Standard Chartered Bank

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARITIVE ANALYSIS AND INVESTMENT STRATEGIES

SUMMER INTERNSHIP PROGRAMME

PROJECT REPORTON

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARATIVE

ANALYSIS AND INVESTMENT STRATEGIES 2009

Submitted by: Alok Arya 84003

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A REPORT

ON

MUTUAL FUNDS AND OTHER INVESTMENT TOOLS COMPARATIVE ANALYSIS AND INVESTMENT STRATEGIES

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ACKNOWLEDGEMENT

“Life is a journey; it's not the years in your life that count. It's the life in your years.”

But Life can’t be completed without the support of many people.

Any accomplishment requires the effort of many people and this work is not different. I would

like to take this opportunity to thanks STANDARD CHARTERED BANK for giving me an

opportunity to be a part of their esteem organization and enhance my knowledge by granting

permission to do summer training project.

I would also like to extend my sincere regards to Mr.NITISH DIPANKAR (Area Sales

Manager, Standard Chartered Bank), my project guide for his guidance and support throughout

my training .My learning has been immeasurable and working under him was great experience. I

would always be grateful to him for the providing such an opportunity; and exposure to ground

realities of business operations and functionalities.

I would also thank my faculty for their immense guidance and suggestions in carrying out this

project.

Last but not the least I also wish to thanks to everybody who helped me through the successful

completion of the project. The learning from this experience has been immense and would be

cherished throughout my life.

“It is good to have an end to journey toward; but it is the journey that matters, in the end.”

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OBJECTIVE

The Objective of the Report is to map the information required to assess1. Knowledge and a profound understanding of the products like ULIP, Saving accounts,

mutual funds.

2. Study various aspects to analyze the Performance of the Products.

3. To study various provisions - Prediction of the investor’s outlook- To realize the vital facet to glance on before

investing in a Scheme.

I.e. - Individual Risk Tolerance, Investing capacity, Relation among investors demographic property, age, Job etc. with their investing point of view.

INTRODUCTION

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Rationale of the Project

In the current banking scenario, all the banks are engaged in an in-depth introspection for

analyzing their strengths and weakness and identifying core competencies to set a mission in

which they are likely to find themselves as leaders.

In all private and foreign banks stress is being laid on knowing their customers. This involves not just finding the profile details about the customer but also catering to their different needs. The

needs and investment pattern of all individual change according to their life stages and are strongly influenced by their demographics. This project helps to analyze customer investment

habits and suggest portfolio.

INVESTMENTS

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In finance, the purchase of a financial product or other item of value with an expectation of

favorable future returns. In general terms, investment means the use money in the hope of

making more money. Done wisely, it can help meet individual financial goals like buying a new

house, paying for college education of children, enjoying a comfortable retirement, or whatever

is important to an individual.

Savings form an imperative part of the economy of any nation. With the savings invested in

various options available to the people, the money acts as the driver for growth of the country.

Indian financial scene too presents an excess of avenues to the investors.

You do not have to be wealthy to be an investor. Investing even a small amount can produce

considerable rewards over the long-term, especially if one does it regularly. But one need to

decide about how much you want to invest and where. To choose wisely, one need to know the

investment options thoroughly and their relative risk exposures.

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.

Understanding the needs of the investor and ensuring that the most appropriate investments are

selected is the most essential.

The investment needs of an investor are simply his lifestyle needs converted into financial terms.

These include the normal living expenses, food, accommodation, as well as education, health,

recreation, transport, special occasions like marriages, festivals etc.

Investment Strategies

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You can make your own investment picking approach or adopt one after consulting financial

experts or investment advisors. Whatever method you use, keep in mind the importance of

diversification, or variety in your investment portfolio and the need for a strategy, or a plan, to

guide your choices.

Investment approaches

The options you choose to put your money in reflect the investment strategy you are using -

whether you realize it or not. Most people adopt the following approaches:-

Conservative

These investors take only limited risk by concentrating on secure, fixed-income investments etc.

Moderate

Such Investors take moderate risk by investing in mutual funds, bonds, select blue chip equity

shares etc.

Aggressive

These are investors who take major risk on investments in order to have high (above-average)

returns like speculative or unpredictable equity shares, etc.

As a matter of fact, the investment approach of an investor is directly linked to his or her ability

to shoulder risk. The ability to take risks depends largely on personal circumstances and factors

like age, past experiences with investment, level of responsibility, etc.

Planning Your Investment:

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Investment Planning is the process of identifying and implementing effective investment

strategies to create and accumulate the financial resources for achieving financial planning goals.

This section includes in-depth information related to investment planning.

One of the parts of developing a comprehensive financial plan is the development of an

investment plan.

There are six steps that one should follow while developing an investment plan.

The Means to Invest.

In order to even begin this portion of your financial plan, one must determine that he/she is ready

to save. In this step one need to determine if one is going to use the money on some good or

service (spend it), or if one will invest or save the money.

Investment Time Horizon

In this step, you will be determining how long you plan to invest and when you will need the

funds to meet your financial objective(s). You must decide, based on the time horizon of your

objectives, among short-term investments, long-term investments or some combination. In this

step you are going to be determining what you will be saving for, which should give some

indication of your time horizon.

Risk vs Return

Risk and returns go hand in hand. Higher the risk, higher is the possibility of earning a good

return. Thus, it follows that all types of investment have some form of risk attached to it.

Theoretically, even 'safe' investments (such as bank deposits) are not without some element of

risk. Broadly, here are the various types of risks that you might have to face as an investor.

Credit Risk

The risk is that the issuer of the security will default, or not repay the principal amount. This is

valid for corporate bonds etc.

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Liquidity Risk

If you invest in securities, stocks, bonds, you are risking their sell ability. In other words, your

money gets stuck unnecessarily, creating an asset-liability mismatch.

Market Risk

Financial markets are volatile in nature. Volatility means sudden swings in value from high to

low, or the reverse. The more volatile an investment is, the more profit or loss you can make,

since there can be a big spread between what you paid and what you sell it for. But you also have

to be prepared for the price to drop by the same amount. Those who invest in stocks and mutual

funds typically run this risk.

Interest Rate Risk

Depending on the interest rate movement in the economy, the rates of interest investment instruments

may go up or come down, resulting in a subsequent reverse movement of their prices. Such a scenario

of economic instability might affect mutual funds etc.

The whole idea behind investment planning is to evaluate the risk associated with various types

of investments and take steps so as to balance it with the desired return.

You will need to determine what your level of risk tolerance is. As the level of risk tolerance

increases so does the potential for higher returns as well as larger losses.

Investment Selection

Based on above three considerations, investments should be selected to meet your goals. These

investments must satisfy your time horizon and your risk tolerance.

Evaluate Performance

Once investments are chosen and expectations are established, the performance of your

investments should be determined by comparing the actual realized returns against the expected

returns. The returns should also be compared to a benchmark, such as the S&P 500 index. In

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addition, the investments should be reevaluated to determine if they continue to meet your

investment criteria.

Adjust the Portfolio

Your portfolio should be adjusted to maintain your goals and your investment criteria. If your

goals change, your investments should be reviewed to determine if they continue to meet your

objectives.

To summarize, once you have determined that you are financially able to begin investing (or

saving), you should evaluate your investment goals and set out a plan to accomplish these goals.

Once you have begun your investment plan, you must periodically review the performance of

your investments and re-evaluate your objectives and investments to make certain there is a good

fit.

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Investment options available in India

Today choosing a best investment plan is difficult because there are so many investment options

available in India. These days we are getting more money compared to last decades.

1) Bank Fixed Deposits (FD)

Fixed Deposit or FD is the most preferred investment option today. Minimum period is 15 days

and maximum is 5 years and above. Senior citizens get special interest rates for Fixed Deposits.

This is considered to be a safe investment because all banks operated under the guidelines of

Reserve Bank of India. Other features are;

Very low risk and low liquidity.

Low returns, but assured. Depending on the tenure and bank, could be around 6-9%

Since returns are fully taxable, the post-tax returns will be still lower.

Good for very low risk investors and those in the nil or low tax brackets. As interest rate

scenario seems to be peaking, one could consider investing in 3-5 year FDs.

2) Fixed maturity plans (FMPs)

FMPs, as they are popularly known, are the equivalent of a fixed deposit in a bank, with a caveat.

The maturity amount of a fixed deposit in a bank is 'guaranteed', but only 'indicated' in the FMP.

Its other features are;

Low risk and low Liquidity.

No assured returns but depending on tenure and the MF, could be around 6-9%. (Ability

to deliver the indicative returns).

MFs attract much lower taxation and hence give better post-tax returns vis-à-vis Bank

FDs.

Good for low risk investors, but in high tax brackets. Good for investing the debt portion

of one’s portfolio.

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3) National Saving Certificate (NSC)

NSC is backed by Govt. of India so it is a safe investment method. Minimum amount is Rs 100

and no upper limit. From FY 2005-'06 onwards interest accrued on NSC is taxable.

Low risk with low liquidity (6 years lock-in).

8% assured returns.

Interest fully taxable. But eligible for Sec 80C benefit.

Not very attractive vis-à-vis other options like 5-year Bank FDs.

4) Public Provident Fund (PPF)

PPF is another form of investment backed by Govt. of India. Minimum amount is Rs500 and

maximum is Rs70,000 in a financial year. A PPF account can be opened in a head post office,

GPO and selected branches of nationalized banks. Both PPF and NSC considered to be best

investment option as it is backed by Government of India

Low risk with very low liquidity (15-year lock-in period. Partial withdrawal allowed after

6 years).

8% assured returns. Interest is tax-free. Also Sec 80C benefit. Hence a good scheme.

Good tax saving investment option. Good for investing the debt portion of one’s portfolio

5) Equity

This need high risk appetite. Ideal for those investors who have a good corpus, good knowledge

and time to track the stock markets regularly. Care should be taken to invest in good profit

making companies. Penny stocks should be avoided

High risk and high liquidity.

Market linked returns. Good potential.

Attractive tax treatment. No Long Term (investment of more than 1 year) Capital Gain

Tax and 10% Short Term Capital Gains Tax.

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6) Mutual Funds

Mutual Fund companies collect money from investors and invest in share market. Investing in

mutual funds is also subject to market risks but return is good. The various fund options are;

Equity Funds

High risk and high liquidity in open-ended funds.


Attractive tax treatment. No Long Term Capital Gain Tax and 10% Short Term Capital

Gains Tax.

Ideal for small and common investors, but with high risk appetite. SIP and a long term

investment horizon can cut down risk and increase the probability of making good

returns. Ideally, one should build a well-diversified portfolio with say 40-50% money in

5-7 diversified funds (large cap oriented), 20-30% money in 3-4 mid/small-cap funds, 10-

15% in 3-4 sector funds and 10-20% in balanced funds.

ELSS Funds

High risk with low liquidity (3 years lock-in period).



Gains Tax. Also Sec 80C benefit.

Good tax saving investment option. Amounts beyond Rs.1 lakh limit could be invested in

open-ended funds. SIP in ELSS would reduce the volatility risk.

Balanced Funds

Medium to High risk. High Liquidity.

Medium to high returns. Market linked.


Gains Tax.

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Though convenient as both debt and equity investment is covered under one fund, it may

be better to invest separately in equity and debt funds for better control.

Debt Funds

Low to Medium risk. High Liquidity.

Returns are market-linked. Today could be around 5-7%, but susceptible to interest rate

risk.

Lower taxation of MFs makes such funds attractive.

Can be avoided in a rising interest rate scenario but is good in a falling interest rate

scenario.

7) Unit Linked Insurance Plans

ULIPs are remarkably alike to mutual funds in terms of their structure and functioning;

premium payments made are converted into units and a net asset value (NAV) is declared for

the same. In traditional insurance products, the sum assured is the corner stone; in ULIPs

premium payments is the key component.

Low to High Risk depending on the investment option i.e. Pure Debt or Mixed or Pure

Equity. Low Liquidity (3-5 years lock-in period).

Low to high depending on the investment option. Market linked returns.

Tax free returns also Sec 80 C benefit available.

Not an attractive option due to high charges, low flexibility and low diversification.

There are other better similar investment products like MFs with low charges, high

flexibility and high diversification. As regards life cover, the same could be done through

a term policy.

8) Endowment/Money back Plan

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These policies are term policies. Investors have to pay the premiums for a particular term,

and at maturity the accrued bonus and other benefits are returned to the policyholder if he

survives at maturity

Low risk and very low liquidity

Low returns. Generally around 6-6.5%.

Tax free returns. Also Sec 80 C benefit available.

Not an attractive option due to low returns. There are other better similar investment products

like PPF. As regards life cover, the same could be done through a term policy

There are many investment options available like investing in Gold, Real Estate , commodities

etc. the features of this options are;

9) Real Estate

Variable risk and variable liquidity depending on the type and location of property.


No tax advantages, except attractive tax benefits on the home loans.

High initial investment required which could make one’s portfolio lopsided; high

transactions costs like title-search, registration brokerage etc.; and cannot be partly

liquidated. Therefore, real-estate MFs (expected in the near future) may be a better

alternative than direct property investment. If investing directly, it is important to assess

the potential and clear title.

10)Commodities

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High risk with high liquidity.

Market linked returns.

No tax advantages.

Highly cyclical.

11) Gold

Low long-term risk. But volatile in short term. High Liquidity.

Has traditionally been a hedge against inflation. So returns could be around inflation

levels.

No tax advantages.

Not an attractive investment option. Can be used for portfolio diversification to partly

hedge against inflation. Gold MFs are better than buying physical gold.

Because of these unique properties, gold has traditionally been the currency of choice for much

of the world's population. The value of gold has transcended all national, political, and cultural

borders, making it the ideal currency.

12)Post Office Schemes

Low risk and low Liquidity.

MIS scheme give 8% interest. Time deposit 6.25-7.5%.

Since returns are taxable, the post-tax returns will be still lower.

Good for very low risk investors and those in the nil or low tax brackets.

A Glance on the standpoint of Investors

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Risk tolerance, Investors point of view is the most important factor to consider before investing in any of the investment pool. Thus to stumble on the Risk, investment duration, time horizon, job, age and income relation, a survey was conducted asking questions targeting our point that was to analyze the investors investing strategies, risk avert ness etc.Primary data which was congregated by a Survey with a survey sample of 50. The Graphs shows the investment and other factors Relations:

Risk versus IncomeFig

Analysis

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100% of the investors of Income group 1-2 Lakh invest in low Risk Schemes, i.e they invest their money for longer time. 40% invest in Low and 60% invest in Medium Risk level Schemes in income group of 2-3 Lakh. Under income group of 3-5 Lakh 22% invest in High risk oriented schemes, 33% in Low Risk oriented schemes and 44% in Medium Risk oriented schemes. In High income group of 5-8 Lakh 33% of the investors invest in High Risk oriented schemes, 44% in Medium Risk oriented scheme and 22% in low risk oriented schemes. The highest income level group in the survey does not invest in low Risk schemes while maximum of them invest in Medium Risk level (66%) and rest 44% invest in High risk level schemes.

Income Vs InvestmentFig

Analysis

Investors with high income Level can invest more sums per month than as compared to the lower Income level investors. 100% of the investors in income group of 1-2 Lakh can invest 1-5 thousand, 50% Investors in income group of 2-3 Lakh can invest 1-5 thousand and 50% can invest 5-10 thousand. 11.1% of Investors in income group of 3-5 Lakh can invest 1-5 thousand and rest invests 5-10 thousand monthly. Higher income group invests more per month

Risk Vs JobFig

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Analysis

Through the survey it was established that Self employed are less Risk oriented and thus prefer least riskier Investments, thus can go for Long term Investments. 60% of self employed investors prefer Low risk investments and rest 20% each in low and high risk oriented schemes. The Private Service category ones are Medium risk oriented. 30% are risk averted,55% are medium risk bearing category and 15% are high risk bearing ones. Even the governmnet employed investors are low risk oriented ones. 50% of them invest in low risk schemes, 25% eacg in high and medium risky schemes.

Risk Vs Age Fig

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Analysis

Under Age group of 20-25 18.18% invests in low risk schemes, 63.63% in Medium risk while 18.18% in high risk oriented schemes. Under age group of 26-30, 16.66% prefer low risk, 50% prefer medium and 33.33% prefer high risk. While 66% of highest group age invest in Low Risk Level schemes and rest invests in medium one. Thus we see that if age alone is considered to judge the risk factors, the risk bearing potential decreases with increase in age.Thus according to his/her risk alertness the investors can look upon the appropriate schemes for them and can invest into accordingly.

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Income Vs purpose of Investments

Maximum number of the investors are opting the Life insurance investments and for the Tax Saving Investments. Specifically low income group are heading for these two options only, but the higher income group investors still going for child care and health insurance.

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Age Vs Investment

Younger age investors are showing more variation in the data about 65% of them is showing 5-10000 investment per month. Medium age group investors are more interested in low investment per month. While higher age group again showing variations with maximum in 5- 10000 and above 20000 investment per month.

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Age Vs Horizon of Time

The young investors for apparent reasons are investing in for higher duration while the investors under high age group are investing in relatively less durations. The investors in medium age are more interested in gaining quick returns for one reason could be their ongoing expenditure requirements.

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Age Vs Purpose of Investments

62% of the young investors are opting the tax saving investments while45% are opting for Life insurance and age group of 40-50 are majority opting for tax saving while the investors in highest age group of our survey preferred mostly Life insurance investments for them.

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Purpose of Investment Vs Horizon of Time

Investments for the purpose of Tax Savings are distributed over almost all horizon of time like 11-15 years, 6-10years, 1-2 years etc. according to the requirements of the investors. While the Life Insurance purpose investments grab attention for 21-35 years and 11-15 years.

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Current Scenario of Indian Banking System

Indian economy is one of the fastest growing economies in the world. The country’s GDP is

growing at an average rate of almost 7% during the last decade with the GDP growth rate

touching 9.4% in the last year. The Indian banking industry also had its share in the growth of

the Indian economy.

With the Indian economy moving on to a high growth trajectory, consumption levels soaring and

investment riding high, the Indian banking sector is at a watershed. The industry has been

growing faster than the real economy, resulting in the ratio of assets of commercial banks to

GDP increasing to 92.5% at end-March 2009. The Indian banks have also been doing

exceptionally well in the financial sector with the price-to-book value being second only to

China.

Consequently, the degree of leverage enjoyed by the banking system, as reflected in the equity

multiplier (measured as total assets divided by total equity), has increased from 15.2% at end

March 2008 to 15.8 % at the end of March 2009.

Growth of the sector

A burgeoning economy, financial sector reforms, rising foreign investment, favorable regulatory

climate and demographic profile has led to India becoming one of the fastest growing banking

markets in the world. The overall banking industry's business grew at a CAGR of about 20 per

cent from US$ 469.4 billion as of March 2002, to US$ 1171.29 billion by March 2009.

In the current fiscal, aggregate bank deposits increased by 23.8 per cent, year-on-year, as of

January 4, 2008 as against 21.5 per cent a year ago. While aggregate demand deposits increased

by 15.6 per cent, aggregate time deposits increased by 25.3 per cent in the same period,

indicating migration from small savings schemes of the Government.

Similarly, aggregate deposits of the scheduled commercial banks (SCB), after growing by 17.8

per cent and 24.6 per cent in 2005-06 and 2006-07, rose by 25.2 per cent, year-on-year, as on

January 4, 2008. In fact, the absolute increase of US$ 96.34 billion (14.6 per cent) in the current

fiscal year up to January 4 2008 was higher than the US$ 70.59 billion (13.2 per cent) increase in

the same period last year.

Simultaneously, loans and advances of SCBs rose by over 30 per cent (i.e. 33.2 per cent in 2004-

05, 31.8 per cent in 2005-06 and 30.6% cent in 2006-07) in the last three financial years,

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underpinned by the robust macroeconomic performance. The growth has continued in the current

fiscal with non-food credit by SCBs increasing by 22.2 per cent, year-on-year, as on January 4,

2008.

Private Sector

Ever since the banking operations had been opened to the private sector in 1990s, the new

private banks have been increasing its role in the Indian banking industry. Against the industry

average growth of about 20 per cent in the past five years, the new private sector banks

registered a growth of about 35 per cent per annum, growing from US$ 41.63 billion as of March

2002 to US$ 186.71 billion by March 2009.

Consequently, new private banks market share has increased from about 9 per cent in 2001-02 to

16 per cent as of March 2006-07. Foreign banks, which totaled 29 in June 2007, have also been

expanding at a rapid pace. For example, India was the fastest growing market for Global banking

major HSBC in 2006-07, with a growth rate of 64 per cent.

The balance sheet of private banks and foreign banks in India expanded by 38.7 per cent and

39.5 per cent during 2008-09, taking their combined share (along with private banks) in total

assets of the banking sector to grow from 22.3 per cent at the end of March 2008 to 24.9 per cent

by March 2009.

Investment Banking

The flurry of mergers and acquisition deals by Indian corporate has boosted the investment

banking revenues to a record high. Investment banking revenues from India crossed the US$ 1

billion mark for the first time in 2007 to US$ US$ 1.069 billion.

This is significantly higher than the US$ 400 million investment banking revenues recorded in

2006. Also, this surge in revenues has propelled India to become the third largest market for

investment banking in Asia-Pacific in 2009.

Potential

While this growth has been very impressive, the potential banking market waiting to be tapped in

India is still fairly huge. Out of the 203 million Indian households, three-fourths, or 147 million,

are in rural areas and 89 million are farmer households. In this segment, 51.4 per cent have no

access to formal or informal sources of credit, while 73 per cent have no access to formal sources

of credit.

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In fact, according to a report by Boston Consultancy Group, India has the second largest

financially excluded households of about 135 million, which is next only to china. Also, about 60

million new households are expected to be added to India's bankable pool between 2005 and

2009. With such a large untapped market, the Indian banking industry is estimated to grow

rapidly, faster than even china in the long run.

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 $ 70 billion by 2009, the

retail credit is expected to cross Rs 5, 70,000 crore by 2010 and huge SME sector which

contributes significantly to India’s GDP.

Road Ahead

Banks aspiring to become global must have a presence in India and other emerging markets, as

they are set to become a major source of financial sector revenue and profit growth.

As the Indian banking industry continues its rapid growth along with rise in financial services

penetration in the Indian economy, the industry's profit is likely to simultaneously surge ahead.

According to a report by Boston Consultancy Group, the profit pool of the Indian banking

industry is estimated to increase to US$ 20 billion in 2010 and further to US$ 40 billion by 2015.

Simultaneously, driven by the expansion of the middle class population. With such a favorable

scenario, India is likely to emerge as the third largest banking hub in the world by 2040, says a

Price Waterhouse Coopers report.

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Indian Banking: Strength & Weaknesses

Major Strength Areas * Area to be geared up for future Growth.

Regulatory Systems Diversification of markets beyond Economic Growth Rate big cities Technological Advancement Size of banks Risk Assessment Systems HR Systems Credit Quality Banking Infrastructure

Labour Inflexibilities High Transaction Costs

Turnaround success strategies

Strategies To Be Adopted For Creating World Class Banking System Consolidation Strict Corporate Governance Norms Regional Expansion (Both within India as well as Outside) Higher FDI limits FTA with countries where India has comparative advantage in banking sector

New Business Opportunities

With the interest income coming under pressure, banks are urgently looking for expanding fee-

based income activities. Banks are increasingly getting attracted towards activities such as

mutual funds and insurance policies offering credit cards to suit different categories of customers

and services such as wealth management and equity trading. These are indeed proving to be

more profitable for banks than plain vanilla lending and borrowing.

The current policy environment enables a fair level of foreign participation even in the non-banking financial sector of the country.

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Indian Banking Sector


STANDARD CHARTERED BANK: BACKGROUND

Standard chartered: leading the way in Asia, Africa and Middle East

Standard Chartered Bank is a British bank headquartered in London with operations in more

than seventy countries. It operates a network of over 1,700 branches and outlets (including

subsidiaries, associates and joint ventures) and employs 73,000 people.

The name Standard Chartered comes from the two original banks from which it was founded –

The Chartered Bank of India, Australia and China, and The Standard Bank of British South

Africa.

It is listed on the London Stock Exchange and the Hong Kong Stock Exchange and is among the

top 25 constituent members of the FTSE 100 Index.In its unique position as an international

bank with strong franchise, Standard Chartered combines an in-depth knowledge of local

markets with global product expertise to offer effective financial solutions. The bank capitalizes

on its onshore presence across Asia, Africa and the Middle East to offer customers convenient

and reliable access to the widest range of currency markets, to date local market information,

country-specific global risk management strategies, and customized capital raising and liquidity

management solutions.

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http://en.wikipedia.org/wiki/FTSE_100_Index

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

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

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

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

http://en.wikipedia.org/wiki/Chartered_Bank_of_India%2C_Australia_and_China

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

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

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


Type Public LSE: STAN SEHK: 2888 OTCBB: SCBFF Founded 1853Headquarters London, England, UK Area served Worldwide Key people John W. Peace Chairman of the Board Peter A. Sands CEO

Industry Banking Products Financial Services Revenue ▲ US$ 23.448 billion (2008)

Operating income ▲ US$ 13.968 billion (2008) Net income ▲ US$ 3.411 billion (2008) Total assets ▲ US$ 434.068 billion (2008) Total equity ▲ US$ 22.695 billion (2008) Employees 73,800 (2008) Website StandardChartered.com or SC.com

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http://www.standardchartered.com/

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

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

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

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


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


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


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

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

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

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

http://en.wikipedia.org/wiki/Product_(business)

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

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

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

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

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

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

http://www.otcbb.com/asp/Info_Center.asp?symbol=SCBFF

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

http://www.hkex.com.hk/invest/index.asp?id=company/quote_page_e.asp?WidCoID=2888&WidCoAbbName=&Month=&langcode=e

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

http://www.londonstockexchange.com/exchange/prices-and-news/stocks/prices-search/stock-prices-search.html?nameCode=STAN

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

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

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

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Standard Chartered Today

Today Standard Chartered is the world's leading emerging markets bank employing 30,000

people in over 500 offices in more than 50 countries primarily in countries in the Asia Pacific

Region, South Asia, the Middle East, Africa and the Americas.

The new millennium has brought with it two of the largest acquisitions in the history of the bank

with the purchase of Grind lays Bank from the ANZ Group and the acquisition of the Chase

Consumer Banking operations in Hong Kong in 2000.

These acquisitions demonstrate Standard Chartered firm committed to the emerging markets,

where it has a strong and established presence and where it sees their future growth.

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Awards

Standard Chartered Bank has ended 2007 on a high note by bagging best bond house titles from

three well-respected finance titles, fortifying its strengths and capabilities as a bond powerhouse

in the key markets of Asia, Africa and the Middle East.

Some of the awards which standard chartered received last year are

Best Trade Finance Bank in Singapore, Best Transaction Bank in Korea - SC First Bank, Best

Domestic Custodian in Korea - SC First Bank. best structured trade finance bank, best sub-

custodian in Indonesia, Korea and Thailand, best trade finance bank in Singapore, best bank for

liquidity management Africa. there are many more awards which the bank received for its good

and efficient performance throughout the world.

Recent Acquisitions

In the year 2000 standard chartered plc was in news because of its acquisition of Grid lays bank.

Standard Chartered Completes Acquisition Of American Express Bank For $823 Million.

AEB is a wholly-owned subsidiary of AXP. Founded in 1919 and headquartered in New York,

this acquisition will Significantly enhance Standard Chartered’s Financial Institutions transaction

banking business by bringing both new client relationships and new capabilities to this key

customer segment.

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Standard Chartered Bank in India

The name is derived from Standard & Chartered. Standard Bank of British South Africa merged with

Chartered Bank of India, Australia and China in 1969. Chartered Bank opened its first overseas branch in

India, at Kolkata, on 12th April 1858. During that time Kolkata was the most important commercial city

and was the hub of jute and indigo trades. The merger with the Standard Bank of British South Africa in

1969 and the acquisition of “Grind lays” Bank in 2000 were two key events that were have played an

important role in making the Bank the largest international Bank in India. Mr. NEERAJ SWARUP is the

present CEO of standard Chartered bank India. Mr. Swarup had been heading HDFC Bank's consumer

banking business for the last four years. He was also associated with the Bank of America.Standard

Chartered Bank is the largest international banking group in India with 83 branches in 33 cities. It also

has 231 ATMs. The Bank is having a combined customer base of 2.5 million in retail banking and over

1200 corporate customers. Stan Chart’s Indian operations now accounts for 17% of its global revenues in

2007, making it the second largest contributor (with operating profit of $690 million) to the global

revenues after Hong Kong.

The key business of Standard Chartered Bank in India include consumer banking—mortgages,

personal loans and wealth management- and – wholesale banking, where the bank specializes in

the provision of cash management, trade, finance, treasury and custody services.

Standard Chartered was the first to issue global credit card in India, the first to issue photo card,

the first picture card and was the first credit card issuer to be awarded the ISO 9002 certification.

Some other product innovations of Standard Chartered Bank in India include the “Sap nay”

credit card, the international debit card that provides free access to over 1500 visa ATMs, a first

in the banking industry, Mileage, an overdraft facility against the security of a car and smart

credit, a personal line of credit for salaried customers.

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PRESENCE OF STANDARD CHARTERED BANK IN INDIA: 33 CITIES WITH MORE

THAN 83 BRANCHES.

35


MORE THAN BANKING

Corporate Social Responsibility (CSR) is at the core of the values of Standard Chartered Bank.

The Bank is committed to the communities and environments in which it operates. The Bank

strongly supports the trend towards delivering shareholder value in a socially, ethically and

environmentally responsible manner. ‘Living with HIV’ is a global community initiative of

Standard Chartered that is aimed at raising awareness of HIV/AIDS amongst employees through

workshops and amongst stakeholders by providing thought leadership. Under ‘Seeing is

believing’, a programme that aims to restore sight to one million people globally by 2007, the

Bank has raised funds to help 8000 people to see.

In partnership with Sight Savers International and VISION2020 the Bank is now involved in two

flagship projects at Vishakhapatnam and Muzaffarpur, both aimed at the elimination avoidable

blindness. Furthermore, in support of the communities ravaged by the Asian Tsunami

Crisis in 2004 the Standard Chartered Group committed US$ 1 million to India. The Bank is

utilizing these funds for the rehabilitation of two villages adopted near Chennai.

In 2004, Standard Chartered initiated the phenomenally successful Standard Chartered Mumbai

Marathon - an event dedicated to charity fund raising. The two marathons held so far have forged

partnerships with customers and charities and deepened the Bank’s ties with the community,

with over US$ 1 million being raised in 2005.

Some other fact about STANDARD CHARTERED BANK

Over 50 nationalities are represented among our top 500 senior executives.

SCB is the only international bank with over 90% profits from Asia, Africa, and the

Middle-East.

SCB is the only international bank with a long unbroken banking history in India and

China.

SCB is the largest international bank in India in terms of branch network and profits

SCB is the only bank in the Falkland Islands.

SCB is one of three note issuing banks in Hong Kong.

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Principles and Value

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

our 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 78,000 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.

STANDARD CHARTERED BANK Stand for

Strategic intent

The world's best international bank

Leading the way in Asia, Africa and the Middle East

Brand promise

Leading by Example to be The Right Partner

Values

Responsive

Trustworthy

International

Creative

Courageous

Approach

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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.

Products offered by standard chartered

38OPERATIONINSURANCE INVESTMEN

T SERVICES LOANS ACCOUNTS

SAVINGS ACCOUNTSAVINGS ACCOUNT

ULIP ULIP


39

PERSONAL BANKING

PERSONAL BANKING

SME BANKING

SME BANKING

ACCOUACCOU

COMMERCIAL BANKING

COMMERCIAL BANKING


PRODUCTS OFFERED

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TERM TERM DEMATDEMAT 2-IN-1 2-IN-1 SAVINGSSAVINGS CURRENTCURRENT

ACCOUNTS

ACCOUNTS

aXcessPlusaXcessPlus

No Frills AccountNo Frills Account

ParivaarParivaaraaSaanaaSaan Super ValueSuper Value


Standard Chartered bank provides different products and services in order to cater the needs of

the customers which can be broadly classified into the following categories:

1. PERSONAL BANKING: To cater the diverse financial needs, Standard Chartered

offers a wide range of premium banking products and services through its network of 83

branches in 33 cities across the country. As a privileged customer of this bank, the

customers can always be assured of a banking service that is flexible enough to tailor-

make a product suite to take care of his specific banking needs.

2. 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.

3. 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. It has its Cash

Product Specialists and dedicated Customer Service Centers to provide its customers with

effective solutions.

To fully understand the workings and functions of Standard Chartered Bank, the scope of this

project has been limited to the detailed study of only three products offered by this bank under

the above mentioned categories:

1. Savings Account : Personal banking

2. Unit Linked Insurance Plan (ULIP): Personal banking

3. Mutual Funds: Commercial banking

SAVINGS ACCOUNT

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An account primarily opened for and operated by individuals, wherein the numbers of

transactions are few and which give the customer liquidity, with the facility to earn some interest

on the residual balances. For details of different saving accounts offered by StanC & comparison

with different bank’s a/s see annexure.

Standard Chartered bank offers four types of Savings account catering to the needs of

different customers namely:

1) Axcess Plus -Standard Chartered bank's aXcess Plus is an innovatory savings account

that provides you with unparalleled aXcess to your money. The customer can get instant

cash at over 1 Million ATMs across the world through the Visa network. And a globally

valid Debit Card that lets you shop at over 326,000 outlets in India and at over 21 Million

outlets across the world. Minimum average quarterly balance to be maintained is Rs.10,000.

Unique Features:

Free aXcess to cash anytime, anywhere, across India

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 Chequebook

Other features are:

International debit card

Phone banking

Internet banking

Extended banking hours

365 days branches open

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The aXcess plus customers get FREE aXcess to cash withdrawals at over 6500 Visa ATMs

in up to four free transactions per month. This is over and above unlimited free aXcess to all

Standard Chartered Bank ATMs.

2) Super Value – An account with lots of facilities and can be termed as an account much more

than an ordinary saving account. You name it and they offer it. The unique SuperValue savings

account is proof that the best things in life come free. With an average quarterly balance of just

Rs. 50,000, you get a host of services from Standard Chartered absolutely free.

Free globally valid Debit cum ATM card.

Free doorstep banking.

Free payable at par cheque books/ account statements/ demand drafts.

Free Bill Pay, Inter banks funds transfer.

Free foreign inward remittance certificate.

Free access to 6500 ATMs across India.

Other benefits of the Super Value account

Globally valid debit card - make purchases at over 12 million merchant outlets and

withdraw cash at over 810,000 ATMs worldwide using funds from your account.

Multicity Banking - access your account even when you are out of town.

Enjoy extended banking hours at all our branches, and Speed Cheque Clearing and Metro

Clearing facilities.

24-hour branches, 365 day branches available at select locations.

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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.

Internet 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.

3) No Frills Saving Accounts - No Frills Savings Account, a New account to meet your basic

banking requirements

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 features are;

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.

Eligibility criteria

This account is available to individual Resident Indian customers.

Account may be opened after being properly introduced in a manner approved by the Bank

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4) aaSaan - Here's introducing Standard Chartered Bank's aaSaan savings account - the easy

solution to all your banking needs.

Its unique features are:-

No Minimum Balance requirement

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*

Doorstep banking

To open an aaSaan account, you have to initially fund the account with Rs. 10,000 (Rs. Ten

Thousand)

5) Parivaar- Parivaar is a unique Wealth Management Solution from Standard Chartered Bank

that offers your family flexibility, convenience and essential tools for wealth accumulation and

preservation.

Your family can maintain individual savings accounts with the benefit of clubbing

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balances in grouped accounts.

Anytime, anywhere access to accounts through ATMs, Phone Banking and Inter Net

banking.

Option of Systematic Investment Plan (SIP), a well known long term wealth building

tool that allows you to invest a fixed amount of money every month in specific mutual

funds. This comes with a direct debit facility and avoids the need to remember dates

and write cheques every month.

Globally valid ATM-cum-debit card can be used at 55,000 merchant outlets in India

and 12 million outlets worldwide.

ULIP (Unit Linked Insurance Plan)

ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy

which provides a combination of risk cover and investment. The dynamics of the capital market

have a direct bearing on the performance of the ULIPs. ULIP is life insurance solution that

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provides for the benefits of protection and flexibility in investment. The investment is denoted as

units and is represented by the value that it has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and became very popular in Western Europe and Americas.

The reason that is attributed to the wide spread popularity of ULIP is because of the transparency

and the flexibility which it offers.

As times progressed the plans were also successfully mapped along with life insurance need to

retirement planning. In today’s times, ULIP provides solutions for insurance planning, financial

needs, financial planning for children’s future and retirement planning.

A ULIP, as the name suggests, is a market-linked insurance plan. A ULIP is a unit linked

insurance plan. This is the type of investment where the characteristics of insurance and mutual

fund are combined. Some part of the money invested goes into the insurance cover and the

remaining goes into an asset class.

The main difference between a ULIP and other insurance plans is the way in which the premium

money is invested. Premium from, say, an endowment plan, is invested primarily in risk-free

instruments like government securities (gsecs) and AAA rated corporate paper, while ULIP

premiums can be invested in stock markets in addition to corporate bonds and govt. securities.

Type of Funds

Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and

time horizons. Different funds have different risk profiles. The potential for returns also varies

from fund to fund.

The following are some of the common types of funds available along with an indication of their

risk characteristics.

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General Description Nature

of Investments

Risk Category

Equity Funds Primarily invested in

company stocks with the

general aim of capital

appreciation

Medium to High

Income, Fixed Interest and

Bond Funds

Invested in corporate bonds,

government securities and

other fixed income

instruments

Medium

Cash Funds Sometimes known as Money

Market Funds — invested in

cash, bank deposits and

money market instruments

Low

Balanced Funds Combining equity

investment with fixed

interest instruments

Medium

ULIPs offer a variety of options to the individual depending on his risk profile. For instance, an

individual with an above-average risk appetite can choose a ULIP option that invests up to 60%

of premium in equities. Likewise, an individual with a lower risk appetite can select a ULIP that

invests up to 20% of premium in equities.

SUM ASSURED

Perhaps the most fundamental difference between ULIPs and traditional endowment plans is in

the concept of premium and sum assured.

When you want to take a traditional endowment plan, the question your agent will ask you are --

how much insurance cover do you need? Or in other words, what is the sum assured you are

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looking for? The premium is calculated based on the number you give your agent.

With a ULIP it works in reverse. When you opt for a ULIP, you will have to answer the question

-- how much premium can you pay?

Reasons why ULIPs score over endowment plans

Such has been the popularity of ULIPs in the recent past that they have outpaced the growth of

regular endowment plans. We take a look at the most important reasons why ULIPs score over

endowment plans.

1. The power of equity

Simply put, ULIPs are life insurance plans, which have a mandate to invest upto 100% of their

corpus in equities. While individuals have the choice to shift between equity and debt (explained

later in this article), several studies have shown that equities are best equipped to deliver better

returns compared to their fixed-return counterparts like bonds and gsecs. And given the fact that

life insurance is a long-term contract, equity-oriented ULIPs augur well for the policyholder.

2. Flexibility

While ULIPs offer the opportunity to invest up to 100% in equity, it is also true that ULIPs

provide individuals the flexibility to shift to up to 100% debt. It is entirely upon the individual

how he wishes to allocate his premiums between equity and debt. This is not the case with

endowment type plans- individuals can't choose their investment avenues and have to be content

with the insurance company's investment decisions which revolve largely around debt.

ULIPs are available in 3 broad variants: 'Aggressive' ULIPs, which invest upto 100% of their

corpus in equities, 'Balanced' ULIPs which invest upto 60% of their corpus in equities and

'Conservative' ULIPs which invest up to 100% of their corpus in debt instruments and the money

market instruments*. Individuals are free to decide where they want to invest their money. For

example, individuals with an appetite for risk can invest their entire money in equities while

conservative individuals have the option to park their money in balanced or conservative ULIPs.

* The percentages given in the paragraph above may differ across life insurance companies.

That apart, ULIPs also provide individuals with the flexibility of terminating/resuming

premiums, increasing/decreasing premiums and paying top-ups (i.e. a one-time sum over and

above the regular premium) whenever possible. These options are not available in regular

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endowment plans.

3. Transparency

For the first time, ULIPs introduced transparency into the manner in which life insurance

products were being managed. This is something that was missing in conventional savings-based

insurance products (like endowment/ money-back/ pension plans). To understand why we are

saying this, one has to first understand the structure of traditional endowment plans. Traditional

endowment plans have been opaque in more ways than one.

To begin with, traditional endowment plans have invested a sizable portion of their corpus in

debt instruments like gsecs and bonds. The quantum of money invested is not known. Individuals

do not have access to portfolios of endowment plans so they never find out how much money is

in debt/equities. Add to this the fact that the expenses, which form a sizable percentage of the

premium in the first few years, are also not clear and you have a situation where the individual is

'investing' in life insurance purely on the basis of faith and little else!

Unit linked plans brought transparency into the scheme of things. Today, if an individual wants

to invest in a ULIP, he knows upfront what percentage of the premium is being invested, what

are the charges being levied and where his monies are being invested. This is a welcome change

for the policyholder. Another advantage ULIPs offer is that they enable insurance seekers to

compare plans across companies and help him buy a plan that fits well into his portfolio. Also

ULIPs disclose their portfolios at regular intervals, so you know exactly where your money is

being invested.

4. 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 endowment are tax-free under Section 10.

5. Liquidity

ULIPs offer liquidity to the individual. He can withdraw money anytime he wishes to once the

initial years' premiums are paid. He will not be levied with any surrender charges i.e. he stands to

get the full market value of his investments, net of charges, till date. This is unlike conventional

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endowment plans where individuals tend to lose out on surrender charges on surrendering their

policies. Besides, part surrender is also allowed in ULIPs. Simply put, part surrender allows

individuals to withdraw a part of their corpus and thus keep the policy alive, albeit with some

adjustments. This helps individuals tide over a situation where they need cash but have few

'liquid' investments at their disposal.

So does this mean that it is the end of the road for endowment plans? Not quite! Individuals need

to understand the de-merits of investing in market-linked products like ULIPs. The latter are

susceptible to the vagaries of markets and can burn a hole in your portfolio over the short term.

So if you can't withstand that kind of volatility, equity-oriented ULIPs are not the right

investment option for you. Insurance seekers would do well to take into consideration their risk

appetite as well as their overall financial portfolio before taking a final call on ULIP investments.

The ideal option is to have a prudent mix of endowment and ULIPs depending on your

preference for either long-term growth or stability.

CHARGES

Premium Allocation Charge

This is a percentage of the premium appropriated towards charges before allocating the units

under the policy. This charge normally includes initial and renewal expenses apart from

commission expenses.

Mortality Charges

These are charges to provide for the cost of insurance coverage under the plan. Mortality

charges depend on number of factors such as age, amount of coverage, state of health etc

Fund Management Fees

These are fees levied for management of the fund(s) and are deducted before arriving at the Net

Asset Value (NAV).

Policy/ Administration Charges

These are the fees for administration of the plan and levied by cancellation of units. This could be

flat throughout the policy term or vary at a pre-determined rate.

Surrender Charges

A surrender charge may be deducted for premature partial or full encashment of units wherever

applicable, as mentioned in the policy conditions.

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Fund Switching Charge

Generally a limited number of fund switches may be allowed each year without charge, with

subsequent switches, subject to a charge.

Service Tax Deductions

Before allotment of the units the applicable service tax is deducted from the risk portion of the

premium.

Investors may note, that the portion of the premium after deducting for all charges and

premium for risk cover is utilized for purchasing units.

ULIP – STANDARD CHARTERED

The flexible Unit linked life insurance plans at Standard Chartered bank provides the opportunity

to participate in market-linked returns while enjoying the valuable benefits of life insurance.

Insurance Plans for Standard Chartered Bank customers is issued by Bajaj Allianz Life Insurance

Company Limited.

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BAJAJ ALLIANZ:

Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj Auto Limited

and Allianz SE. Both enjoy a reputation of expertise, stability and strength.

The Allianz Group is one of the leading global services providers in insurance, banking and asset

management.

With approximately 181,000 employees worldwide (as of December 31, 2007), the Allianz

Group serves more than 80 million customers in about 70 countries. On the insurance side,

Allianz is the market leader in the German market and has a strong international presence.

In fiscal 2007 the Allianz Group achieved total revenues of over 102 billion euros. Allianz is also

one of the world’s largest asset managers, with third-party assets of 765 billion euros under

management at year end 2007.

Bajaj Auto Ltd, the flagship company of the Rs80bn Bajaj Group is the largest manufacturer of

two-wheelers and three-wheelers in India and one of the largest in the world. Bajaj Auto has a

strong brand image & brand loyalty synonymous with quality & customer focus in India

In the Indian market, together are committed to offer Insurance solutions that provide all the

security needed for a family.

BAJAJ ALLIANZ NEW SECURE FIRST PLAN

Bajaj Allianz New Secure First offers the unique option of combining the protection of life

insurance with the attractive prospect of investing in securities. It provides you with an

opportunity to have a direct stake in the performance of financial market. . By choosing an

appropriate premium level and term, individual can match the maturity date of the plan to a

specific savings need such as child’s education, wedding, retirement etc. This is the one-stop

solution to investment, tax-saving and protection needs.

The key features of New Secure First Plan are:

It is a unit linked plan with a minimum of 5 years and maximum maturity age 70

Guaranteed death benefit: Value of units plus Sum Assured.

Choice of 5 investment funds today with flexible investment management: you can

change funds at any time and also invest in the newer funds that would be introduced

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from time to time.

Attractive investment alternative to fixed –interest securities

Provision for full/partial Withdrawl any time after three years from commencement if

three full years’ premium are paid.

Unmatched flexibility to match changing needs of customer to manage investments, pay

top-ups, and cash withdrawal option.

Other benefits are;

Maturity benefit- On maturity, the value of units in the fund will be paid out and policy

will terminate.

Option of choosing from a host of additional rider benefits:

UL Accidental Death Benefit, UL Accidental Permanent Total/Partial Disability Benefit, UL

Critical Illness; Benefit and UL Hospital Cash Benefit

Increase savings by paying top up premiums

Flexibility to increase / decrease the regular premiums

CAPITAL UNIT GAIN – A UNIT LINKED PLAN:

Capital Unit Gain is a unit linked endowment regular premium plan with the benefit of life

protection offered by Bajaj Allianze. By choosing an appropriate premium level and term,

individual can match the maturity date of the plan to a specific savings need such as child’s

education, wedding, retirement etc. It has unmatched flexibility to meet any emergency or any

financial need.

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Bajaj Allianz Capital Unit Gain gives up to 97% allocation from the first year onwards to ensure

that your investment income gets accelerated from the first year itself. With Bajaj Allianz Capital

Unit Gain one can get to choose from a wide range of high quality investment funds coupled

with flexible investment management. This is the one-stop solution to investment, tax-saving and

protection needs.

The Key Features of the Capital Unit Gain Plan are:

• Option of choosing any sum assured between minimum and maximum limits to match

insurance needs.

• Option of choosing from a host of additional rider benefits: UL Accidental Death Benefit, UL

Accidental Permanent Total/Partial Disability Benefit, UL Critical Illness

Benefit and UL Hospital Cash Benefit

• Increase savings by paying top up premiums.

• Same premium allocation for all policy years with higher allocation for top up premiums.

• Individuals choice of adopting own investment strategy to grow the funds under the policy.

• Choice of 5 investment funds with flexible investment management, with the option of

changing funds at any time and also invest in the newer funds that would be introduced from

time to time.

• Partial withdrawals without any surrender charges.

• Flexibility to increase / decrease the regular premiums

Regular Premium

Market linked insurance plans invest the premium in to the equity, debt and cash markets by the way of allocating units, which like any other mutual fund have a NAV and the customer is free to switch between one fund class to another depending of the risk factor he wishes to be in. ULIPs offer better returns than the traditional endowment plans and offer a great deal of flexibility along with great returns making them the finest product offering. We at Bajaj Allianz Life Insurance have developed a number of ULIP products which range from single premium to

55


a regular premiums option along with investment funds ranging from index funds to mid-cap funds and debt market linked funds.

New Unit Gain Supper

Ensure fully and get MAX allocation along with a host of additional benefits to choose from.A flexible unit linked plan that allows partial & full withdrawal after 3 years.

Additional benefits: UL Accidental Death Benefit and UL Disability Benefit. UL Critical Illness Benefit and UL Hospital Cash Benefit. 3 funds to choose from & flexibility to pay top-up any time.

Unit Gain plus Gold A Unique plan with the combination of protection and prospects of earning attractive returns with investments in various mixes of securities that makes a perfect plan to last you a lifetime of prosperity and happiness.

High Allocation up to 85%.

Guaranteed Life Cover with a choice of 6 Investments Funds.

Additional Benefit Riders: UL Accidental Death Benefit. UL Critical Illness benefit. UL Hospital Cash Benefit. UL Family Income Benefit. UL Waiver of Premium benefit.

New Family Gain

A Flexible Investment plan with Pure Stock Fund- (a unique ethical fund that invests in environment responsive companies and also suits religious guidelines.) Guaranteed Life Cover: Sum Assured + Value of Units. Partial and full withdrawals after 3 years. UL Accidental Death Benefit and UL Accidental Permanent Total/Partial Disability Benefit. UL Critical Illness Benefit and UL Hospital Cash Benefit. UL Family Income benefit and UL Waiver of Premium Benefit.

New Unit Gain Plus Flexible investment plans with an option of withdrawing money whenever needed. Guaranteed life cover. Choice of 5 investment funds. 3 free switches allowed every year. Partial and full withdrawals after 3 years. Unmatched flexibility to meet your changing lifestyle and insurance requirements.

Century Plus A limited premium payment term option with a unique combination of protection and attractive

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MUTUAL FUNDS

A mutual fund is a pool of money, collected from investors, and is invested according to certain

investment objectives. A mutual fund uses the money collected from the investors to buy those

assets which are specifically permitted by its stated investment objective. The fund’s assets are

owned by the investors in the same proportion as their contribution bears to the total

contributions of all investors put together.

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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the

initiative of the Government of India and Reserve Bank the. The history of mutual funds in India

can be broadly divided into four distinct phases

First Phase – 1964-87 GROWTH OF UNIT TRUST OF INDIA

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

Reserve Bank of India and functioned under the Regulatory and administrative control of the

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Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The

first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700

crores of assets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and

Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).

SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by

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

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC

established its mutual fund in June 1989 while GIC had set up its mutual fund in December

1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004

crores.

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

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

industry, giving the Indian investors a wider choice of fund families. Also, 1993

was the year in which the first Mutual Fund Regulations came into being, under which all mutual

funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now

merged with Franklin Templeton) was the first private sector mutual fund registered in July

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

revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual

Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting

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

end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The

Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phase – since February 2003

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In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated

into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets

under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the

assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of

Unit Trust of India, functioning under an administrator and under the rules framed by

Government of India and does

not come under the purview of the Mutual Fund Regulations.

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

with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the

erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual

Fund Regulations, and with recent mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation and growth. As at the end of

September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421

schemes.

The graph indicates the growth of assets over the years.

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CHARGES

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The Asset Management Companies (AMCs) managing the Mutual Funds levy a load as a

percentage of NAV at the time of entry into the Schemes or at the time of exiting from the

Schemes.

Entry Load - It is the load charged by the fund when an investor invests into the fund. It

increases the price of the units to more than the NAV and is expressed as a percentage of NAV.

Exit Load - It is the load charged by the fund when an investor redeems the units from the fund.

It reduces the price of the units to less than the NAV and is expressed as a percentage of NAV.

Cost of Churning/Turnover cost - It refers to the costs associated with the churning (or

changes made to the holdings) of the portfolio. Portfolio changes have associated costs of

brokerage, custody fees, transaction fees and registration fees, which lower the returns. The

quantum depends on the management style of the fund manager.

Expense Ratio - The Expenses of a mutual fund include management fees and all the fees

associated with the fund's daily operations. Expense Ratio refers to the annual percentage of

fund's assets that is paid out in expenses.

Tax

Capital Gains Tax - The profit realizations on sale of securities and certain other capital assets

(including units of mutual funds) are called capital gains. The gains can be classified into long-

term or short-term depending on the period of holding of the asset and are charged to tax at

different rates. Gains on mutual fund units held for a period of 12 months or more are long-term

gains. These gains are taxable.

Dividend Distribution Tax – The Mutual Fund schemes distributing dividends on their units to

the investors attract a distribution tax as per tax laws.

Securities Transaction Tax – AMCs managing the portfolio have to pay STT on transaction

(buying/selling) of different securities in the stock market. Presently the tax rate is 0.025%.

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

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CONCEPT OF MUTUAL FUNDS

Types of mutual funds

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1. Schemes according to Maturity Period:-A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme:-

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An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme:-

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.2. Schemes according to Investment Objective:-

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme:-

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme:-

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund:-

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth.

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They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:-

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund:-

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds :-

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

3. Sector specific funds/schemes:-These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

4. Tax Saving Schemes:-These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

5. Fund of Funds (FoF) scheme:-A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme enables the

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investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.

6. Load or no-load Fund:-A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

ADVANTAGES OF MUTUAL FUND

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S. No. Advantage Particulars

1.Portfolio

Diversification

Mutual Funds invest in a well-diversified portfolio of securities which enables investor to

hold a diversified investment portfolio (whether the amount of investment is big or small).

2.Professional

Management

Fund manager undergoes through various research works and has better investment

management skills which ensure higher returns to the investor than what he can manage on

his own.

3. Less Risk

Investors acquire a diversified portfolio of securities even with a small investment in a

Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3

securities.

4.Low Transaction

Costs

Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser

transaction costs. These benefits are passed on to the investors.

5. LiquidityAn investor may not be able to sell some of the shares held by him very easily and quickly,

whereas units of a mutual fund are far more liquid.

6. Choice of Schemes

Mutual funds provide investors with various schemes with different investment objectives.

Investors have the option of investing in a scheme having a correlation between its

investment objectives and their own financial goals. These schemes further have different

plans/options

7. TransparencyFunds provide investors with updated information pertaining to the markets and the schemes.

All material facts are disclosed to investors as required by the regulator.

8. Flexibility

Investors also benefit from the convenience and flexibility offered by Mutual Funds.

Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa.

Option of systematic (at regular intervals) investment and withdrawal is also offered to the

investors in most open-end schemes.

9. Safety

Mutual Fund industry is part of a well-regulated investment environment where the interests

of the investors are protected by the regulator. All funds are registered with SEBI and

complete transparency is forced.

Disadvantage of Investing Through Mutual Funds

S. No. Disadvantage Particulars

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1.

Costs Control

Not in the Hands

of an Investor

Investor has to pay investment management fees and fund distribution costs as a

percentage of the value of his investments (as long as he holds the units), irrespective of

the performance of the fund.

2.No Customized

Portfolios

The portfolio of securities in which a fund invests is a decision taken by the fund

manager. Investors have no right to interfere in the decision making process of a fund

manager, which some investors find as a constraint in achieving their financial objectives.

3.

Difficulty in

Selecting a

Suitable Fund

Scheme

Many investors find it difficult to select one option from the plethora of

funds/schemes/plans available. For this, they may have to take advice from financial

planners in order to invest in the right fund to achieve their objectives.

Performance Evaluation

PARAMETERS OF MUTUAL FUND EVALUATION:

Risk Returns Liquidity Expense Ratio Composition of Portfolio

Risks Associated With Mutual Funds

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Investing in mutual funds as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk, the greater the potential return. The types of risk commonly associated with mutual funds are:

Market Risk:

Market risk relate to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled.

Political Risk:

Changes in the tax laws, trade regulations, administered prices etc. is some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote, individually as investors, we have virtually no control.

Inflation Risk:

Inflation or purchasing power risk, relates to the uncertainty of the future purchasing power of the invested rupees. The risk is the increase in cost of the goods and services, as measured by the Consumer Price Index.

Interest Rate Risk:

Interest Rate risk relates to the future changes in interest rates. For instance, if an investor invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lowest interest rates.

Business Risk:

Business Risk is the uncertainty concerning the future existence, stability and profitability of the issuer of the security. Business Risk is inherent in all business ventures. The future financial stability of a company can not be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the company’s equity resulting in proportionate fall in the NAV of mutual fund scheme, which has invested in the equity of such a company.

Economic Risk :

Economic Risk involves uncertainty in the economy, which, in turn can have an adverse effect on a company’s business. For instance, if monsoons fall in a year, equity stocks of agriculture bases companies will fall and NAVs of mutual funds, which have invested in such stocks, will fall proportionately.

Measurement of risk

I. Beta Coefficient Measure Of Risk :

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Beta relates a fund’s return with a market index. It basically measures the sensitivity of funds return to changes in market index.

If Beta = 1

Fund moves with the market i.e. Passive fund

If Beta < 1

Fund is less volatile than the market i. e Defensive Fund

If Beta > 1

Funds will give higher returns when market rises & higher losses when market falls i.e. Aggressive Fund

II. Ex –Marks or R-squared Measure Of Risk :

Ex –Marks represents co relation with markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-marks is better diversified than a fund with lower Ex-marks.

III. Standard Deviation Measure Of Risk :

It is a statistical concept, which measures volatility. It measures the fluctuations of fund’s returns around a mean level. Basically it gives you an idea of how volatile your earnings are. It is broader concept than BETA. It also helps in measuring total risk and not just the market risk of the portfolio.

How to Calculate the Value of a Mutual Fund:

The investors’ funds are deployed in a portfolio of securities by the fund manager. The value of these investments keeps changing as the market price of the securities change. Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date.

Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms.

NAV = Net Assets of the scheme / Number of Units Outstanding

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Where Net Assets are calculated as:-

(Market value of investments + current assets and other assets + Accrued income – current liabilities and other liabilities – less accrued expenses) / No. of Units Outstanding as at the NAV date

NAV of all schemes must be calculated and published at least weekly for closed-end schemes and daily for open-end schemes.

The major factors affecting the NAV of a fund are:

Sale and purchase of securities Sale and repurchase of units Valuation of assets Accrual of income and expenses

SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV. Also the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price.

Measuring Mutual Fund Performance:

We can measure mutual fund’s performance by different method:

Absolute Return Method:

Percentage change in NAV is an absolute measure of return, which finds the NAV appreciation between two points of time, as a percentage.

e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then

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Absolute return = (22 – 20)/20 X 100 =10%

Simple Annual Return Method :

Converting a return value for a period other than one year, into a value for one year, is called as annualisation. In order to annualize a rate, we find out what the return would be for a year, if the return behaved for a year, in the same manner it did, for any other fractional period.

E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then

Annual Return = (22 – 20) /20 X 12/6 X 100 = 20%

Total Return Method:

The total return method takes into account the dividends distributed by the mutual fund, and adds it to the NAV appreciation, to arrive at returns.

Total Return =

(Dividend distributed + Change in NAV)/ NAV at the start X 100

e .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend of Rs. 4 has been distributed then

Total Return = {4 + (22 – 20)}/20 X 100 = 30%

Total Return when dividend is reinvested:

This method is also called the return on investment (ROI) method. In this method, the dividends are reinvested into the scheme as soon as they are received at the then prevailing NAV (ex-dividend NAV).

= ((Value of holdings at the end of the period/ value of the holdings at the beginning) – 1)*100

E.g. An investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30, 2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On December 31, 2007, the fund’s NAV was Rs. 12.25.

Value of holdings at the beginning period= 10.5*100= 1050

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Number of units re-invested = 100/10.25 = 9.756

End period value of investment = 109.756*12.25 = 1344.51 Rs.

Return on Investment = ((1344.51/1050)-1)*100

= 28.05%

Compounded Average Annual Return Method:

This method is basically used for calculating the return for more than 1 year. In this method return is calculated with the following formula:

A = P X (1 + R / 100) N

Where P = Principal invested

A = maturity value

N = period of investment in years

R = Annualized compounded interest rate in %

R = {(Nth root of A / P) – 1} X 100

E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of investment is 10 years then annualized compounded return is

200 = 100 (1 + R / 100) 10

Rate = 7.2 %

RETURNS:

Returns have to be studied along with the risk. A fund could have earned higher return than the benchmark. But such higher return may be accompanied by high risk. Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe created a metric for fund performance, which enables the ranking of funds on a risk adjusted basis.

Sharpe Ratio = Risk Premium

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Funds Standard Deviation

Treynor Ratio = Risk Premium

Funds Beta

Risk Premium = Difference between the Fund’s Average return and Risk free return on government security or treasury bill over a given period .

LIQUIDITY:

Most of the funds being sold today are open-ended. That is, investors can sell their existing units, or buy new units, at any point of time, at prices that are related to the NAV of the fund on the date of the transaction. Since investors continuously enter and exit funds, funds are actually able to provide liquidity to investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investor seeks.

EXPENSE RATIO:

Expense ratio is defined as the ratio of total expenses of the fund to the average net assets of the fund. Expense ratio can actually understate the total expenses, because brokerage paid on transactions of a fund are not included in the expenses. According to the current SEBI norms, brokerage commissions are capitalized and included in the cost of the transactions.

Expense ratio = Total Expenses

Average Net Assets

COMPOSITION OF THE PORTFOLIO:Credit quality of the portfolio is measured by looking at the credit ratings of the investments in the portfolio. Mutual Fund fact sheets show the composition of the portfolio and the investments in various asset classes over time. Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the market to the net assets of the fund.If Portfolio ratio is 100% means portfolio has been changed fully. When Portfolio ratio is high means expense ratio is high.

Portfolio Ratio = Total Sales & Purchase

Net Assets of fund

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In order to meaningfully compare funds some level of similarity in the following factors has to be ensured:

Size of the funds Investment objective Risk profile Portfolio composition Expense ratios

Fund evaluation against benchmark:

Funds can be evaluated against some performance indicators which are known as benchmarks.

There are 3 types of benchmarks:

Relative to market as whole Relative to other comparable financial products Relative to other mutual funds

Relative to market as whole: There are different ways to measure the performance of fund w.r.t market as

Equity Funds

Index Fund – An Index fund invests in the stock comprising of the index in the same ratio. This is a passive management style.

For example,

Market Index Fund - BSE Sensex

Nifty Index Fund - NIFTY

The difference between the return of this fund and its index benchmark can be explained by “TRACKING ERROR”.

Active Equity Funds: The fund manager actively manages this fund. To evaluate performance in such case we have to select an appropriate benchmark.

Large diversified equity fund - BSE 100

Sector fund - Sectoral Indices

Debt Funds: Debt fund can also be judged against a debt market index e.g. I-BEX

Relative to other comparable financial products:

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Schemes Return Convenience

Safety Volatility Liquidity

Equity High

Moderate

Low High High

FI Bonds Moderate

High

High Moderate Moderate

Corporate Debentures

Moderate

Low

Moderate Moderate Low

Company Fixed Deposits

Moderate

Moderate

Low Low Low

Bank Deposits Low

High

High Low High

PPF Moderate

High

High Low Moderate

Life Insurance Low

Moderate

High Low Low

Gold Moderate

Low

High Moderate Moderate

Real Estate High

Low

Moderate High Low

Mutual Funds High High Moderate High

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High

Schemes Investment Objective Risk

Tolerance

Investment Horizon

Equity Term Capital Appreciation High Long

FI Bonds Income Low Medium to Long term

Corporate Debentures

Income High Moderate Medium to Long term

Company Fixed Deposits

Income Moderate Low Medium

Bank Deposits Income Generally Flexible all terms

PPF Income Low Long

Life Insurance Risk Cover Low Long

Gold Inflation Hedge Low Long

Real Estate Inflation Hedge Low Long

TAX TREATMENT FOR THE INVESTORS (UNITHOLDERS):-

Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document, some broad income tax implications of investing in the units of the Scheme are stated below. The information so stated is based on the Mutual Fund's understanding of the tax laws in force as of the date of the Offer Document, which have been confirmed by its auditors. The information stated below is only for the purposes of providing general information to the investors and is neither designed nor intended tobe a substitute for professional tax advice. As the tax consequences are specific to each investor and in view of the changing tax laws, each investor is advised to consult his or her

78


or its own tax consultant with respect to the specific tax implications arising out of his or her or its participation in the Scheme.Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006

To the Unit holders

(a.) Tax on Income

In accordance with the provisions of section 10(35)(a) of the Act, income received by all categories of unit holders in respect of units of the Fund will be exempt from income-tax in their hands.Exemption from income tax under section 10(35) of the Act would, however, not apply to any income arising from the transfer of these units.

(b.) Tax on capital gains:

As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the investor as a capital asset, is considered to be a short-term capital asset, if it is held for 12 months or less from the date of its acquisition by the unit holder. Accordingly, if the unit is held for a period of more than 12 months, it is treated as a long-term capital asset.

Computation of capital gain Capital gains on transfer of units will be computed after taking into account the cost of their acquisition. While calculating long-term capital gains, such cost will be indexed by using the cost inflation index notified by the Government of India. Individuals and HUFs, are granted a deduction from total income, under section 80C of the Act upto Rs. 100,000, in respect of specified investments made during the year (please also refer paragraph d).

Long-term capital gains As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be exempt from income-tax, provided such transaction of sale is chargeable to securities transaction tax.Pursuant to an amendment made in the Finance Act, 2006, effective 1 April 2006, companies would be required to include such long term capital gains in computing the book profits and minimum alternated tax liability under section 115JB of the Act.

Short -term capital gains

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As per Section 111A of the Act, short-term capital gains from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such transaction of sale is chargeable to securities transaction tax.The said tax rate would be increased by a surcharge of:- 10 per cent in case of non-corporate Unit holders, where the total income exceeds Rs.1,000,000,- 10 per cent in case of resident corporate Unit holders, and- 2.5 per cent in case of non-resident corporate unit holders irrespective of the amount of taxable income. Further, an additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge.In case of resident individual, if the income from short term capital gains is less than the maximum amount not chargeable to tax, then there will be no tax payable. Further, in case of individuals/ HUFs, being residents, where the total income excluding short-term capital gains is below the maximum amount not chargeable to tax1, then the difference between the current maximum amount not chargeable to tax and total income excluding short-term capital gains, shall be adjusted from short-term capital gains. Therefore only the balance short term capital gains will be liable to income tax at the rate of 10 percent plus surcharge, if applicable and education cess.

Non-residents In case of non-resident unit holder who is a resident of a country with which India has signed a Double Taxation Avoidance Agreement (which is in force) income tax is payable at the rates provided in the Act, as discussed above, or the rates provided in the such agreement, if any, whichever is more beneficial to such non-resident unit holder.Investment by Minors Where sale / repurchase is made during the minority of the child, tax will be levied on either of the parents, whose income is greater, where the said income is not covered by the exception in the proviso to section 64(1A) of the Act. When the child attains majority, such tax liability will be on the child.Losses arising from sale of units

- As per the provisions of section 94(7) of the Act, loss arising on transfer of units, which are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive the income from units) and sold within a period of nine months after the record date, shall not be allowed to the extent of income distributed by the Fund in respect of such units.- As per the provisions of section 94(8) of the Act, where any units ("original units") are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive

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bonus units) and any bonus units are allotted (free of cost) based on the holding of the original units, the loss, if any, on sale of the original units within a period of nine months after the record date, shall be ignored in the computation of the unit holder's taxable income. Such loss will however, be deemed to be the cost of acquisition of the bonus units.--Each Unit holder is advised to consult his / her or its own professional tax advisor before claiming set off of long-term capital loss arising on sale / repurchase of units of an equity oriented fund referred to above, against long-term capital gains arising on sale of other assets.- Short-term capital loss suffered on sale / repurchase of units shall be available for set off against both long-term and short-term capital gains arising on sale of other assets and balance short-term capital loss shall be carried forward for set off against capital gains in subsequent years.- Carry forward of losses is admissible maximum upto eight assessment years.

(c.) Tax withholding on capital gains

Capital gains arising to a unit holder on repurchase of units by the Fund should attract tax withholding as under:

- No tax needs to be withheld from capital gains arising to a FII on the basis of the provisions of section 196D of the Act.- In case of non-resident unit holder who is a resident of a country with which India has signed a double taxation avoidance agreement (which is in force) the tax should be deducted at source under section 195 of the Act at the rate provided in the Finance Act of the relevant year or the rate provided in the said agreement, whichever is beneficial to such non-resident unit holder. However, such a nonresident unit holder will be required to provide appropriate documents to the Fund, to be entitled to the beneficial rate provided under such agreement.

- No tax needs to be withheld from capital gains arising to a resident unit holder on the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT.

Subject to the above, the provisions relating to tax withholding in respect of gains arising from the sale of units of the various schemes of the fund are as under:

- No tax is required is to be withheld from long term capital gains arising from sale of units in equity oriented fund schemes, that are subject to securities transaction tax.

- In respect of short-term capital gains arising to foreign companies (including Overseas Corporate Bodies), the Fund is required to deduct tax at source at the rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge). In respect of short-term capital gains arising to non-resident individual unit holders, the Fund is required to deduct tax at source at the rate of 11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge).

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(d.) Wealth Tax

Units held under the Schemes of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax.

(e.) Securities Transaction Tax

Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%) Delivery based purchase transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Non-delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an equity oriented fund to the mutual fund 0.2 0.25 Value of taxable securities transaction in case of units shall be the price at which such units are purchased or sold.A deduction in respect of securities transaction tax paid is not permitted for the purpose of computation of business income or capital gains. However, if the total income of an assessee includes any business income arising from taxable securities transactions, he shall be entitled to a rebate3 from income-tax of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered during the course of his business.

About Standard Chartered Mutual Fund

Standard Chartered Mutual Fund is well-established fund house and is sponsored by the Standard Chartered Group. At Standard Chartered Mutual Fund we strive to launch not just innovative products, but products that truly add value to our investors. We were among the first to launch an active management debt fund-the Dynamic Bond Fund - that had the capability to mimic a cash fund or an income fund depending on market situations. The Short term and Medium term funds that were uniquely positioned at various points along the interest rate curve with the sole objective of maximizing value to investors with different investment time horizons.

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Lately this innovation was again brought to the fore with the launch of the Standard Chartered Enterprise Equity Fund , a close-ended fund that sought to invest a portion in Equity IPOs. The fund also launched the Standard Chartered Premier Equity fund an equity fund that seeks to generate wealth by investing in relatively smaller companies. We manage our schemes through well-researched and thoroughly tested processes like the 3 D Factor (For debt funds and helps us in predicting interest rate movements) and the Equity Circle process. SCMF also pioneered several service initiatives that helped increase transactional ease. It was the first mutual fund to initiate

Across the counter redemptions for all classes of investors in liquid funds, Toll Free No accessible in 976 cities Phone transact service wherein investors can redeem without having any Personal

Identification Number

Standard Chartered Mutual Fund currently manages assets in excess of Rs 15801.53Cr as on 5th February 2008 and has touched the lives of more than lakhs of investors residing in more than 1000 Indian towns.

THE WORKNG OF STANDARD CHARTERED MUTUAL FUND

Being an investment house it’s working can be measured in terms of returns on

investment, average maturity profile of securities and net asset value (NAV).

Returns on investments

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It implies that by investing in this debt fund, what returns does the investor get. For

this purpose, it can be known as:

9% GOI 2014 means getting 9% interest rate till the maturity in the year 2014.

Average maturity period

It means the average maturity of security in which the investment by the debt fund

has been made

Net asset value

It implies that summation of market value of securities and accrued income –(fund house expenses) /number of outstanding units.

Schemes ManagedScheme NameGrindlays Cash Fund (G)Grindlays CF - Inst Plan (G)Grindlays Dynamic Bond (G)Grindlays FRF - LTP Inst (G)Grindlays Floating Rate (G)Grindlays FRF- Inst Plan (G)Grindlays FRF - LTP (RP) (G)Grindlays GSec - Inv Plan (G)Grindlays GSec Fund - PF (G)

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Grindlays GSec - STP (G)Grindlays SSIF - MTP A (G)Grindlays SSIF STP - Inst (G)GSSIF STP - MF Plan C (G)GSSIF STP - Super Inst C (G)Grindlays SSIF (G)Grindlays SSIF - STP (G)SC All Seasons Bond - RP (G)StanChart Arbitrage - Inst (G)StanChart Arbitrage Fund (G)StanChart Classic Equity (G)StanChart Enterprise Equity(G)StanChart Imperial Equity (G)StanChart Imperial Equity (G)StanChart Liquidity Manager –GStanChart Liq. Manager Plus-GStanChart Premier Equity (G)StanChart Small&Midcap Eqty –GStanChart Tax Saver Fund (G)

How is a mutual fund set up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of

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the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India:---

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The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:-

This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.

Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

Performance of Diversified Funds

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Sharpe ratios are ideal for comparing funds that have a mixed asset classes. That is balanced

funds that have a component of fixed income offerings.

The Investors for Mutual FundMutual Funds are becoming a very popular form of investment characterized by many

advantages that they share with other forms of investments and what they possess uniquely

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themselves. The primary objectives of an investment proposal would fit into one or combination

of the two broad categories, i.e., Income and Capital gains. How mutual fund is expected to be

over and above an individual in achieving the two said objectives, is what attracts investors to

opt for mutual funds.

Mutual Funds are suitable for the investors who call for:

Expertise Supervision : Making investments is not a full time assignment of

investors. So many investors hardly have a professional attitude towards their investment.

This investment is suitable for those investors. When investors buy mutual fund scheme,

an essential benefit one acquires is expert management of the money he puts in the fund.

The professional fund managers who supervise fund’s portfolio take desirable decisions

viz., what scripts are to be bought, what investments are to be sold and more appropriate

decisions.

Regular Income or Ease of Liquidity - A distinct advantage of a mutual fund over

other investments is that there is always a market for its unit/ shares. Moreover, Securities

and Exchange Board of India (SEBI) requires the mutual funds in India have to ensure

liquidity. Mutual funds units can either be sold in the share market as SEBI has made it

obligatory for closed-ended schemes to list themselves on stock exchanges. For open-

ended schemes investors can always approach the fund for repurchase at net asset value

(NAV) of the scheme. Such repurchase price and NAV is advertised in newspaper for the

convenience of investors as to timings of such buy and sell. They have extensive research

facilities at their disposal, can spend full time to investigate and can give the fund a

constant supervision. The performance of mutual fund schemes, of course, depends on

the quality of fund managers employed.

Risk reluctance - Mutual funds are relatively safer and stable, the reason being it

provides Diversification which is the idea of putting not putting all the eggs into one

basket. By investing in many companies the mutual funds can protect themselves from

unexpected drop in values of some shares. The small investors can achieve wide

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diversification on his own because of many reasons, mainly funds at his disposal. Mutual

funds on the other hand, pool funds of lakhs of investors and thus can participate in a

large basket of shares of many different companies. Majority of people consider

diversification as the major strength of mutual funds.

Risk in investment is as to recovery of the principal amount and as to return on it. Mutual

fund investments on both fronts provide a comfortable situation for investors. The expert

supervision, diversification and liquidity of units ensured in mutual funds reduce the

risks. Investors are no longer expected to come to grief by falling prey to misleading and

motivating ‘headline’ leads and tips, if they invest in mutual funds

Safety of Investments -Besides depending on the expert supervision of fund

managers, the legislation in a country (like SEBI in India) also provides for the safety of

investments. Mutual funds have to broadly follow the laid down provisions for their

regulations, SEBI acts as a watchdog and attempts whole heatedly to safeguard investors

interests

Tax Shelter : Depending on the scheme of mutual funds, tax shelter is also available. As per the Union Budget-2003, income earned through dividends from mutual funds is 100% tax-free at the hands of the investors.

Minimize Operating Costs : Mutual funds having large invisible funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. The reduced operating cost visibly increases the income available for investors. Investing in securities through mutual funds has many advantages like – option to reinvest dividends, strong possibility of capital appreciation, regular returns, etc.The test of their economic efficiency as financial intermediary lies in the extent to which they are able to mobilize additional savings and channeling to more productive sectors of the economy.

Tips on buying mutual funds:-

1. Determine your financial objectives and how much money you have to invest. Make sure the fund’s objectives coincide with your own. Don’t change your objectives or exceed the amount set aside for investment unless you have good reason.

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2. Always obtain all available information before you invest. Request the prospectus, the Statement of Additional Information and the latest shareholder report from each fund you are considering.

3. Never invest in periodic payment plans unless you are virtually certain that you will not have to redeem early. If you redeem early or do not complete the plan, you may have to pay sales charges of up to 51% of your investment.

4. Be on the alert for incorporation by reference. You will have "no excuse" for not knowing this information, if a problem arises. You may be legally presumed to know materials incorporated by reference in a prospectus or other documents.

5. Always determine all sales charges, fees and expenses before you invest. Fees such as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and capital gains distributions can substantially add to your costs. Shop around among the many funds offered and compare the various fees and costs connected with funds that appeal to you.

6. Learn the costs of redemption. Sometimes investors are surprised to learn that they have to pay to get out of funds through back-end loads or redemption fees. Find out the redemption costs before you invest so you won’t be unpleasantly surprised when you redeem your shares.

7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds you want to buy against your ability to tolerate the ups and downs of the market and your investment goals. Be extra cautious when considering investing in funds with high yield/high risk portfolios. Junk bond problems, for example, invariably affect the fund’s performance.

8. Don’t be misled by the name of a fund. Some funds have been given names denoting safety, stability and low risk, despite the fact that the underlying investments in the portfolio are volatile and highly risky.

The investors while investing

Selecting a tool may seem like a daunting task, but knowing your objectives and risk tolerance is half the battle. Thus the investors should study the tools before investing in and should match the scheme with their preferences.

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Before acquiring shares in any fund, an investor must first identify his or her goals and desires for the money being invested. Are long-term capital gains desired, or a current income is preferred. Will the money be used to pay for college expenses, or to supplement a retirement that is decades away? Identifying a goal is important because it will enable the investor dramatically whittle down the list so many tools available in the the public domain.

In addition, investors must also consider the issue of risk tolerance. If the investor is able to afford and mentally accept dramatic swings in portfolio value then he should go for riskier investments. Or, if a more conservative investment warranted from the scheme. Therefore Identifying objective preferences and risk tolerance is as important as identifying a goal.

To finish, I would like to state that this project gave me a lot of assistance to get a hold on the basic knowledge about the products like ULIP, saving accounts and Mutual Funds in detailed manner and also all the mechanism, maneuver related to it.

Age The segment (18-25) can be a potential customer segment for the bank as most of the

people are falling in the income group of less than Rs.15000 per month. The company

can target this segment by offering its ULIP product both as an insurance and investment

product, which can provide high returns as the investments and provide the insurance

cover too, as a large segment doesn’t have an insurance cover. The return in new Capital

Unit Gain Plan is around 20% which is quite good enough. Mutual Fund Schemes can

also be offered to those respondents in this age group who are risk takers as in mutual

funds small amounts can invested. The need is to make this segment aware of the

products like ULIP (which is promising return of 20-25% p.a.) and tap as many

customers as possible. Also Positioning of the Mutual Funds should be such that attracts

customers.

In order to tap the 25-35 years segment ULIP can be promoted as an investment option

rather than an insurance product. Mutual funds need to be promoted as only a small

segment is investing in mutual funds. Mutual funds and ULIP both can be the best

investment option for this segment.

As the segment 35-45 years is an investing and risk taking segment, Mutual funds

promising higher returns can be promoted in this segment. The product ULIP is also

highly acceptable by this segment, so both of these products can be promoted as a best

investment options promising high returns and low risks. People in this age group can

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http://www.investopedia.com/terms/r/risktolerance.asp

http://www.investopedia.com/terms/i/incomefund.asp

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


also invest in real estate as by this age people are in the position to invest large lump sum

money for this investment.

In the segment of 46 & above age group people be targeting for the Mutual funds as can

be seen that very few people are investing M.Fs. this is because this segment consists of

risk averters as this segment have invested in Fixed Deposits and government securities

and insurance than any other investment product as safety is the most important factor

which is being considered while investing by this segment. But these people are neutral

for these investments. These thus these products can be promoted as safe investments and

better than F.D’s only then this segment can be tapped.

Income

The income bracket less than Rs.15000 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 income bracket Rs.15000-Rs.30000 have mainly invested in insurance. But when survey was done and their preferences were asked these respondents strongly preferred investing in these strategies.

Income Bracket of Rs.30000-Rs.50000 is the strong contenders for investing their money and these people have 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 income bracket above Rs.50000 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.

OccupationThe survey conducted has resulted in the observation that the business

class should be targeted for ULIP and Mutual funds as they strongly prefer investing in these two products. These products should be positioned as safe investment and then been sold it to service class and retirees as these investors are the safe investor.

Some facts for the growth of mutual funds in India

100% growth in the last 6 years.

Numbers of foreign AMC’s are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.

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Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.

We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products.

SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.

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 cases with mutual funds, investors in ULIPs

are 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

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name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance

component.

However it should not be construed that barring the insurance element there is nothing

differentiating mutual funds from ULIPs.

How ULIPs can make you RICH!

Despite the seemingly comparable structures there are various factors wherein the two differ.

In this article we evaluate the two avenues on certain common parameters and find out how they

measure up.

ULIP Vs Mutual Fund

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

1. Mode of investment/ investment amounts

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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.

This is in stark contrast to conventional insurance plans where the sum assured is the starting

point and premiums to be paid are determined thereafter.

ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure.

For example an individual with access to surplus funds can enhance the contribution thereby

ensuring that his surplus funds are gainfully invested; conversely an individual faced with a

liquidity crunch has the option of paying a lower amount (the difference being adjusted in the

accumulated value of his ULIP). The freedom to modify premium payments at one's convenience

clearly gives ULIP investors an edge over their mutual fund counterparts.

2. Expenses

In mutual fund investments, expenses charged for various activities like fund management, sales

and marketing, administration among others are subject to pre-determined upper limits as

prescribed by the Securities and Exchange Board of India.

For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on

a recurring basis for all their expenses; any expense above the prescribed limit is borne by the

fund house and not the investors.

Similarly funds also charge their investors entry and exit loads (in most cases, either is

applicable). Entry loads are charged at the timing of making an investment while the exit load is

charged at the time of sale.

Insurance companies have a free hand in levying expenses on their ULIP products with no upper

limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development

Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP

offerings. The only restraint placed is that insurers are required to notify the regulator of all the

expenses that will be charged on their ULIP offerings.

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Expenses can have far-reaching consequences on investors since higher expenses translate into

lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses

have been dealt with in detail in the article "Understanding ULIP expenses".

3. Portfolio disclosure

Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit

most fund houses do so on a monthly basis. Investors get the opportunity to see where their

monies are being invested and how they have been managed by studying the portfolio.

There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our

interactions with leading insurers we came across divergent views on this issue.

There is lack of consensus on whether ULIPs are required to disclose their portfolios. While

some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that

there is no legal obligation to do so.

4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely

comparable. For example plans that invest their entire corpus in equities (diversified equity

funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing

only in debt instruments (debt funds) can be found in both 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).

Effectively the ULIP investor is given the option to invest across asset classes as per his

convenience in a cost-effective manner.

This can prove to be very useful for investors, for example in a bull market when the ULIP

investor's equity component has appreciated, he can book profits by simply transferring the

requisite amount to a debt-oriented plan.

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5. Tax benefits

ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds

good, irrespective of the nature of the plan chosen by the investor. On the other hand in the

mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked

savings schemes) are eligible for Section 80C benefits.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example

diversified equity funds, balanced funds), if the investments are held for a period over 12

months, the gains are tax free; conversely investments sold within a 12-month period attract

short-term capital gains tax @ 10%.

Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term

capital gain is taxed at the investor's marginal tax rate.

Despite the seemingly similar structures evidently both mutual funds and ULIPs have their

unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in

both offerings and make informed decisions.

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Conclusion & recommendations:

After going through a one month summer training and survey, I have come to know about different aspects of mutual funds and mutual funds industry. India is an emerging market. Consumption level is rising with rising earning level. Economic indicators micro and macro both show a sky facing arrows. Data shows that there will be more number of billionaires from India than any of other country. We know that Indians are earning more therefore spending more, but how much they save/invest in order to secure future. There are numbers of traditional ways of saving. They give guaranteed return with low risk. High risk associated investment options was not considered a right decision. India is a young country having a considerably big part of young people. They are more risk taker. They need a right direction for investment options.This study and survey on mutual funds is a small eye hole to see the picture of mutual funds industry in India. This provides almost clear view to the readers. Mutual funds industry is enlarging its size in India. JVs, foreign JVs and acquisitions are in trend. AUM has gone to $8 trillion, number of investors is rising, and number of AMCs is going up. These changes are likely to happen. Indian monetary policy is supporting new business. Private sector is aggressively participating in mutual funds business. Numbers of schemes are much more than earlier. With such shining sides, double digit inflation rate, bearish stock market, RBI’s high bank rates, squeezing liquidity and other dark sides putting pressure on consumers saving. This situation pushes investors back from investment. They wait and hold cash rather than investing. This study found that investors are willing to invest with high rate of return. They know high return always adhere to high risk but market still is not in correction mode. It will take time.Indian market potential is high, investors are willing to pour money in mutual funds, despite some temporary restraints,other economic factors are in favorable mode. Thus we need proper management of advisory services, more schemes, financial advisors and institutions to cater untouched markets. Industry need to revise its business strategy. Investor’s perception is not prioritized yet. Instead of completing targets, advisors working under institutions should consider the requirement of investors. We need to change pattern of selling mutual funds schemes.I hope this study will help readers to identify industry’s unidentified areas where they need to work out.

References:-

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www.IDFCMF.com

www.moneycontrolindia.com

http://www.nse-india.com

http://www.amfiindia.com

http://www.mutualfundsindia.com http://www.sebi.gov.in

www.businessmapsofindia.com

www.ceicdata.com www.economictimes.com

www.valueresearchonline.com

www.standardchartered.co.in

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http://www.valueresearchonline.com/

http://www.economictimes.com/

http://www.ceicdata.com/

http://www.businessmapsofindia.com/

http://www.sebi.gov.in/

http://www.mutualfundsindia.com/

http://www.amfiindia.com/

http://www.nse-india.com/

http://www.moneycontrolindia.com/

http://www.IDFCMF.com/


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