sector in last 10 years

ULIP AND ENDOWMENT PLANS4

Endowment plans are life insurance plans, which not only cover the individual’s life in case of eventuality but also offer a maturity benefit at the end of the term.

In the event of the individual’s demise, his/her nominees receive the sum assured with accumulated profits/bonus on investments (till the time of his demise). In case the individual survives the tenure, he/she receives the sum assured and accumulated profits/bonus.

ULIPs attempts to fulfill investment needs of an investor with protection/ insurance needs of an insurance seeker. ULIPs work on the premise that there is a class of investors who regularly invest their savings in products like fixed deposits, bonds, debt funds, diversified equity funds and 4 Business India, may ‘05 Business India, Feb ‘06 Business India, March ‘06

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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 have a portfolio of investment as well as life insurance.

ULIP as a product combines both these products (investment and life insurance) into single product. This saves the investor/insurance seeker the hassles of managing and tracking a portfolio of product.

Taking into account the changing socio-economic demographics, rate of GDP growth, changing consumer behavior and occurrences of natural calamities at regular intervals, the Indian life insurance market is expected to reach the value of around Rs 1683 Billion in the year 2009. The market is expected to grow at a CAGR of more than 200% YOY from the year 2006.In 2006-07, pension premium contributed about 22.11% to total premium income of insurers. Interestingly, the figure in the first nine months to December 2005 was 25.22%.

Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country's GDP.

Key Players

This section provides an overview of some of the key players in this industry like Bajaj Allianz, ING Vysya, SBI Life, Tata AIG Life, HDFC Standard, ICICI Prudential Life Insurance, Birla Sunlife, Aviva Life Insurance, Kotak Mahindra Old Mutual, Max New York Life, Met Life, Sahara Life, LIC, Tata-AIG General, Reliance General, IFFCO-Tokio, ICICI-Lombard, HDFC Chubb, New India Assurance Company Limited, National Insurance Company Limited, United India Insurance Company Limited and Oriental Insurance Limited.

ULIP - KEY FEATURES (IN GENERAL):

1. Premiums paid can be single, regular or variable. The payment period too can be regular or variable. The risk cover can be increased or decreased.

2. As in all insurance policies, the risk charge (mortality rate) varies with age.

3. The maturity benefit is not typically a fixed amount and the maturity period can be advanced or extended.

4. Investments can be made in gilt funds, balanced funds, money market funds, growth funds or bonds.

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5. The policyholder can switch between schemes, for instance, balanced to debt or gilt to equity, etc.

6. The maturity benefit is the net asset value of the units.

7. The costs in ULIP are higher because there is a life insurance component in it as well, in addition to the investment component.

8. Insurance companies have the discretion to decide on their investment portfolios.

9. They are simple, clear, and easy to understand.

10. Being transparent the policyholder gets the entire episode on the performance of his fund.

11. Lead to an efficient utilization of capital.

12. ULIP products are exempted from tax and they provide life insurance.

13. Provides capital appreciation.

14. Investor gets an option to choose among debt, balanced and equity funds.

ULIPs vs. Mutual Funds

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few.

Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house.

ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity.

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ULIPs Mutual Funds

Investment amounts

Determined by the investor and can be modified as well

Minimum investment amounts are determined by the fund house

Expenses

No upper limits, expenses determined by the insurance company

Upper limits for expenses chargeable to investors have been set by the regulator

Portfolio disclosure Not mandatory*

Quarterly disclosures are mandatory

Modifying asset allocation

Generally permitted for free or at a nominal cost

Entry/exit loads have to be borne by the investor

Tax benefits

Section 80C benefits are available on all ULIP investments

Section 80C benefits are available only on investments in tax-saving funds

MAJOR DIFFERENCES IN ULIPs AND MUTUAL FUNDs

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load.

On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches).

With these comparable there are certain factors where in these two differ. Mutual funds are essentially short to medium term products. The liquidity

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that these products offer is valuable for investors. ULIPs, in contrast, are positioned as long-term products and going ahead, there will be separate playing fields for ULIPS and MFs, with the product differentiation between them becoming more pronounced. ULIPs do not seek to replace mutual funds, they offer protection against the risk of dying too early, and also help people save for retirement. Insurance has to be an integral part of one's wealth management portfolio. Further, exposure of Indian households to capital markets is limited.

ULIPs and mutual funds are, therefore, not likely to cannibalize each other in the long run. The primary objective of an insurance product is protection. The whole reason why it has evolved as a savings plan in the minds of certain people is because there is a significant savings component attached to it; however, it is still not the primary purpose of the plan. Second, there are various kinds of insurance products; the element of protection in each varies. In certain plans the level of protection is low and the savings component high, but that is a choice to the customer.

While ULIPs as an investment avenue is closest to mutual funds in terms of their functioning and structure, the first and foremost purpose of insurance is and will always be 'protection'. The value that it provides cannot be downplayed or underestimated. As an instrument of protection, insurance provides benefits that no investment can offer. It is important for an investor to understand his financial goals and horizon of investment in order to make an informed investment decision. The decision to invest in either a mutual fund or a ULIP should depend on the time period of investment, individual financial goals as well as risk taking appetite, and it’s about time the industry and customer realise it.

ULIP vs. ENDOWMENT PLANS

It wasn't too long back, when the good old endowment plan was the preferred way to insure oneself against an eventuality and to set aside some savings to meet one's financial objectives. Then insurance was thrown open to the private sector. The result was the launch of a wide variety of insurance plans, including the ULIPs.

Two factors were responsible for the advent of ULIPs on the domestic insurance horizon. First was the arrival of private insurance companies on the domestic scene. ULIPs were one of the most significant innovations introduced by private insurers. The other factor that saw investors take to ULIPs was the decline of assured return endowment plans. Of course, the

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regulator -- IRDA (Insurance and Regulatory Development Authority) was instrumental in signaling the end of assured return plans.

Today, there is just one insurance plan from LIC (Life Insurance Corporation) -- Komal Jeevan -- that assures return to the policyholder.

These were the two factors most instrumental in marking the arrival of ULIPs, but another factor that has helped their cause is a booming stock market. While this now appears as one of the primary reasons for their popularity, we believe ULIPs have some fundamental positives like enhanced flexibility and merging of investment and insurance in a single entity that have really endeared them to individuals.

A. EXPENSES

ULIPs are considered to be very expensive when compared to traditional endowment plans. This notion is rooted more in perception than reality.

Sale of a traditional endowment plan fetches a commission of about 30% (of premium) in the first year and 60% (of premium) over the first five years. Then there is ongoing commission in the region of 5%.

Sale of a ULIP fetches a relatively lower commission ranging from as low as 5% to 30% of premium (depending on the insurance company) in the first 1-3 years. After the initial years, it stabilizes at 1-3%. Unlike endowment plans, there are no IRDA regulations on ULIP commissions.

Broadly speaking, ULIP expenses are classified into three major categories:

1) Mortality charges

Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age, sum assured and sum-at-risk for the individual. There is a direct relation between the mortality expenses and the abovementioned factors. In a ULIP, the sum-at-risk is an important reference point for the insurance company. Put simply, the sum-at-risk is the difference between the sum assured and the investment value the individual's corpus as on a specified date.

2) Sales and administration expenses

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Insurance companies incur these expenses for operational purposes on a regular basis. The expenses are recovered from the premiums that individuals pay towards their insurance policies. Agent commissions, sales and marketing expenses and the overhead costs incurred to run the insurance business on a day-to-day basis are examples of such expenses.

3) Fund management charges (FMC)

These charges are levied by the insurance company to meet the expenses incurred on managing the ULIP investments. A portion of ULIP premiums are invested in equities, bonds, and money market instruments. Managing these investments incurs a fund management charge, similar to what mutual funds incur on their investments. FMCs differ across investment options like aggressive, balanced and debt ULIPs; usually a higher equity option translates into higher FMC.

Apart from the three expense categories mentioned above, individuals may also have to incur certain expenses, which are primarily 'optional' in nature- the expenses will be incurred if certain choices that are made available to individuals are exercised.

a) Switching charges

Individuals are allowed to switch their ULIP options. For example, an individual can switch his fund money from 100% equities to a balanced portfolio, which has say, 60% equities and 40% debt. However, the company may charge him a fee for 'switching'. While most life insurance companies allow a certain number of free switches annually, a switch made over and above this number is charged.

b) Top-up charges

ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in addition to the premium amount for a particular year. Insurance companies deduct a certain percentage from the top-up amount as charges. These charges are usually lower than the regular charges that are deducted from the annual premium.

c) Cancellation charges

Life insurance companies levy cancellation charges if individuals decide to surrender their policies (usually) before three years. These charges are levied as a percentage of the fund value on a particular date.

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B. FLEXIBILITY

As we mentioned, one aspect that gives ULIPs an edge over traditional endowment is flexibility. ULIPs offer a host of options to the individual based on his risk profile.

There are insurance companies that offer as many as five options within a ULIP with the equity component varying from zero to a maximum of 100%. You can select an option that best fits your objectives and risk-taking capacity.

Having selected an option, you still have the flexibility to switch to another option. Most insurance companies allow a number of free 'switches' in a year.

Another innovative feature with ULIPs is the 'top-up' facility. A top-up is a one-time additional investment in the ULIP over and above the annual premium. This feature works well when you have a surplus that you are looking to invest in a market-linked avenue, rather than stash away in a savings account or a fixed deposit.

ULIPs also have a facility that allows you to skip premiums after regular payment in the initial years. For instance, if you have paid your premiums religiously over the first three years, you can skip the fourth year's premium. The insurance company will make the necessary adjustments from your investment surplus to ensure the policy does not lapse.

With traditional endowment, there are no investment options. You select the only option you have and must remain with it till maturity. There is also no concept of a top-up facility.

Your premium amount cannot be enhanced on a one-time basis and skipped premiums will result in your policy lapsing.

C. LIQUIDITY

Another flexibility that ULIPs offer the individual is liquidity. Since ULIP investments are NAV-based it is possible to withdraw a portion of your investments before maturity. Of course, there is an initial lock-in period (3 years) after which the withdrawal is possible.

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Traditional endowment has no provision for pre-mature withdrawal. You can surrender your policy, but you won't get everything you have earned on your policy in terms of premiums paid and bonuses earned. If you are clear that you will need money at regular intervals then it is recommended that you opt for money-back endowment.

D. TAX BENEFITS

Taxation is one area where there is common ground between ULIPs and traditional endowment. Premiums in ULIPs as well as traditional endowment plans are eligible for tax benefits under Section 80C subject to a maximum limit of Rs 100,000. On the same lines, monies received on maturity on ULIPs and traditional endowments are tax-free under Section 10.

Indian Stock Market overview

The Bombay Stock Exchange (BSE) and the National stock Exchange India Ltd. (NSE) are the two primary exchanges in India. In addition, there are 22 regional stock exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80% of equity volume traded in India. The average daily turnover

NSE has around 1500 shares listed with a total market capitalization of around Rs. 9,21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs. 9,68,000 crore.

Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to sift their positions on the bourses. The primary index of BSE is BSE Sensex comprising of 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks.

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The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors.

Both exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE online trading) and NEAT (National Exchange Automated Trading) system. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency.

The scripts traded on the BSE have been classified into ‘A’,’B1’,’B2’,’C’, ‘F’,’Z’ groups. The ‘A’ group shares represent those, which are in the carry forward system (Badla).

The ‘F’ group represents the debt market (fixed income securities) segment.

The ’Z’ groups scripts are the blacklisted companies.

The ‘C’ group covers the odd lot securities in ‘A’, ‘B1’, & ‘B2’ groups and rights renunciations.

Term deposits 5

A deposit held at a financial institution that has a fixed term. These are generally short-term with maturities ranging anywhere from a fifteen days to a few years. When a term deposit is purchased, the lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice.

Term deposits are an extremely safe investment and are therefore very appealing to conservative, low-risk investors. By having the money tied up investors will generally get a higher rate with a term deposit compared with a demand deposit.

Investor some time pledge these term deposits to take house loan, personal load, education load, etc. these works as the security deposits or asset of the debtor.

Here is a list of Term deposit rates of different Banks I have studied:-

5 Investopedia.com

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Bonds in India.

A bond is just an organization's IOU; i.e., a promise to repay a sum of money at a certain interest rate and over a certain period of time. In other words, a bond is a debt instrument. Other common terms for these debt instruments are notes and debentures. Most bonds pay a fixed rate of interest for a fixed period of time.

Why do organizations issue bonds?

A company needs funds to expand into new market, while Government needs money for everything from infrastructure to social programs. Whatever the need, a large sum of money will be needed to get the job done.

One way is to arrange for banks or others to lend the money. But a generally less expensive way is to issue (sell) bonds. The organization will agree to pay some interest rate on the bonds and further agree to redeem the bonds (i.e., buy them back) at some time in the future (the redemption date).

ICFAI-Gurgaon 45


The price of a bond is a function of prevailing interest rates. As rates go up, the price of the bond goes down, because that particular bond becomes less attractive (i.e., pays less interest) when compared to current offerings. As rates go down, the price of the bond goes up, because that particular bond becomes more attractive (i.e., pays more interest) when compared to current offerings.

A bearer bond is a bond with no owner information upon it; presumably the bearer is the owner. Bearer bonds included coupons which were used by the bondholder to receive the interest due on the bond.

Another type of bond is a convertible bond. This security can be converted into shares of the company that issues the bond if the bondholder chooses. Of course, the conversion price is usually chosen so as to make the conversion interesting only if the stock has a pretty good rise.

Different types of bonds6

In general there are few types of bonds available in the market to buy, like;

Government bonds: - these bonds are issued by the government to raise money from the public.

Bills - Debts securities maturing in less than one year.

Notes - Debt securities maturing in one to ten years.

Bonds - Debt securities maturing in more than ten years.

Marketable securities from the Indian government– known collectively as Treasuries and are as Treasury bonds, Treasury notes and Treasury bills.

Municipal Bonds – Municipal bonds, known as “munis”, are the next progression in term of risk. The major advantage in munis is that the returns are free from State/central tax. Local government some time makes their debt non-taxable for residents, thus making some municipal bonds completely tax free. Because of the tax-savings yield in munis is lower than the taxable bonds.

6 Security analysis and portfolio management by Ritu Ahuja

ICFAI-Gurgaon 46


Corporate bonds – A company can issue bonds just as it can issue stock. Generally, a short term corporate bond is less than five years; intermediate is five to twelve years, and long term is over 12 years.

Corporate bonds are characterized by higher yields because there is a higher risk of a company defaulting than a government. The company’s credit quality is most important: the higher the credit quality, lower the interest rate the investor receives.

Bondholders are not owners of the corporation. But if the company gets in financial trouble and needs to dissolve, bondholders must be paid off in full before stockholders get anything.

Zero coupon Bonds: - This is a type of bond that make no coupon payments but instead is issued at a considerable discount to par value. For example, let us say, a zero coupon bond with a Rs. 1,000 par value and 10 years to maturity is trading at Rs. 600; then investor would be paying Rs.600 today that will worth Rs. 1,000 after 10 years.

FIELD SURVEY

The field survey was based on the investment strategies taken by the small investors and the instrument they prefer to invest. To fulfill the particular I have done field survey in about 160 people in the NCR. The entire summer internship is surrounded by this investment strategy and making portfolio.

The entire project is designed like this: -

Formation of questionnaire depending upon the investor mind set and the need.

I put strong emphasis on the questionnaire that respondent must fill the questionnaire. For that I restrict my questions to six. Thus it becomes short and time saving.

I visited the malls area in gurgaon and my group members visited few areas in Delhi. As a result we get a mixed response from NCR.

After gathering the entire data sheet I have put it in the excel sheet and started analyzing.

ICFAI-Gurgaon 47


Objective of the Project: The objectives of the project are mainly-

Analysis of current investment strategies adopted by the different age group and different income group.

Basic acceptance of investment instrument towards the investors.

Find out the potential customer and their needs.

Basic trends of investment in the market.

Limitation of the Study: The limitation or the problem I faced during the project are-

Non co-operation of people during the field survey.

Small area for field survey.

Limited time.

Wrong information gives by the respondents.

Limited number of respondents.

ICFAI-Gurgaon 48


ANALYSIS

GRAPHICAL PRESENTATION

Fig: Distribution of age groups in the sample

ICFAI-Gurgaon 49


Explanation :-

The above pie chart shows that the sample of 153 is predominantly consists of respondents of the age groups of 18-30 years and 31-40 years. This reveals that most of the investors are them who are started their carrer recently or working for 10-15 years. This also shows that the age group of greater than 50 years are very less interested in invetment.

Fig : Distribution of occupation through out the sample

Explanation :-

ICFAI-Gurgaon 50


This graph shows that the respondents are mostly from the service class (61%) and business person consists of only 37% of respondents.Self employed are very less in numbers.

Form the Standard Chartered point of view it is quite useful as the service people are regular investors. Where as the business class invest large amount in a single time.

Fig : Distribution of sample annual income wise

Explanation :-

In the sample the income group of 2,50,000 to 5,00,000 Rs is dominating. It reveals that this income group were the major respondent in the survey. The second major income group is the 7,50,000 to 10,00,000.

ICFAI-Gurgaon 51


Most investors are from the income group of 2,50,000 tp 5,00,000 Rsand 7,50,000 to 10,00,000 which is enthusiastic for the companies as the potential customers are from the medium investor and the bid investors. Combining the two income group company can have a mixed bag of good investor in the near future.

Fig : Distribution of disposible income

Explanation :-

Disposible income is the strong piller of investment, more the disposible income for the investors more they invest in the investment instrument. The pie shows that the major repondents have a dispposible income of 5,000 to 10,000 Rs per month which is good enough money for an investor who is investing regularly for the longer term. It also depicts that

ICFAI-Gurgaon 52


investors who has a disposible income of more then 20,000 Rs is 1/5 th of the sample. This reveals company got a fair enough data base of high amount investors.

Fig : First priority of investment in the sample

Explanation :-

Tax saving is the major concern now in india. The above pie alsoshow that 40% of people want to invest for the taxsavings, but that is for only 1.5 lakh. It is expeacted that before the investment investors focus would be the main criteria where he wants to invest in. depending up on the reponse I

ICFAI-Gurgaon 53


have found out that 18% people invest to secure for Future Uncertainties and 19% fight against inflation and do invest for only Capital Preservation.

Only 9% people focus on their retirement time and invest for vesting period.

Fig : Withdraw from investment

Explantion :-

It shows that how investors want to stay remain invested in.42% of investors want to stay in the market for the 3-5 years, it has been said that 3 years is a market cycle so, investor usually want stay in for the two cycle. This is the very normal period for remain invested due to primary BULL and BEAR turn period go through 5-6 years.

ICFAI-Gurgaon 54


23% investors are the short term investor as they want to get out of market with in 3 years. But it is healthy for the investment market thst 18% investors want to stay invested for 6-9 years and 17% more than 10 years. These long term investors are keeping the market more stable than the short term investors.

Fig : Risk tolerence ability

Explanation :-

The research showed that the most investors are risk averse and goo for the moderate risk. 42% investors are in this category. This is good news for the market that only 22% of insvestors are with low risk apetite. The low risk apetite investor mostly invested in the fixed return instruments.

ICFAI-Gurgaon 55


7% investors have very high and 29% investors have high risk profile, they useally invest in the stocks and mutual fund, where the ris is high and the returns are also high in proportion.

Fig :Risk bear acceptablilty

Explanation :-

Investor’s negative return acceptablity shows how he/she can aceept the market up-downs positively. If they really take it to the account then the can sustain in the market for the longer time.

In the above pie chart ‘Never accept return’ shows the group with low risk appetite where as ‘once in 3 years’ & ‘once in 5 years’ represents the group with moderate risk appetite. ‘once in 7 years’ & ‘can fluctuate in

ICFAI-Gurgaon 56


long run’ represents the group with high or very high risk appetite. Though this is not applied to all, as risk assumption is different for every other person.

Here, 36% investors need always positive returns or assured return, where as 30% of investors can have a moderate risk bearing appetite. And rest 34% investors can bear the high risk.

Fig : Disposible income according to age groups

Explanation :-

It clearly shows that the age group of 18-30 years has the most disposible income per month because most of them are single. More the age grows the disposible income reduced may be because the family expance and the living expance increased.

ICFAI-Gurgaon 57


So from the company’s point of view 18-30 years age group is the most potential investors and usually this age group is investing for more profit.

It has to make a point that investors with 5,000 to 10,000 Rs per month are most in the 18-30 years age group.

Fig : Investment instrument used by age groups

Explanation :-

Most of the investors are invested in the insurance sector. The age group of 18-30 years are highly invested in the mutual funds and share market. This group also invested equally in the FDs and RBI bonds.

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The 31-40 years age group is also invested in all the instrument but they are quite heavily invested in the real estate sectors. But the number of respondent in this group is less than the 18-30 years sge group.

The more than 50 years age group are most invested in the FD & RBI bonds. They are less invested in the shares and the mutual funds.

Fig : Risk tolerence according to Age

Explanation :-

Risk tolerence is the major concern in the investment market. If the risk is high then return expected is high for the investors. Age is also considered for the risk tolerence. It is expected that the lower the age group risk tolerence is high.

In the above bar graph it is clear that 18-30 years age group have more risk taking ability than the other age groups, number of respondent in very high, high are most in this age group. The reason behind this is that this

ICFAI-Gurgaon 59


age group wants to earn more and they are only in the beginning of their carrer.

The next group which is next this is the 31-40 age group in which most are family person and for that reason the are with mostly moderate risk profile.

Fig : Age wise time Horizon

Explanation:-

Time Horizon is very much important for an investor because it determines the time period the investor need to invest and the market conditions during that time. More the time horizon the risk diluted more.

Those who invest for very few years (<3 years) the are the short term investors and the risk takers. They usually invest for the high gain in short term. The above bar graph shows that age group 18-30 years dominating in this sector.

ICFAI-Gurgaon 60


Most of the respondents are in the 3-5 years group. They remain invested for the a full cycle of bear turn and bull turn.

The age group of 31-40 years are likely to remain invested in 6-9 years because if they could invest in the beginning of the bull turn then they can make highest profit after 3 market cycle.

Only the Real Estate investors wants to invested more than 10 years.

Fig : Age wise negative return acceptability.

Expalnation :-

Negative return acceptability shows the risk tolerence, as shown before risk tolerence is more in 18-30 years age group, this graph also shows that least risk tolerence group is 31-40 years age group.

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The age group of >50 years are also risk averse they can not tolerate any fluctuuation in return part in longer time but they can tolerate minute losses in 7 and 3 years return.

18-30 year age group response are evenly distributed in all ranges of negative return acceptibility.

Fig : Disposible income-wise Risk tolerence

Explanation:-

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Disposible income gives the power of investment to the investor. But the risk tolerence is the mind set of individual investors. I have tried to corelate these two.

This graph shows that different disposible income group has different risk tolerence. The < 5,000 Rs income group is with moderate risk takers.

The disposible income group of 5,000-10,000 Rs are more risk takers than the previous one. Though the response of this group is more concern about the moderate risk.

The next group 10,000-15,000 Rs has diversified their risk, this group tend to invest in diversified intrument where risk is diluted due to diversity of risk profile.

The 15,000-20,000 Rs disposible income group is the most risk takers in all the groups.

Relation Between Disposible income & Time Horizon

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Fig:Disposible income wise time horizon

Explanation:-

Time horizon decides the tenure the investor remain invested in the market. This depics the investment potential along with risk tolerence.

The above graph shows that the Disposible income group of > 20,000 Rs are intended to quick return,so they intended to invest for below 3 years. 36% of respondent from more than 20,000 Rs group.

The disposible income group of 5,000-10,000 Rs.is tend to invest for 3-5 years and > 10 years span.

Where as 10,000-15,000 Rs disposible income group is predominently invested in the 6-9 years span.

Fig: Disposible income wise investment focus

Explanation:-

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Investment focus is the primary mind set of the investor, before investment he/she always try to find out the proirity of the investment and the suitable savings to invest.

Here in every disposible income group ‘Tax savings’ is one of the main primary focus. But it has seen that 10,000-15,000 Rs group is more end towards the ‘Capital Preservation’ & ‘Tax savings’.

The above 20,000 Rs disposible income group are not focused towards the ‘Retirement’, they are focus to tax savings.

The 15,000-20,000 disposible income group has a primary focus of all the priorities. This is the group which has a mind set of all the rpimary focuses.

Fig: Disposible income wise Negative return acceptabilty

Explanation:-

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The safe players are always want less negative return and fixed return in the fixed tenure. Here in ths bar graph the below 5,000 Rs disposible income group are the safe players, only 9% of this group has a high negative return acceptability.

Where as in the 15,000-20,000 Rs disposible income group has a high Negative return acceptability about 32% respondent are in ‘Can Fluctuate in long run’ and 23% in ‘Once in 7 years’ group.

But in the above 20,000 Rs disposible income group, 50% respondents do not want negative return. The 10,000-15,000 group has a greater negative acceptance tan any other group.

Fig: Occupation wise Investment

Explanation:-

This graph will show how investors of different category tend to invest.

ICFAI-Gurgaon 66


Here in this bar graph service category are like to invest in the Fixed Deposits (23%) and Mutual Funds (24%). Fixed deposits gives a fiex return where as in mutual funds the risk is diversified.

Business class is more attracted towards the Shares (18%) and real estate (17%) because they have the lum sum amount to invest in the single time. More over they also invest in the mutual funds where high risk may be taken for the higher return.

For the Self employed category, they are mostly invested in the Fixed Deposits (37%) and Insurance sector(36%).

Fig: Occupation wise Primary focus

Explanation:-

In the above bar graph shows how occupation dominate the investment focus of the investors.

ICFAI-Gurgaon 67


In the Service category the investment focus is the tax savings, 46% investor prioritised Tax savings as their first priority of investment. Where as income, retirement, capital preservation are the minor priority for them.

For the Business class Capital preservation and Future Uncertainity playes a big role in their investment planning. Nearly 46% investors are in this category.

Self employed are very few in number in my survey so I have not consider them in this explanation.

Fig: Occupation wise Negative Return

Explanation:-

Negative return acceptance is a another way to find out the risk tolerence.

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In this graph Self employed category 75% responded they can not accept negative return. Only 25% responded they can accept negative return in 7 years.

In Service category most investors are risk averse, 39% never accept negative return, but few of them are now started to invest in the riskier profile so negative acceptability is present.

For the business class, they are mostly invested in shares & mutual funds, as results they responded ‘Once in 3 years’ and ‘Can fluctuate in long term’. The investor who want to stay for 3 years are the short term players,where as the long term players can accept ups & downs in their investment for the higher return.

Fig: Occupation wise Time Horizon

Explanation:-

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The above graph shows that in all the occupation nearly 22% -25% investors are want to quit before 3 years. This may be because of the short term investment.

The noticeable thing is that in service category 40% and in Business category 48% investors are tend to remain invested for 3-5 years. This is very good indicstion for the investment institution.

In the service category 21% invetors are want to stay invested for more than 10 years this is because the are invested in the real estate and long term invesment instrument like bonds.

SPSS ANALYSISTABULAR PRESENTATION

Hypothesis: Null hypothesis: There is no relationship between investor’s annual income and time horizon.Alternative hypothesis: Relationship present between annual income and time horizon.

CrosstabsCase Processing Summary

161 100.0% 0 .0% 161 100.0%

161 100.0% 0 .0% 161 100.0%

161 100.0% 0 .0% 161 100.0%

161 100.0% 0 .0% 161 100.0%

161 100.0% 0 .0% 161 100.0%

161 100.0% 0 .0% 161 100.0%

annual income *Withdraw money frominvestment

annual income *Investment in Shares

annual income *Investment in MutualFunds

annual income *Investment in FDs/Bonds

annual income *Investment in Real Estate

annual income *Investment in Insurance

N Percent N Percent N Percent

Valid Missing Total

Cases

Annual income * Time Horizon of investment

ICFAI-Gurgaon 70


Chi-Square Tests

30.729a 12 .002

32.810 12 .001

7.560 1 .006

161

Pearson Chi-Square

Likelihood Ratio

Linear-by-LinearAssociation

N of Valid Cases

Value dfAsymp. Sig.

(2-sided)

10 cells (50.0%) have expected count less than 5. Theminimum expected count is 1.91.

a.

Directional Measures

.029 .047 .612 .541

.050 .054 .897 .370

.011 .051 .209 .835

.080 .027 .000c

.064 .022 .002c

.077 .024 3.257 .001d

.077 .024 3.257 .001d

.078 .024 3.257 .001d

Symmetric

annual income Dependent

Withdraw money frominvestment Dependent



Symmetric



Lambda

Goodman andKruskal tau

Uncertainty Coefficient

Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.

Not assuming the null hypothesis.a.

Using the asymptotic standard error assuming the null hypothesis.b.

Based on chi-square approximationc.

Likelihood ratio chi-square probability.d.

ICFAI-Gurgaon 71

Crosstab

Count

1 5 2 3 11

30 32 8 11 81

2 12 3 2 19

4 11 12 10 37

0 8 3 2 13

37 68 28 28 161

< 2,50,000

2,50,000-5,00,000

5,00,000-7,50,000

7,50,000-10,00,000

>10,00,000

annualincome

Total

< 3 years 3-5 years 6-9 years > 10 years

Time horizon of investment

Total


Symmetric Measures

.400 .002

161

Contingency CoefficientNominal by Nominal

N of Valid Cases

Value Approx. Sig.



Explanation:In the above chi-square test the asymmetric significance is 0.002, which is lower than the table value. Then null hypothesis is rejected & alternative hypothesis is accepted. The Uncertainty coefficient value 0.077 and the approx significance are 0.001, which shows there is fair strong relationship between time horizon & Annual income. The symmetric Lambda shows that there is 2.9% possibility of improvement in that relationship. The contingency coefficient shows that there is 40% association in this relationship. Hypothesis: Null hypothesis: There is no relationship between investor’s annual income and Investment in Share.Alternative hypothesis: Relationship present between annual income and investment in shares.

Annual income * Investment in Shares

Crosstab

Count

8 3 11

47 34 81

14 5 19

16 21 37

4 9 13

89 72 161

< 2,50,000

2,50,000-5,00,000

5,00,000-7,50,000

7,50,000-10,00,000

>10,00,000

annualincome

Total

No Yes

Investment in Shares

Total

Chi-Square Tests

9.532a 4 .049

9.746 4 .045

5.619 1 .018

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)


a.

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.066 .044 1.423 .155

.000 .000 .c

.c

.139 .091 1.423 .155

.012 .009 .108d

.059 .036 .050d

.030 .019 1.602 .045e

.023 .014 1.602 .045e

.044 .027 1.602 .045e

Symmetric


Investment inShares Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.



Cannot be computed because the asymptotic standard error equals zero.c.

Based on chi-square approximationd.

Likelihood ratio chi-square probability.e.

Symmetric Measures

.236 .049

161


N of Valid Cases

Value Approx. Sig.



Explanation:In the above chi-square the asymmetric significance or the p-value is 0.049, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.03 & the approx significance 0.045shows that there is fairly week relationship between the variables.The symmetric Lambda value is 0.066, which means there is 6.6% of possibility of improvement.The contingency coefficient shows there is 23.6% relationship present between the variables.

Hypothesis:

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Null hypothesis: There is no relationship between investor’s annual income and Investment in Mutual Funds.Alternative hypothesis: Relationship present between annual income and investment in Mutual Funds.

Annual income * Investment in Mutual Funds

Crosstab

Count

Investment in Mutual Funds

TotalNo Yesannual income < 2,50,000 10 1 11

2,50,000-5,00,000

31 50 81

5,00,000-7,50,000

8 11 19

7,50,000-10,00,000

8 29 37

>10,00,000 4 9 13Total 61 100 161

Chi-Square Tests

17.729a 4 .001

18.612 4 .001

8.150 1 .004

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)


a.

ICFAI-Gurgaon 74



.064 .022 2.778 .005

.000 .000 .c

.c

.148 .050 2.778 .005

.018 .009 .024d

.110 .036 .001d

.058 .024 2.377 .001e

.044 .018 2.377 .001e

.087 .037 2.377 .001e

Symmetric


Investment in MutualFunds Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.






Symmetric Measures

.315 .001

161


N of Valid Cases

Value Approx. Sig.



Explanation:In the above chi-square the asymmetric significance or the p-value is 0.001, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.058 & the approx significance 0.001shows that there is fairly strong relationship between the variables.The symmetric Lambda value is 0.066, which means there is 6.4% of possibility of improvement.The contingency coefficient shows there is 31.5% relationship present between the variables.

Hypothesis:

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Null hypothesis: There is no relationship between investor’s annual income and Investment in Fixed Deposits & bonds.Alternative hypothesis: Relationship present between annual income and investment in Fixed Deposits & bonds.

Annual income * Investment in FDs/Bonds

Crosstab

Count

0 11 11

28 53 81

4 15 19

19 18 37

9 4 13

60 101 161

< 2,50,000

2,50,000-5,00,000

5,00,000-7,50,000

7,50,000-10,00,000

>10,00,000

annualincome

Total

No Yes

Investment inFDs/Bonds

Total

ICFAI-Gurgaon 76

Chi-Square Tests

17.744a 4 .001

21.319 4 .000

11.906 1 .001

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.(2-sided)


a.



.043 .049 .850 .395

.000 .000 .c

.c

.100 .112 .850 .395

.019 .010 .018d

.110 .039 .001d

.067 .022 2.999 .000e

.050 .016 2.999 .000e

.100 .033 2.999 .000e

Symmetric


Investment inFDs/Bonds Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.






Symmetric Measures

.315 .001

161


N of Valid Cases

Value Approx. Sig.



Explanation:

In the above chi-square the asymmetric significance or the p-value is 0.001, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.067 & the approx significance 0.000shows that there is very strong relationship between the annual income & Investment in FDs/Bonds.The symmetric Lambda value is 0.043, which means there is 4.3% of possibility of improvement.The contingency coefficient shows there is 31.5% relationship present between the variables.

Hypothesis:

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Null hypothesis: There is no relationship between investor’s annual income and Investment in Real estate.Alternative hypothesis: Relationship present between annual income and investment in Real estate.

Annual income * Investment in Real Estate

Crosstab

Count

10 1 11

54 27 81

11 8 19

18 19 37

5 8 13

98 63 161

< 2,50,000

2,50,000-5,00,000

5,00,000-7,50,000

7,50,000-10,00,000

>10,00,000

annualincome

Total

No Yes

Investment in RealEstate

Total

Chi-Square Tests

10.441a 4 .034

11.253 4 .024

9.586 1 .002

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)


a.

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.028 .049 .566 .571

.000 .000 .c

.c

.063 .109 .566 .571

.015 .012 .047d

.065 .034 .035d

.035 .019 1.801 .024e

.026 .015 1.801 .024e

.052 .029 1.801 .024e

Symmetric


Investment in RealEstate Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.






Symmetric Measures

.247 .034

161


N of Valid Cases

Value Approx. Sig.



Explanation:

In the above chi-square the asymmetric significance or the p-value is 0.034, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.035 & the approx significance 0.024shows that there is week relationship between the annual income & Investment in Real estate.The symmetric Lambda value is 0.028, which means there is 2.8% of possibility of improvement.The contingency coefficient shows there is 24.7% relationship present between annual income and investment in Real estate.

ICFAI-Gurgaon 79


Hypothesis: Null hypothesis: There is no relationship between investor’s annual income and Investment in Insurance.Alternative hypothesis: Relationship present between annual income and investment in Insurance.

Annual income * Investment in Insurance

Crosstab

Count

4 7 11

22 59 81

3 16 19

3 34 37

2 11 13

34 127 161

< 2,50,000

2,50,000-5,00,000

5,00,000-7,50,000

7,50,000-10,00,000

>10,00,000

annualincome

Total

No Yes

Investment inInsurance

Total

Chi-Square Tests

7.650a 4 .105

8.270 4 .082

6.191 1 .013

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)


a.

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.000 .000 .c .c

.000 .000 .c

.c

.000 .000 .c

.c

.018 .012 .022d

.048 .030 .107d

.028 .018 1.532 .082e

.019 .013 1.532 .082e

.050 .032 1.532 .082e

Symmetric


Investment inInsurance Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.






Symmetric Measures

.213 .105

161


N of Valid Cases

Value Approx. Sig.



Explanation:

In the above chi-square the asymmetric significance or the p-value is 0.104, which is less than 0.05, so the null hypothesis is accepted. There is no relation between annual income and investment in insurance.

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AGE GROUP VS FIRST PRIORITY OF INVESTMENTHypothesis: Null hypothesis: There is no relationship between investor’s age group and Investment focus or the priority of investment.Alternative hypothesis: Relationship present between age group and Investment focus.

Case Processing Summary

161 100.0% 0 .0% 161 100.0%First Priority ofinvestmnet * Age groups


Valid Missing Total

Cases

First Priority of investmnet * Age groups Crosstabulation

Count

26 21 12 7 66

27 17 0 2 46

5 8 8 2 23

7 4 5 2 18

0 2 3 3 8

65 52 28 16 161

tax savings

Future Uncertainty

Income

Retirement

Capital Preservation

First Priorityof investmnet

Total

18-30 years 31-40 years 41-50 years >50 years

Age groups

Total

Chi-Square Tests

32.766a 12 .001

40.273 12 .000

6.549 1 .010

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)

9 cells (45.0%) have expected count less than 5. Theminimum expected count is .80.

a.

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.037 .043 .845 .398

.011 .076 .137 .891

.063 .040 1.511 .131

.048 .013 .002c

.066 .017 .002c

.094 .019 4.782 .000d

.090 .018 4.782 .000d

.099 .020 4.782 .000d

Symmetric

First Priority ofinvestmnet Dependent

Age groups Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.





Symmetric Measures

.411 .001

161


N of Valid Cases

Value Approx. Sig.



Explanation:

In the above chi-square the asymmetric significance or the p-value is 0.001, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.000 & the approx significance 0.094shows that there is very strong relationship between the age group and first priority of investment.The symmetric Lambda value is 0.037, which means there is 3.7% of possibility of improvement.The contingency coefficient shows there is 41.1% relationship present between age group and first priority of investment.

RISK APPETITE & FIRST PRIORITY OF INVESTMENTHypothesis:

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Null hypothesis: There is no relationship between investor’s risk appetite and Investment focus or the priority of investment.Alternative hypothesis: Relationship present between risk appetite and Investment focus.

Case Processing Summary

161 100.0% 0 .0% 161 100.0%First Priority of investmnet* Risk appetite


Valid Missing Total

Cases

First Priority of investmnet * Risk appetite Crosstabulation

Count

24 25 12 5 66

6 19 17 4 46

3 7 12 1 23

6 8 4 0 18

3 1 2 2 8

42 60 47 12 161

tax savings

Future Uncertainty

Income

Retirement

Capital Preservation

First Priorityof investmnet

Total

Low Moderate High Very high

Risk appetite

Total

Chi-Square Tests

23.235a 12 .026

24.052 12 .020

1.172 1 .279

161

Pearson Chi-Square

Likelihood Ratio


N of Valid Cases

Value dfAsymp. Sig.

(2-sided)

9 cells (45.0%) have expected count less than 5. Theminimum expected count is .60.

a.

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.061 .035 1.679 .093

.053 .055 .931 .352

.069 .046 1.469 .142

.042 .018 .008c

.050 .020 .022c

.056 .021 2.682 .020d

.054 .020 2.682 .020d

.059 .022 2.682 .020d

Symmetric


Risk appetite Dependent



Symmetric



Lambda



Nominal byNominal

ValueAsymp.

Std. Errora

Approx. Tb

Approx. Sig.





Symmetric Measures

.355 .026

161


N of Valid Cases

Value Approx. Sig.



Explanation:

In the above chi-square the asymmetric significance or the p-value is 0.026, which is less than 0.05, so the null hypothesis is rejected & the alternative hypothesis is accepted.The uncertainty coefficient is 0.056 & the approx significance 0.02 shows that there is fairly strong relationship between the risk appetite and first priority of investment.The symmetric Lambda value is 0.061, which means there is 6.1% of possibility of improvement.The contingency coefficient shows there is 35.5% relationship present between risk appetite and first priority of investment.

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CONCLUTION AND RECOMMENDATIONS

The over all project is depending up on the findings that has been explained previously. All my survey findings are corelated and being explain in the above graphs.

After completing the survey and watching the analysis I come to this conclusiion that the before investment investors do have focus on Tax savings, Income, Capiatal preservation etc. They also have a predetermination of the time period of investment.

According to my view the age group of 18-30 can be a great potential investors for the company as the has high risk profile, more disposible income, and the time horizon is perfect 3-5 years.

Recommendation for this category is company must follow up these high potential customers, they can be offered ULIPs as there is blocking period of 5 years in NEW SECURE FIRST plan. This ULIP has a 20%-22% return which good enough for investment. The main focus should be to reach to the customer, these customers are aware of ULIPs and aware of other product. Company should try to reach them and tap the investor.

Mutual Funds can also be offered as they have high risk profile. Company should take initiative to get demat account of these customers.

The age group of 31-40 years, investors are with ‘Moderate’ risk profile, most of the investors are from the 10,000-15,000 Rs per month disposible income. Company will get a good investor with diluted risk profile. Company can offer them ULIPs,and Fixed Deposits as investment instrument. Mutual funds can be an option but that must be a debt fund to invest.

The age group of 41-50 years, investors are from the 15,000-20,000 Rs disposible income group. Investor in this group are invested in Insurance sector, the primary focus of these investors are retirement and time horizon is likely to be 6-9 years. This is also

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good potential group for the retirement plan in ULIPs. Mutual funds can be a good option for them.

For the age group of above 50 years, the rish profile would be low moderate,as the term is not more than 3 years. Investors have invested in insurance sector but in this age insurance would not be a good option for investor. Company should try to minimise the risk tolerence by offering Fixed deposits.

OCCUPATION

If we see the survey data it will seen that respondents are majorly Service peopole and Business Class. Depending upon the data I conclude that the srevice class has a time horizon of 3-5 years and risk tolerence ‘Low- Moderate’. They invested in FDs, Mutual Fund and ULIPs.

Recommendation company shoul tap these class by innovative marketing strategies as they already invested, and offer FDs, ULIPs. Mutual fund can be a lucrative offer if the Fund is any moderate fund or debt fund.

For the business class, the risk profile is high-very high. Most investor are with negative return acceptability and time horizon is < 3 years. Company should offer Mutual funds with risk profile High to very high thus investor can get a high return. Apart from this company should offer to open demat account with them.

Disposible Income

The disposible income bracket less than Rs.5000 per month are basically safe investors and have not and do not prefer investing in mutual funds and ULIP. Thus positioning of these products should be such that people are attracted towards this scheme. Emphasis on marketing of the products should be given.

Respondents under disposible income bracket Rs.5,000-Rs.10,000 have mainly invested in insurance and real estate. But when survey was done and their preferences was asked these respondents strongly preferred investing in these strategies.

Disposible Income Bracket of Rs.15,000-Rs.20,000 are the strong contenders for investing their money and these people have

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invested in real estate, insurance and fixed deposits. Moreover there is mixed preferences for their investments thus proper segmentation of the sample should be done accordingly marketing strategies should be adopted.

Though there is a small percentage of respondents in disposible income bracket above Rs.20,000 who least prefer investing in mutual fund. But this is the segment which can be well targeted and their portfolio should be such that gives them more returns. The case of ULIP is different as people strongly prefer investing in this investment strategy. Thus emphasis for selling ULIP in this income bracket.

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TAX CALCULATION & PORT FOLIO MANAGEMENT

TAX CALCULATION

In the port folio management I have learned how to calculate the Income tax of service person and businessmen. According to the indian Income tax acts Income tax is defined as below:

An income tax is a tax levied on the financial income of persons, corporations, or other legal entities.

Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. Individual income taxes often tax the total income of the individual (with some deductions permitted).

The government of India imposes a Progressive Income Tax on taxable income of individuals, Hindu Undivided Families (HUFs), companies (firms), co-operative societies and trusts.

Income from Salary

All income received as a salary is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as:

1. Medical reimbursement: Up to Rs. 15,000 per year is tax free if supported by bills. (Company pays Fringe Benefit Tax on this amount)

2. Conveyance allowance: Up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as conveyance allowance. No bills are required for this amount.

3. Professional taxes: Most states tax employment on a per-professional basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax.

Income from Business or Profession

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The income referred to in section 28, i.e., the incomes chargeable as "Income from Business or Profession" shall be computed in accordance with the provisions contained in sections 30 to 43D. However, there are few more sections under this Chapter, viz., Sections 44 to 44DA (except sections 44AA, 44AB & 44C), which contain the computation completely within itself. Section 44C is a disallowance provision in the case non-residents. Section 44AA deals with maintenance of books and section 44AB deals with audit of accounts.

Section 80C Deductions

Section 80C of the Income Tax Act [1] allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs. 150,000 (Rupees One lakh fifty thousand) which can be any combination of the below:

* Contribution to Provident Fund or Public Provident Fund

* Payment of life insurance premium

* Investment in pension Plans

* Investment in Equity Linked Savings schemes (ELSS) of mutual funds

* Investment in specified government infrastructure bonds

* Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit)

* Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid.

* Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children)

Section 80D: Medical Insurance Premiums

Medical insurance, popularly known as Medi-claim Policies, provide deduction up to Rs 15000. This deduction is additional to Rs.1,50,000 savings. For senior citizens, the deduction up to Rs. 20,000 is allowable. This deduction is available for premium paid on medical insurance for oneself, spouse, parents and children.

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PERSONAL TAX RATES

For individuals, HUF, Association of Persons (AOP) and Body of individuals (BOI):

For the Assessment Year 2008-09

Taxable income slab (Rs.) Rate (%)

Up to 1,50,000Up to 1,80,000 (for women)Up to 2,25,000 (for resident individual of 65 years or above)

NIL

1,50,001 – 3,00,000 10

3,00,001 – 5,00,000 20

5,000,001 upwards 30*

*A surcharge of 10 per cent of the total tax liability is applicable where the total income exceeds Rs 1,000,000.

Tax calculation:-

For Men

Illustration: let a person with yearly income of 6,00,000 Rs. The tax he will paid will be as given below.

For first 1,50,000 Rs tax Nil

For next 1,00,000 Rs.of investment tax Nil

Now tax for 2,50,001-3,00,000 @ 10% 5,000 Rs

For 3,00,001-5,00,000 Rs. @ 20% 40,000 Rs.

For 5,00,001-6,00,000 Rs. @ 30% 30,000 Rs.

Total tax paid 75,000 Rs.

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What is a Portfolio management?

A portfolio management is a collection of investments held by an institution or a private individual. Kolding a portfolio is part of an investment and risk-limiting strategy called Diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced.

The aim of portfolio management is to achieve the maximum return from a portfolio which has been delegated to be managed by an individual manager or financial institution. The manager has to balance the parameters which define a good investment i.e. security, liquidity, and return. The goal is to obtain the highest return for the client of the managed portfolio.

While doing the portfolio management of customers it is ensured that the portfolio has objectives and achieves a sound balance between the competing objectives, which are:-

Safety of investment Stable current return Appreciation in capital value Liquidity Tax planning Minimizing the risk Diversification

Portfolio Expected ReturnThe expected rate of return is the weighted average of the expected rates of return on assets comprising the portfolio. The weights, which add up to 1, reflect the fraction of total portfolio invested in each asset. Thus, there are two determinants of portfolio returns:

I. Expected rate of return on each assets andII. Relative share of each asset in the portfolio.

Symbolically:E (rp) =∑w E (ri)

Where, E (rp) =expected return from the portfolio.w = proportion invested in the portfolio.E (ri) =expected return from the assets i.

Portfolio RiskTotal risk is measured in terms of variance or standard deviation of return. Unlike portfolio expected return, portfolio variance is not the weighted average of variance of returns on individual assets in the portfolio.Symbolically:

σ²p= (w1)²(σ1)²+ (w2)²(σ2)²+2(w1) (w2) (σ12)

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Where,σ²= Variance of returns of the portfolio(w1)= Fraction of the portfolio invested in asset 1(w2)= Fraction of the portfolio invested in asset 2(σ²1)= Variance of asset 1(σ²2)= Variance of asset 2(σ12)= Covariance between returns of two assets.

Return is not fixed for any investment instrument it depends upon the market liquidity, interest rate, and some other economic situation of that country. For the calculation of the risk & return I have chosen the historic data.I have also showed the risk profile which have been ranging from Low to very high.

List of return expected on the basis of Historical data

Types of investments Historical returns Risk profile

Company Bonds 6%-8% Medium-high

Bond Mutual Funds 8%-10% Medium

Equity Mutual Funds 15%-20% High

Equities 15%-20% Very high

Fixed Deposits 7%-8% Low

PPF 8% Low

Post Office 8% Low

Government Securities 5%-6% Low

ELSS 15%-20% Medium-high

Note: higher returns for lower risk (because of Govt. guarantees there) that PPF and similar A/c appear to have, is misleading. These do not have much liquidity, and since that is an important measure of risk.

CREATING PORTFOLIO

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Making a portfolio is depends on the risk measurement of the investment and the time horizon he/she prefer to invest. But from the point of view of the portfolio manager, choosing a investment intrument or a fund is more difficult than to measure the risk tolerence and time horizon.

For the portfolio managers calculating the risk and return is the main area where they focused. As an investors before investing alwways watch for the risk and return for his/her investment. So before creating the portfolio, risk and return calculation is manditory.

To understand the risk of a specified fund, there are some statistical instruments that helps to measure the volatality in respect to the market, industry, and peers. Measuring volatility and risk depics the fluctuation of return investors receive.

For this creation of portfolio I have choose Mutual Funds as investment instrument because, it has a diversified investment options from equity market, money market, to debt instrument. To diversified investment investor can investment as he/she wanted to. Any one can invest in mutual funds as variation in investment instrument is greater than any other investment instrument.

METHODOLOGY USED

Investing in mutual funds involving an active role of a fund manager is set to be one of the safest investment avenues as regards the high risk/return equity investment. Being assumed safe and the responsibility entrusted to fund managers, it is perceived that investors give a cursory glance at the performance sheet of the fund, gain some money, and carry on with their investments with the fund.

However, though they make money from the fund, a detailed examination of the fund's performance in relation to other risk-free investment avenues and the Benchmark index gives telling insights into the fund's performance. A comparison with risk-free investments like government securities, treasury bills, and also the Benchmark index would determine how safer and more profitable your fund is.

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Here is an analysis of the ratios that can help investors gauge the performance of your fund as regards investing in less riskier investment avenues.

Standard Deviation

Standard deviation throws light on a fund's volatility in terms of rise and fall in its returns. Maximum volatility in a security is the riskiest, considering the unevenness it brings about in its performance. Standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its mean return. That is the average return of a fund over a period of time.

A fund that has a consistent four-year return of 3%, for example, would have a mean or average of 3%. The standard deviation for this fund would then be zero because the fund's return in any given year does not differ from its four-year mean of 3%. On the other hand, a fund that in each of the last four years returned -5%, 17%, 2% and 30% will have a mean return of 11%. The fund will also exhibit a high standard deviation because each year the return of the fund differs from the mean return. This fund is therefore riskier because it fluctuates widely between negative and positive returns within a short period.

To determine how well a fund is maximising its returns received for its volatility, a comparison can be done for similar investment and similar risky mutual funds. The fund with the lower standard deviation would be more optimal because it is maximising the return received for the amount of risk acquired.

Sharpe ratio

This ratio describes how much return you are receiving for the extra volatility that you endure for holding a riskier asset. Remember, you always need to be properly compensated for the additional risk you take for not holding a risk-free asset.

It is defined as S(x) = (rx-Rf)/Std dev(x)

Where 'x' is the investment,

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'rx' is average rate of return of x

Rf is the best available rate of return of a risk-free security like government securities

Std dev(x) is the standard deviation of rx.

Sharpe ratio is a risk-adjusted measure of return that is often used to evaluate the performance of a portfolio. The ratio helps to make the performance of one portfolio comparable to that of another portfolio by making an adjustment for risk. For example, if manager A generates a return of 15% while manager B generates a return of 12%, it would appear that manager A is a better performer. However, if manager A, who produced the 15% return, took much larger risks than manager B, it may actually be the case that manager B has a better risk-adjusted return.

Say that the risk free-rate is 5%, and manager A's portfolio has a standard deviation of 8% (considering high risk/return), while manager B's portfolio has a standard deviation of 5%.

The Sharpe ratio for manager A would be 1.25 while manager B's ratio would be 1.4, which is better than manager A. Based on these calculations, manager B was able to generate a higher return on a risk-adjusted basis. A ratio of more than or equal to 1 is good, more than or equal 2 is very good, and more than or equal 3 is excellent.

Sharpe ratio is broken down into three components: asset return, risk-free return, and standard deviation of return. After calculating the excess return, it's divided by the standard deviation of the risky asset to get its Sharpe ratio. The idea of the ratio is to see how much additional return you are receiving for the additional volatility of holding the risky asset over a risk-free asset - the higher the better.

Beta

Beta determines the volatility, or risk, of a fund in comparison to that of its index or benchmark. A fund with a beta very close to 1 means the fund's performance closely matches the index or benchmark. A beta greater than 1

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indicates greater volatility than the overall market, and a beta less than 1 indicates less volatility than the benchmark.

If, for example, a fund has a beta of 1.05 in relation to the Sensex, the fund has been moving 5% more than the index. Therefore, if the Sensex has increased 15%, the fund would be expected to increase 15.75%.

On the other hand, a fund with a beta of 2.4 would be expected to move 2.4 times more than its corresponding index. So if the Sensex moved 10%, the fund would be expected to rise 24%, and, if the Sensex declined 10%, the fund would be expected to lose 24%.

Investors can choose funds exhibiting high betas, which increase chances of beating the market. Also if the market is bearish the funds that have betas less than 1 are a good choice because they would be expected to decline less in value than the index. For example, if a fund had a beta of 0.5 and the Sensex declined 6%, the fund would be expected to decline only 3%. However, you must note that beta by itself is limited and there may be factors other than the market risk affecting your fund's volatility.

FUNDS SELECTION

I have selected minimun five funds from different Funds from different types of funds. Here is the list of the mutual funds I have selected.

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Fund name

Aggressive Funds

Tata Infrastructure DSPML T.I.G.E.R. Regular

Sundaram BNP Paribas Select Midcap Regular

UTI infrastructure

Reliance Growth

Birla Mid Cap

Magnum Emerging Businesses

Diversified equity

Kotak Opportunities

Taurus Star share

Birla Sun Life Frontline Equity

Birla Sun Life Equity

HDFC Top 200

ICICI Prudential Dynamic

Magnum Contra

Magnum Global

Magnum Multiplier Plus

Balanced Funds

HDFC Prudence

Principal Child Benefit

Magnum Balanced

Fund name

Balanced Funds

Kotak Balance

Tata Balanced

Debt oriented

DBS Chola MIP

ICICI Prudential Child Care-Study

Principal MIP Plus

Principal MIP

HSBC MIP Savings

Debt Funds

Birla Sun Life Income

Birla Income Plus Kotak Bond Regular

Birla Gilt Plus Regular

ICICI Prudential Gilt Investment

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These 33 funds are the top funds in respective fund sector, the 1st year return and 3 years are calculated.

Then with 60% weightage given to 3 years return and 40% weightage given to 1st year return. Thus I have got the total average return score of the respective funds.

Beta & Sharpe ratio being calculated. Then I calculate adjusted risk by dividing Sharpe ratio by beta.

Then adjusted risk is multiplied by the total return score of individual funds. Then I got the adjusted risk & return.

The highest scorer is the best fund to invest respect to the fund type. So I have ranked the funds in the respective category.

These funds are recommended to the investors depending the risk tolerence.

Portfolio of Investor

WITH 70% AGGRESSIVE & 30% DEFENSIVE RISK PROFILE

Investable amount = 500,000 Rs.

Aggressive investment= 500,000x.7= 350,000 Rs

Defensive investment= 500,000x.3= 150,000 Rs

Aggressive investment

ELSS= 100,000 Rs.

Aggressive mutual funds= 200,000 Rs.

NFO= 50,000

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Explanation :

ELSS is a type of mutual funds where investor can get the Tax shield of 80(C), which means upto investment of Rs 100,000 is tax free. There is no need invest in ULIPs or any endowment insurance, because ELSS gives on an average return of 25%-30%7. For the secure life investor must do an insurance that will give only insurance plan. This will be a expence of the investor but in the long run ELSS will give more return than a ULIP plan.

NFO is the emerging mutual funds that is going to flurish in the future. It is difficult to predict which NFO will be good, because it is time constrain. But investor must evaluate the background of the NFO and the fund manager.

Aggressive mutual funds, are the most volatily mutual funds respect to the market. I have recommended top five mutual funds each with amount 40,000 Rs. The funds are:

Tata Infrastructure, DSPML T.I.G.E.R. Regular, Reliance Growth, Birla Mid Cap, Sundaram BNP Paribas Select Midcap Regular.

In these funds DSP ML T.I.G.E.R. Regular high liquid as there is no tenure. Reliance Growth and Birla Mid Cap minimum tenure is 1 year. So there is no liquidity problem for the investor.

Defensive investment

Balanced funds,Debt funds= 50,000

Government securities= 50,000

Fixed deposits=50,000

Explanation:

This investor has 30% in defensive investment. I have distributed all investment equally to balanced funds, Government securities, Fixed deposits.

7 See Annexure no. 4

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Fixed deposits are for 1 years, Kotak Mahindra offers 9.25% for 1 years fixed deposits.

Government securities for 5 years, it will yield 8%.

Return after one years of the above investment

INVESTMENT CALCULATION EXPECTED RETURNELSS 100,000X35% 35,000AGGRESSIVE FUNDS 200,000X40% 80,000NFO 50,000X15% 7,500BALANCED FUNDS 50,000X 25% 12,500FIXED DEPOSITS 50,000X9.25% 4625GOVT.SECURITIES 50,000X8% 4,000TOTAL 143625

On an average the return =143,625/500,000= 28.25% which good for the investorof very high risk.

Portfolio of Investor

WITH 60% AGGRESSIVE & 40% DEFENSIVE RISK PROFILE

Investable amount = 500,000 Rs.

Aggressive investment= 500,000x.6= 300,000 Rs

Defensive investment= 500,000x.4= 200,000 Rs

Aggressive investment

ELSS= 100,000 Rs.

Balance Funds= 50,000 Rs.

NFO= 50,000

Diversified equity funds= 100,000

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Explanation:

Here investor has a risk tolerence of 60% aggressive. So I have recommended 33% of the aggressive investment in the Diversified Equity funs where the risk ranges from medium to high.

The diversified funds are yeilding good returns from the market nearly 30% on an averege.

Balanced Funds are from medium risk and medium return, it ranges risk from low to medium. Return is quite moderate near about 25%-30%.

Defensive investment

Debt funds= 75,000

Debt oriented Funds=75,000

Fixed deposits=50,000

Explanation:

In the defensive invetment part investor must try to gain more interest rate as the return is secure and liquidity is low.

Fixed deposits rate is maximum 9.25%, Kotak Mahindra Bank is offering for One year teneure.

Debt Funds are the secure mutual funds with risk profile of low and the return is ranging 9%-11%. The top five funds I have recommended: Birla Sun Life Income, Birla Income Plus, Kotak Bond Regular, Birla Gilt Plus Regular, ICICI Prudential Gilt Investment.

For the liquidity Kotak Bond Regular has no minimum time of investment, ICICI Prudential has 3 years of minimum investment, but rest has one year minimum investment period. So liquiidity is there in between the funs.

For the debt oriented funds, these are the funds that are low risky but return is more than the debt funds NEARLY 13%. I have recommended:

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DBS Chola MIP1, ICICI Prudential Child-care Study0, Principal MIP, Principal MIP Plus1, HSBC MIP savings2.

ICICI Prudential Child-care Study is highly liquid as there is no minimum tenure of investment, DBS Chola, Principal MIP & Principal MIP plus has a minimum tenure of 1 year, and HSBC has 2 years. So investor has liquidity option in his investment.

Return after one years of the above investment

INVESTMENT CALCULATION EXPECTED RETURNELSS 100,000X35% 35,000BALANCED FUND 50,000X25% 12,500DIVERSIFIED EQUITY 100,000X30% 30,000NFO 50,000X15% 7,500DEBT FUND 75,000X9% 6750DEBT ORIENTED FUND 75,00013% 9750FIXED DEPOSIT 50,000X9.25% 4625TOTAL 106,125

Then on an average the return =106,125/500,000=21.25% which is good for an investor of high risk profile.

ANNEXURE

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Comparative table of Savings Account of 5 banks

Service ChargesStandard chartered ABN AMRO ICICI HDFC

Kotak Mahindra

Average Balance 10000 10000 5000 5000** 10000

Non maintenance of AQB or AB

<5000 1500 500/month 750/quarter* 750/quarter 750

>=5000 to < 7500 1250 400/month

>=7500 to 10000 750 300/month

* Rs. 250/quarter for sr. citizens & young star customers (minors)

** if customer is semi urban than AQB will be 2500/quarter

Debit card fees

normal debit card 200/yr 180/yr 99/yr 100/yr

Free for 1st year Rs.100 for subsequent years

smart fill card 399/yr NA 99/yr* NA NA

gold card 799/yr 400/yr NA 500/yr na

Additional cards supplementary cards NA 180/yr NA NA 100/card

add on cards NA 180/yr** NA 500/yr*** 250/cardreplacement card fee 200/card 200/card 100/card 100/carddamaged card fee 200/card 200/card free free

woman’s card NA NA NA 150/card NA* smart fill card is HPCL DEBIT CARD in ICICI

** minimum limit for add on card in ABN AMRO is RS.15000 & service charge will be as

<7500 500/month >=7500 to <10000 400/month

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>=10000 to < 15000 300/month

***for easy shop woman’s card fee will be RS 150/yr in HDFC


Kotak Mahindra

ATM's transaction

free All ATMs*

UTI ATMS and ABN AMRO ATM’S

ICICI SBI**HDFC & KOTAK M

Charged

cash with drawl (from partners Rs 20 & from non partners Rs 60)

Rs 25 from any other bank except SBI

Others( Visa domestic ATMs

*for these facility minimum AQB should be Rs.15,000

Cheque Book

At par cheque book

0 to 500 free free

>50150***

50****Rs 1/ 1000(min Rs 50)

free

cheque return

Inward 300 350 200 400 300

OUTWARD 100 100 100***** 100 300

*subsequent to the month where transaction criteria not fulfilled & bal<10,000

** only in gold card , 2 transactions per month

*** only if AQB is not maintained otherwise free

**** free 1st cheque book of 25 leaves

***** 50/Cheque for local cheque deposited by customer

Statements monthly statement 200/yr 200/yr free* free

ICFAI-Gurgaon 105


Ad-hoc statement 50/yr NA 100/stat 100/yr

Facilities

D-mat a/c NA freeD-mat maintain charges NA 360 per yr

Internet Banking Free free free free free

Phone Banking Free free free free free

DD/POS

DD COMMISON

On same bank 50 2/1000(min 50) shown below 2.5/1000*

on other bank 2.5/1000**4/1000 (100 min)

* min 50 max 5000** min 50 max 8000


Kotak Mahindra

commission schedule

on branch location

Up to 10000 50,40*

10000-50000 75,60*

50000-100000 2.5/1000**

above 100000 2/1000***

* for sr. citizens /rural areas

** min 150/-

***min 250/- & max 5000

On non branches location-----Rs 50/- plus charges as below

Rs 500 10

ICFAI-Gurgaon 106


Rs500 to 1000 15

Rs1000 to 5000 25

Rs 5000 to 10000 30 Rs10000 to 100000 3/1000

>Rs 100000 6/1000*

* max Rs 5000

PO commission schedule 50 1/1000* DD charges DD charges

* 75 for PO Up to 50000 max 5000

Account closing charge

500 less than 6 months

within 12 months 500/-

250 within 1 yr, nil after 1 yr

< 14 & >6 months no charge,15 days to 6 months 100/-

Rs.600 if closed within 6 months. Else no charges

Door step banking

courier Rs. 25 & DD Rs. 50 par transaction

Rs. 10 par transaction NA

ICFAI-Gurgaon 107


COMPARATIVE ANALYSIS OF 5 ULIPs

Policy name Bajaj Allianz- New Secure First

ICICI- Life Time Gold

AVIVA- Life Bond HDFC- Unit Linked Endowment

Birla Sun Life –Dream Plan

Age

Minimum age of entry

0 years (risk commences at age 7)

O years 18 years 18 years 18 years

Maximum age of entry

65 years 65 years 50 years 65 years 60 years

Risk covered for age between

7 to 70 years 0 to 75 years 18 to 75 years 18-75 years

Maximum tenure

70 years 75 years 30 years 25years

Minimum tenure

5 years 10 years 10 years 10 years 5 years

Premium amount (min.)

Annually 10,000 20,000 25,000 10,000 <=50,000

Half yearly 6,000 12,000 6,000

Quarterly 3,000 6,000 3,000

monthly 1,000 2,000 1,000

Maximum sum assured amount

Y times of the premium *

Annual premium*0.5* term

Annual premium*0.5*term

Annual premium*40

Annual premium*0.5* term

ICFAI-Gurgaon 108


Age Y

0-35 40

36-40 30

41-55 20

55-60 10

61-65 5

Minimum sum assured amount

5*annual premium or 0.5*term*annual premium whichever is higher

Annual premium x0.5x term



50,000

Regular premium allocation

Silver ( >=10,000 to <75,000)

20,000-49,999 25,000-50,000 Up to 1,99,9999

1st yr 30%

>2nd yr 94%

1st yr

80%

2nd yr

92.5%

>3rd

Yr

96%

1st yr 85%

>2nd yr 96%

1st & 2nd yr 70%

>3rd yr 99%

NIL

Gold (>=75,000 to 2,50,000)

50,000-4,99,999 50,000- 1,00,000 2,00,000-4,99,999

1st yr

50%

>2ndy

yr 95%

1st yr 82%

2nd yr 92.5%

>3rd

Yr 96%

1st yr

85%

>2nd yr

97%

1st & 2nd yr 80%

>3rd yr

99%

NIL

ICFAI-Gurgaon 109


Platinum(>2,50,000)

5,00,000-9,99,999

1,00,000- 5,00,000

5,00,000-9,99,999

1st yr

76%

2nd yr

97%

1st yr

15%

2nd yr

7.5%

>3rd

Yr 4%

1st yr 85%

>2nd yr 98%

1st & 2nd yr 85%

>3rd yr 99%

NIL

>10,00,000 5,00,000-50,00,000

10,00,000-19,99,999

1st yr

10%

2nd yr

7.5%

>3rd

Yr

4%

1st yr

89%

>2nd yr

98%

1st & 2nd yr

90%

>3rd yr

99%

>50,00,000 >20,00,000

1st yr 93%

>2nd yr 98%

1st & 2nd yr 95%

>3rd yr 99%

Benefits offered

Death benefit Sum assured + the value of units

Higher of sum assured or fund value

Higher of sum assured or fund value

Higher of the sum assured of fund value

Before age of 7 yrs

Value of units

Maturity benefit

Value of units Fund value or ECS for 5 yrs

Total fund value Total of the fund value

Funds 5 types of funds

6 types of fund 5 types of fund 5 types of fund 3 types of fund

Equity fund II

Risk -High

Multiplier fund

Risk –High

Index fund

Risk- High

Liquid fund

Risk-Low

Protector fund

Risk-Low

ICFAI-Gurgaon 110


Equity growth fund

Risk -Very High

Flexi growth fund

Risk- High

Enhancer fund

Risk- High

Secure managed fund

Risk-Low/Moderate

Builder fund

Risk- Low

Bond Fund

Risk -Moderate

Flexi Balanced fund

Risk-Moderate

Growth fund

Risk- High

Defensive managed fund

Risk-Moderate

Enhancer fund

Risk- Moderate

Liquid fund

Risk Profile- Low

Balancer fund

Risk- Moderate

Balancer fund

Risk- Moderate

Balanced managed fund

Risk- High

Accelerator midcap Fund

Risk Profile- Very High

Protector fund

Risk-Low

Secure fund

Risk- Low

Equity managed fund

Risk-Very High

Preserver fund

Risk- Capital preservation

Growth fund

Risk- Very High

Tax benefit

80C Up to 1,00,000 tax free

Up to 1,00,000 tax free




10(10D) Returns are tax free

80D Save up to 10,000

Other charges

Policy admin charges

30 per month 60 per month 59 per month, per yr 5%

20 per month 8.44/1000

ICFAI-Gurgaon 111


increment

Fund management charge

Equity index fund II 1.25% p. a

Multiplier

2.25% p. a

Index fund

0.75 % p. a

Liquid fund

0.8% p. a

Protector fund

1% p. a

Equity growth fund 1.75% p. a

Flexi growth fund

2.25 % p. a

Enhancer fund

1.75% p. a

Secure managed fund

0.8% p. a

Builder fund

1% p. a

Bond Fund

0.95% p. a

Flexi Balanced fund

2.25% p. a

Growth fund

1.5% p. a

Defensive managed fund

0.8% p. a

Enhancer fund

1% p. a

Liquid fund

0.95% p. a

Balancer fund

2.25% p. a

Balancer fund

1.25% p. a

Balanced managed fund

0.8% p. a

Accelerator midcap Fund 1.75% p. a

Protector fund

1.5 % p. a

Secure fund

1.5% p. a

Equity managed fund

0.8% p. a

Preserver fund

0.75 % p. a

Growth fund

0.8% p. a

Miscellaneous charges

100 per trans. 100 per trans. 250 per trans. 100 per trans.

ICFAI-Gurgaon 112


Mortality charges

Age charge

20 1.57/1000

30 1.74/1000

40 2.82/1000

50 6.53/1000

Age charge

20 1.33/1000

30 1.46/1000

40 2.46/1000

50 5.91/1000

Age charge

20 1.54/1000

30 1.93/1000

40 4.42/1000

50 12.17/1000

Age charge

30 1.69/1000

40 2.94/1000

50 6.95/1000

60 16.76/1000

Switch option 3 free(if > 3, 5% of switch amt or Rs.100 whichever is lower)

4 free (if >4, 100 per switch, min switch 2000)

4 free(if >4, 5% of switch amt or Rs.500 whichever is lower

24 switch free, >24 per switch 100

2 free(>2 ,per switch 100)

Flexibility Additional riders benefit

Additional riders benefit

Single premium top-up, premium change, Additional riders benefit

Accidental rider

Surrender chargers

1-2 yrs-75%

2-3 yrs-60%

3yrs-2%

4yrs-1%

<0.5yr-100%

0.5-1yr-60%

1-2 yr-20%

2-3yr-10%

30% between 2 yrs 1-3 yr- 57.49/1000

Top up premium

Minimum 5000

Minimum 1000 Minimum 5000

Partial withdraw option

After 3 yrs (min withdraw 1000 )

After 3 yrs minimum 2000

Minimum 5000 Minimum 10,000 Minimum 5000

ICFAI-Gurgaon 113


QUESTIONNAIRE FOR INVESTMENT STRATEGIES

Name Age: 18-30 31-40 41-50 >50

Occupation: Service Business Self Employed Other

Contact no.

Q 1.What is your annual income (approx)?

< 2,50,000 2,50,000-5,00,000 5,00,000-7,50,000

7,50,000-10,00,000 > 10,00,000

Q 2. What is your monthly disposible income?

< 5,000 5,000-10,000 10,000-15,000

15,000-20,000 > 20,000

Q 3. What is your primary investment focus (please give ranking 1-5, where 1- best)

Tax Savings Future Uncertainity Income

Retirement Capital Preservation

Q 4. When You want to withdraw money from youe investment?

Less than 3 years 3-5 years

6-9 years >10 years

Q 5. Where you have invested from the followings?(you can tick more than one)

Share Mutual Funds FD/RBI bonds

Real Estate Insurance

Q 6. What is applicable to you?

Never Accept Negative return

Can accept negative return once in 3 years



Returns can fluctuate in longer term. BIBLIOGRAPHY

ICFAI-Gurgaon 114


Siteswww.google.comwww.investopedia.comwww.standardchartered.inwww.iciciprulife.comwww.nseindia.comwww.ampi.comwww.finance.indiamart.comwww.business.india.comwww.valueresearch.comwww.myiris.com

Books

Financial management (Ninth edition) by I M Pandey.Security analysis and Portfolio management by Ritu Ahuja.Insurance in India by S Swaminathan.Insurance chronicle, Icfai publications & current scenario by jawahar

ICFAI-Gurgaon 115

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http://www.ampi.com/

http://www.nseindia.com/

http://www.iciciprulife.com/

http://www.standardchartered.in/

http://www.investopedia.com/

http://www.google.com/

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