INTRODUCTION

1.1 Asset Allocation

Asset Allocation is an investment strategy that aims to balance risk and reward

by apportioning a portfolio's assets according to an individual's goals, risk

tolerance and investment horizon.

The three main asset classes - equities, fixed-income, and cash and equivalents

- have different levels of risk and return, so each will behave differently over time.

There is no simple formula that can find the right asset allocation for every fund.

However, the consensus among most financial professionals is that asset

allocation is one of the most important decisions that fund managers make. In

other words, the selection of individual securities is secondary to the way fund

managers allocate the fund assets in stocks, bonds, and cash and equivalents,

which will be the principal determinants of the fund’s performance.

Asset-allocation of funds, also known as life-cycle, or target-date, funds, are an

attempt to provide customers with portfolio structures based on the variety of

funds that address a customer’s age, risk appetite and investment objectives with

an appropriate apportionment of asset classes. However, critics of this approach

point out that arriving at a standardized solution for allocating portfolio assets is

problematic because every fund managers invests differently.

1.2 Fund Management

Fund Management is the professional management of various securities and

assets (e.g., real estate) in order to meet specified investment goals for the

benefit of the investors. Investors may be institutions (insurance companies,

pension funds, corporations etc.) or private investors (both directly via investment

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contracts and more commonly via collective investment schemes e.g. mutual

funds or Insurance).

The term Fund management is often used to refer to the investment

management of collective investments, while the more generic fund management

may refer to all forms of institutional investment as well as investment

management for private investors. Investment managers who specialize in

advisory or discretionary management on behalf of private investors may often

refer to their services as wealth management or portfolio management often

within the context of so-called "private banking".

The provision of 'investment management services' includes elements of

financial statement analysis, asset selection, stock selection, plan

implementation and ongoing monitoring of investments. Investment management

is a large and important global industry in its own right responsible for caretaking

of trillions of yen, dollars, euro, pounds and yen. Coming under the ambit of

financial services many of the world's largest companies are at least in part

investment managers and employ millions of staff and create billions in revenue.

Fund manager refers to both a firm that provides investment management

services and an individual who directs fund management decisions.

1.3 Fund Manager

The person(s) responsible for implementing a fund's investing strategy and

managing its portfolio trading activities. A fund can be managed by one person,

by two people as co-managers and by a team of three or more people. Fund

managers are paid a fee for their work, which is a percentage of the fund's

average assets under management.

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1.4 Size of the global fund management industry

Conventional assets under management of the global fund management industry

increased by 14% in 2009, to $71.3 trillion. Pension assets accounted for $28.0

trillion of the total, with $22.9 trillion invested in mutual funds and $20.4 trillion in

insurance funds. Together with alternative assets (sovereign wealth funds, hedge

funds, private equity funds and exchange traded funds) and funds of wealthy

individuals, assets of the global fund management industry totaled over $105

trillion, an increase of 15% on the previous year. The increase in 2009 followed a

18% decline in the previous year and was largely a result of the recovery in

equity markets during the year. Part of the reason for the increase in dollar terms

was the depreciation in the value of the US dollar against a number of currencies

in 2009.

The US remained by far the biggest source of funds, accounting for around a half

of conventional assets under management or some $36 trillion. The UK was the

second largest centre in the world and by far the largest in Europe with around

9% of the global total.

1.5 Performance measurement

Fund performance is often thought to be the acid test of fund management, and

in the institutional context, accurate measurement is a necessity. For that

purpose, institutions measure the performance of each fund (and usually for

internal purposes components of each fund) under their management, and

performance is also measured by external firms that specialize in performance

measurement. The leading performance measurement firms compile aggregate

industry data, e.g., showing how funds in general performed against given

indices and peer groups over various time periods.

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In a typical case (let us say an equity fund), then the calculation would be made

(as far as the client is concerned) every quarter and would show a percentage

change compared with the prior quarter (e.g., +4.6% total return in US dollars).

This figure would be compared with other similar funds managed within the

institution (for purposes of monitoring internal controls), with performance data

for peer group funds, and with relevant indices (where available) or tailor-made

performance benchmarks where appropriate. The specialist performance

measurement firms calculate quartile and decile data and close attention would

be paid to the ranking of any fund.

Generally speaking, it is probably appropriate for an investment firm to persuade

its clients to assess performance over longer periods (e.g., 3 to 5 years) to

smooth out very short term fluctuations in performance and the influence of the

business cycle. This can be difficult however and, industry wide, there is a

serious preoccupation with short-term numbers and the effect on the relationship

with clients (and resultant business risks for the institutions).

An enduring problem is whether to measure before-tax or after-tax performance.

After-tax measurement represents the benefit to the investor, but investors' tax

positions may vary. Before-tax measurement can be misleading, especially in

regimens that tax realized capital gains (and not unrealized). It is thus possible

that successful active managers may produce miserable after-tax results. One

possible solution is to report the after-tax position of some standard taxpayer.

1.6 Risk-adjusted performance measurement

Performance measurement should not be reduced to the evaluation of fund

returns alone, but must also integrate other fund elements that would be of

interest to investors, such as the measure of risk taken. Several other aspects

are also part of performance measurement: evaluating if managers have

succeeded in reaching their objective, i.e. if their return was sufficiently high to

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reward the risks taken; how they compare to their peers; and finally whether the

portfolio management results were due to luck or the manager’s skill. The need

to answer all these questions has led to the development of more sophisticated

performance measures, many of which originate in modern portfolio theory.

Modern portfolio theory established the quantitative link that exists between

portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by

Sharpe (1964) highlighted the notion of rewarding risk and produced the first

performance indicators, be they risk-adjusted ratios (Sharpe ratio, information

ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio

is the simplest and best known performance measure. It measures the return of a

portfolio in excess of the risk-free rate, compared to the total risk of the portfolio.

This measure is said to be absolute, as it does not refer to any benchmark,

avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it does

not allow the separation of the performance of the market in which the portfolio is

invested from that of the manager. The information ratio is a more general form

of the Sharpe ratio in which the risk-free asset is replaced by a benchmark

portfolio. This measure is relative, as it evaluates portfolio performance in

reference to a benchmark, making the result strongly dependent on this

benchmark choice.

Portfolio alpha is obtained by measuring the difference between the return of the

portfolio and that of a benchmark portfolio. This measure appears to be the only

reliable performance measure to evaluate active management. In fact, we have

to distinguish between normal returns, provided by the fair reward for portfolio

exposure to different risks, and obtained through passive management, from

abnormal performance (or outperformance) due to the manager’s skill (or luck),

whether through market timing, stock picking, or good fortune. The first

component is related to allocation and style investment choices, which may not

be under the sole control of the manager, and depends on the economic context,

while the second component is an evaluation of the success of the manager’s

decisions. Only the latter, measured by alpha, allows the evaluation of the

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manager’s true performance (but then, only if you assume that any

outperformance is due to skill and not luck).

Portfolio return may be evaluated using factor models. The first model, proposed

by Jensen (1968), relies on the CAPM and explains portfolio returns with the

market index as the only factor. It quickly becomes clear, however, that one

factor is not enough to explain the returns very well and that other factors have to

be considered. Multi-factor models were developed as an alternative to the

CAPM, allowing a better description of portfolio risks and a more accurate

evaluation of a portfolio's performance. For example, Fama and French (1993)

have highlighted two important factors that characterize a company's risk in

addition to market risk. These factors are the book-to-market ratio and the

company's size as measured by its market capitalization. Fama and French

therefore proposed three-factor model to describe portfolio normal returns

(Fama-French three-factor model). Carhart (1997) proposed to add momentum

as a fourth factor to allow the short-term persistence of returns to be taken into

account. Also of interest for performance measurement is Sharpe’s (1992) style

analysis model, in which factors are style indices. This model allows a custom

benchmark for each portfolio to be developed, using the linear combination of

style indices that best replicate portfolio style allocation, and leads to an accurate

evaluation of portfolio alpha.

In life insurance the funds collected for traditional policies go to life fund. Those

funds are managed by the insurance company based on the IRDA regulations.

The new form of investment in insurance is through ULIPs (Unit Linked Insurance

Policies). These are also regulated by IRDA but here the collected fund is

invested in various assets to generate high return compared to normal policies

which provide risk cover and a small return. Here the role of fund manager is to

make such a portfolio, which will generate a continuous return to the investors.

Fund manager has to have a close look on the portfolio growth and structure.

Because the investors invest in ULIPs only when they need both risk cover and

return. Most of them don’t have the needed knowledge to invest in equity market

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efficiently. Here the fund manager comes in to help. He will be a knowledgeable

person who should be aware of the market behavior.

1.7 Theoretical Back Ground

ULIPs

Meaning

A unit-linked insurance plan (ULIP) is a type of life insurance where the cash

value of a policy varies according to the current net asset value of the underlying

investment assets. It allows protection and flexibility in investment, which are not

present in other types of life insurance such as whole life policies. The premium

paid is used to purchase units in investment assets chosen by the policyholder

How ULIPs work

ULIPs work on the lines of mutual funds. The premium paid by the client (less

any charge) is used to buy units in various funds (aggressive, balanced or

conservative) floated by the insurance companies. Units are bought according to

the plan chosen by the policyholder. On every additional premium, more units are

allotted to his fund. The policyholder can also switch among the funds as and

when he desires. While some companies allow any number of free switches to

the policyholder, some restrict the number to just three or four. If the number is

exceeded, a certain charge is levied.

Individuals can also make additional investments (besides premium) from time to

time to increase the savings component in their plan. This facility is termed "top-

up". The money parked in a ULIP plan is returned either on the insured's death or

in the event of maturity of the policy. In case of the insured person's untimely

death, the amount that the beneficiary is paid is the higher of the sum assured

(insurance cover) or the value of the units (investments). However, some

schemes pay the sum assured plus the prevailing value of the investments.

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Types of ULIPs

ULIPs for retirement planning

ULIPs for long term wealth creation

ULIPs for child education

ULIPs for health solutions

Recent modification in ULIPs by IRDA

Initial charges: Premium paid by investors in ULIPs is partly used for insurance

and partly for making investments. However, for the first 2 -3 years of the term of

the policy, insurance companies charged heavily. Sometimes insurance

companies diverted as much as 80 percent of the premium payments towards

these charges.

Initial charges are basically used for administration charges, processing fees etc.

Therefore the charges should be extremely low.

Facility to surrender policy: Sometimes policyholders need immediate funds,

and then they opt to surrender their policy. But the problem is, the long term

consequences of surrendering the policy early had an adverse impact on the

policyholder's investments.

The surrender charges on policy were high. Some companies confiscated up to

60 per cent of the policy value in case the policyholder surrendered his policy.

ULIPs give back most when it’s invested as long term basis. Hence early

withdrawal should be discouraged.

Advantages

1. The accretion to the fund invested can be checked on daily basis unlike

the traditional policies.

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2. There is lot more flexibility like partial withdrawal, switching, redirection,

early withdrawal, Sum Assured reduction, top up contribution, etc....

3. Charges are transparent in nature, with the latest AML guidelines insisting

on common nomenclature of charges for all insurance companies.

4. The customer can time the market by exercising switch options and make

the most when markets are zooming or choose to be conservative when

markets are falling. It’s thus win-win situation

5. He gets a life cover at a nominal cost unlike mutual funds,

6. Stages in one life like education of children, marriage, and retirement

needs can be soundly planned by the help of ULIPs.

7. Tax advantages are also offered by the ULIPs.

Disadvantages

1. Investors find it difficult to understand capital market and how ulips works

2. ULIPS are attractive for risk taking people and less attractive for risk

adverse people

3. Some consider taking term insurance and a mutual fund as a combination

to beat the ULIP.

4. Some consider charges levied exorbitant and not commensurate to the

returns offered.

5. The complicated design of the policies makes them less aware of the

product features and chances of misuse by agents are very high.

The Role of a fund Manager

The Prime Goal of a Fund Manager is to monitor and manage the securities (in

the form of stocks, bonds amongst others) to meet the investment goals and

objectives of the customers (investors). The services include financial analysis on

the investments, the assets that are invested upon and the stocks selected. The

plan and strategy that is implemented is also to be closely monitored so that in

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the longer run, risks on loosing out on major dividends can be avoided. A

certified company investment advisor should conduct an assessment of each

client's individual needs and risk profile. The advisor then recommends

appropriate investments. The art of managing investments is an important aspect

in its own right and involves a lot of money at a single moment taking care of

trillions of dollars, euro, pounds and yen and other major Global economies.

The budget of an investment management firm directly depends on the Asset

Allocation that is made by the Fund Manager for the investors. Asset Allocation

involves a lot of money at stake at a go, because at one time you are investing

one more than one commodity. Moreover Asset Allocation has more predictive

power than the choice of individual holdings in determining portfolio/investment

return. The real test and skill proof of a Fund Manager truly lies in handling asset

allocations and individual investments separately so that the competition that the

investment faces from other competing funds is handled with care. Another

important factor that a Fund Manager has got to take care of is the diversification

in assets once an investment is being made. It is always advisable to investors to

invest in more then one commodities at a time. A fund does fluctuate and varies

with market conditions, so if an investor looses out on the dividend from one

investment he has the other to gain from. As it is people investing in Mutual

Funds do gain from long term returns.

There are numerous ways to invest in a Fund. It depends upon the risk you are

willing to undertake and your expected dividends from your investments. Fund

performance is the main test of fund management and for the investment

management firm as well. In order to be sure that fund they are monitoring, the

firm measures the performance of each fund they are managing. The

performance of a Fund shouldn't be decided on the returns provided alone, as

there are several other factors associated with it. Whether the return was worth

the risk taken, Performance of the fund compared to their competitors and finally

whether the portfolio management results were due to luck or the manager's skill.

A Fund Manager is hence compared to God when it comes to Fund Investments.

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

risk also.

Major Problems For fund Management Companies

revenue is directly linked to market valuations, so a major fall in asset

prices causes a precipitous decline in revenues relative to costs;

above-average fund performance is difficult to sustain, and clients may not

be patient during times of poor performance;

successful fund managers are expensive and may be headhunted by

competitors;

above-average fund performance appears to be dependent on the unique

skills of the fund manager; however, clients are loath to stake their

investments on the ability of a few individuals- they would rather see firm-

wide success, attributable to a single philosophy and internal discipline;

Analysts who generate above-average returns often become sufficiently

wealthy that they avoid corporate employment in favor of managing their

personal portfolios.

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INDUSTRY PROFILE

THE INSURANCE INDUSTRY IN INDIA

AN OVERVIEW

With the largest number of life insurance policies in force in the world, Insurance

happens to be a mega opportunity in India. It’s a business growing at the rate of

15-20 per cent annually and presently is of the order of Rs 1560.41

billion .Together with banking services, it adds about 7% to the country’s Gross

Domestic Product (GDP). The gross premium collection is nearly 2% of GDP and

funds available with LIC for investments are 8% of the GDP.

Even so nearly 65% of the Indian population is without life insurance cover while

health insurance and non-life insurance continues to be below international

standards. A large part of our population is also subject to weak social security

and pension systems with hardly any old age income security. This in itself is an

indicator that growth potential for the insurance sector in India is immense.

A well-developed and evolved insurance sector is needed for economic

development as it provides long term funds for infrastructure development and

strengthens the risk taking ability of individuals. It is estimated that over the next

ten years India would require investments of the order of one trillion US dollars.

The Insurance sector, to some extent, can enable investments in infrastructure

development to sustain the economic growth of the country.

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HISTORICAL PERSPECTIVE

The history of life insurance in India dates back to 1818 when it was conceived

as a means to provide for English Widows. Interestingly in those days a higher

premium was charged for Indian lives than the non - Indian lives, as Indian lives

were considered more risky to cover. The Bombay Mutual Life Insurance Society

started its business in 1870. It was the first company to charge the same

premium for both Indian and non-Indian lives.

The Oriental Assurance Company was established in 1880. The General

insurance business in India, on the other hand, can trace its roots to Triton

Insurance Company Limited, the first general insurance company established in

the year 1850 in Calcutta by the British. Till the end of the nineteenth century

insurance business was almost entirely in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life

Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several

frauds during the 1920's and 1930's sullied insurance business in India. By 1938

there were 176 insurance companies.

The first comprehensive legislation was introduced with the Insurance Act of

1938 that provided strict State Control over the insurance business. The

insurance business grew at a faster pace after independence. Indian companies

strengthened their hold on this business but despite the growth that was

witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers

and provident societies under one nationalized monopoly corporation and Life

Insurance Corporation (LIC) was born. Nationalization was justified on the

grounds that it would create the much needed funds for rapid industrialization.

This was in conformity with the Government's chosen path of State led planning

and development.

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The non-life insurance business continued to thrive with the private sector till

1972. Their operations were restricted to organized trade and industry in large

cities. The general insurance industry was nationalized in 1972. With this, nearly

107 insurers were amalgamated and grouped into four companies- National

Insurance Company, New India Assurance Company, Oriental Insurance

Company and United India Insurance Company. These were subsidiaries of the

General Insurance Company (GIC).

KEY MILESTONES

a) 1912: The Indian Life Assurance Companies Act enacted as the first

statute to regulate the life insurance business.

b) 1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and non-life

insurance businesses.

c) 1938: Earlier legislation consolidated and amended by the Insurance Act

with the objective of protecting the interests of the insuring public.

d) 1956: 245 Indian and foreign insurers along with provident societies were

taken over by the central government and nationalized. LIC was formed by

an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5

crore from the Government of India.

INDUSTRY REFORMS

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill

in Parliament in December 1999. The IRDA since its incorporation as a statutory

body in April 2000 has fastidiously stuck to its schedule of framing regulations

and registering the private sector insurance companies. Since being set up as an

independent statutory body the IRDA has put in a framework of globally

compatible regulations.

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The other decision taken simultaneously to provide the supporting systems to the

insurance sector and in particular the life insurance companies was the launch of

the IRDA online service for issue and renewal of licenses to agents. The

approval of institutions for imparting training to agents has also ensured that the

insurance companies would have a trained workforce of insurance agents in

place to sell their products.

PRESENT SCENARIO - LIFE INSURANCE INDUSTRY IN INDIA

The life insurance industry in India grew by an impressive 47.38%, with premium

income at Rs. 1560.41 billion during the fiscal year 2006-2007.

The 17 private insurers increased their market share from about 15% to about

19% in a year's time. The figures for the first two months of the fiscal year 2007-

08 also speak of the growing share of the private insurers. The share of LIC for

this period has further come down to 75 percent, while the private players have

grabbed over 24 percent.

With the opening up of the insurance industry in India many foreign players have

entered the market. The restriction on these companies is that they are not

allowed to have more than a 26% stake in a company’s ownership. Since the

opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion

have poured into the Indian market and 19 private life insurance companies have

been granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled

fledgling private insurance companies to sign up Indian customers faster than

anyone expected. Indians, who had always seen life insurance as a tax saving

device, are now suddenly turning to the private sector and snapping up the new

innovative products on offer. Some of these products include investment plans

with insurance and good returns (unit linked plans), multi – purpose insurance

plans, pension plans, child plans and money back plans.

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LIFE INSURANCE CORPORATION OF INDIA (LIC)

Life Insurance Corporation of India (LIC) was formed in September, 1956 by an

Act of Parliament, viz., Life Insurance Corporation Act, 1956, with capital

contribution from the Government of India. The then Finance Minister, Shri C.D.

Deshmukh, while piloting the bill, outlined the objectives of LIC thus: to conduct

the business with the utmost economy, in a spirit of trusteeship; to charge

premium no higher than warranted by strict actuarial considerations; to invest the

funds for obtaining maximum yield for the policy holders consistent with safety of

the capital; to render prompt and efficient service to policy holders, thereby

making insurance widely popular.

 

Since nationalisation, LIC has built up a vast network of 2,048 branches, 100

divisions and 7 zonal offices spread over the country. The Life Insurance

Corporation of India also transacts business abroad and has offices in

Fiji, Mauritius and United Kingdom. LIC is associated with joint ventures abroad

in the field of insurance, namely, Ken-India Assurance Company Limited, Nairobi;

United Oriental Assurance Company Limited, Kuala Lumpur and Life Insurance

Corporation (International) E.C. Bahrain. The Corporation has registered a joint

venture company in 26th December, 2000 in Kathmandu, Nepal by the name of

Life Insurance Corporation (Nepal) Limited in collaboration with Vishal Group

Limited, a local industrial Group. An off-shore company L.I.C. (Mauritius) Off-

shore Limited has also been set up in 2001 to tap the African insurance market.

SOME AREAS OF FUTURE GROWTH

Life Insurance

The traditional life insurance business for the LIC has been a little more than a

savings policy. Term life (where the insurance company pays a predetermined

amount if the policyholder dies within a given time but it pays nothing if the

policyholder does not die) has accounted for less than 2% of the insurance

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premium of the LIC (Mitra and Nayak, 2001). For the new life insurance

companies, term life policies would be the main line of business.

Health Insurance

Health insurance expenditure in India is roughly 6% of GDP, much higher than

most other countries with the same level of economic development. Of that, 4.7%

is private and the rest is public. What is even more striking is that 4.5% are out of

pocket expenditure (Berman, 1996). There has been an almost total failure of the

public health care system in India. This creates an opportunity for the new

insurance companies.

Thus, private insurance companies will be able to sell health insurance to a vast

number of families who would like to have health care cover but do not have it.

Pension

The pension system in India is in its infancy. There are generally three forms of

plans: provident funds, gratuities and pension funds. Most of the pension

schemes are confined to government employees (and some large companies).

The vast majority of workers are in the informal sector. As a result, most workers

do not have any retirement benefits to fall back on after retirement. Total assets

of all the pension plans in India amount to less than USD 40 billion.

Therefore, there is a huge scope for the development of pension funds in India.

The finance minister of India has repeatedly asserted that a Latin American style

reform of the privatized pension system in India would be welcome (Roy, 1997).

Given all the pros and cons, it is not clear whether such a wholesale privatization

would really benefit India or not (Sinha, 2000).

List of insurance companies in India

Life Insurer in Public Sector

1. SBI Life Insurance

2. Metlife India Life Insurance

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3. ICICI Prudential Life Insurance

4. Bajaj Allianz Life

5. Max New York Life Insurance

6. Sahara Life Insurance

7. Tata AIG Life

8. HDFC Standard Life

9. Birla Sun life

10.Kotak Life Insurance

11.Aviva Life Insurance

12.Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar

LIC

13. ING Vysya Life Insurance

14.Shriram Life Insurance

15.Bharti AXA Life Insurance Co Ltd

16.Future Generali Life Insurance Co Ltd

17. IDBI Fortis Life Insurance

18.AEGON Religare Life Insurance

19.DLF Pramerica Life Insurance

20.CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE

21. India First Life insurance company limited

22.Star Union Dia-ichi Life Insurance Co. Ltd

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

The Insurance Regulatory and Development Authority (IRDA) is a national

agency of the Government of India, based in Hyderabad. It was formed by an act

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of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to

incorporate some emerging requirements. Mission of IRDA as stated in the act is

"to protect the interests of the policyholders, to regulate, promote and ensure

orderly growth of the insurance industry and for matters connected therewith or

incidental thereto."In 2010, the Government of India ruled that the Unit Linked

Insurance Plans (ULIPs) will be governed by IRDA, and not the market regulator

Securities and Exchange Board of India

DUTIES, POWERS AND FUNCTIONS OF IRDA

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of

IRDA

1. Subject to the provisions of this Act and any other law for the time being in

force, the Authority shall have the duty to regulate, promote and ensure

orderly growth of the insurance business and re-insurance business.

2. Without prejudice to the generality of the provisions contained in sub-

section (1), the powers and functions of the Authority shall include,

1. issue to the applicant a certificate of registration, renew, modify,

withdraw, suspend or cancel such registration;

2. protection of the interests of the policy holders in matters

concerning assigning of policy, nomination by policy holders,

insurable interest, settlement of insurance claim, surrender value of

policy and other terms and conditions of contracts of insurance;

3. specifying requisite qualifications, code of conduct and practical

training for intermediary or insurance intermediaries and agents;

4. specifying the code of conduct for surveyors and loss assessors;

5. promoting efficiency in the conduct of insurance business;

6. promoting and regulating professional organizations connected with

the insurance and re-insurance business;

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7. levying fees and other charges for carrying out the purposes of this

Act;

8. calling for information from, undertaking inspection of, conducting

enquiries and investigations including audit of the insurers,

intermediaries, insurance intermediaries and other organizations

connected with the insurance business;

9. control and regulation of the rates, advantages, terms and

conditions that may be offered by insurers in respect of general

insurance business not so controlled and regulated by the Tariff

Advisory Committee under section 64U of the Insurance Act, 1938

(4 of 1938);

10.specifying the form and manner in which books of account shall be

maintained and statement of accounts shall be rendered by

insurers and other insurance intermediaries;

11. regulating investment of funds by insurance companies;

12. regulating maintenance of margin of solvency;

13.adjudication of disputes between insurers and intermediaries or

insurance intermediaries;

14.supervising the functioning of the Tariff Advisory Committee;

15.specifying the percentage of premium income of the insurer to

finance schemes for promoting and regulating professional

organizations referred to in clause (f);

16.specifying the percentage of life insurance business and general

insurance business to be undertaken by the insurer in the rural or

social sector; and

17.Exercising such other powers as may be prescribed from time to

time.

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Protection of the interest of policy holders:

IRDA has the responsibility of protecting the interest of insurance policyholders.

Towards achieving this objective, the Authority has taken the following steps:

IRDA has notified Protection of Policyholders Interest Regulations 2001 to

provide for: policy proposal documents in easily understandable language;

claims procedure in both life and non-life; setting up of grievance redressal

machinery; speedy settlement of claims; and policyholders' servicing. The

Regulation also provides for payment of interest by insurers for the delay in

settlement of claim.

The insurers are required to maintain solvency margins so that they are in a

position to meet their obligations towards policyholders with regard to payment

of claims.

It is obligatory on the part of the insurance companies to disclose clearly the

benefits, terms and conditions under the policy. The advertisements issued by

the insurers should not mislead the insuring public.

All insurers are required to set up proper grievance redress machinery in their

head office and at their other offices.

The Authority takes up with the insurers any complaint received from the

policyholders in connection with services provided by them under the insurance

contract.

The institution of Insurance Ombudsman was created by a Government of India

Notification dated 11th November, 1998 with the purpose of quick disposal of

the grievances of the insured customers and to mitigate their problems involved

in redressal of those grievances. This institution is of great importance and

relevance for the protection of interests of policy holders and also in building

their confidence in the system.The institution has helped to generate and

sustain the faith and confidence amongst the consumers and insurers.

21

Insurance Ombudsman

The governing body of insurance council issues orders of appointment of the

insurance Ombudsman on the recommendations of the committee comprising of

Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the

Central Government. Insurance council comprises of members of the Life

Insurance council and general insurance council formed under Section 40 C of

the Insurance Act, 1938. The governing body of insurance council consists of

representatives of insurance companies.

Terms of office

An insurance Ombudsman is appointed for a term of three years or till the

incumbent attains the age of sixty five years, whichever is earlier. Re-

appointment is not permitted..

Territorial jurisdiction of Ombudsman

The governing body has appointed twelve Ombudsmen across the country

allotting them different geographical areas as their areas of jurisdiction. The

Ombudsman may hold sitting at various places within their area of jurisdiction in

order to expedite disposal of complaints. The offices of the twelve insurance

Ombudsmen are located at (1) Bhopal, (2) Bhubaneswar, (3) Cochin, (4)

Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9)

Ahmedabad, (10) Lucknow, (11) Mumbai, (12) Hyderabad. The area of

jurisdiction of each Ombudsman has been mentioned in the list of Ombudsman.

Office Management

The Ombudsman has a secretarial staff provided to him by the insurance council

to assist him in discharging his duties. The total expenses on Ombudsman and

his staff are incurred by the insurance companies who are members of the

insurance council in such proportion as may be decided by the governing body.

22

Removal from office

An Ombudsman may be removed from service for gross misconduct committed

by him during his term of office. The governing body may appoint such person as

it thinks fit to conduct enquiry in relation to misconduct of the Ombudsman. All

enquiries on misconduct will be sent to Insurance Regulatory and Development

Authority which may take a decision as to the proposed action to be taken

against the Ombudsman. On recommendations of the IRDA, the Governing Body

may terminate his services, in case he is found guilty.

Power of Ombudsman

Insurance Ombudsman has two types of functions to perform (1) conciliation, (2)

Award making. The insurance Ombudsman is empowered to receive and

consider complaints in respect of personal lines of insurance from any person

who has any grievance against an insurer. The complaint may relate to any

grievance against the insurer i.e. (a) any partial or total repudiation of claims by

the insurance companies, (b) dispute with regard to premium paid or payable in

terms of the policy, (c) dispute on the legal construction of the policy wordings in

case such dispute relates to claims; (d) delay in settlement of claims and (e) non-

issuance of any insurance document to customers after receipt of premium.

Ombudsman's powers are restricted to insurance contracts of value not

exceeding Rs. 20 lakhs. The insurance companies are required to honour the

awards passed by an Insurance Ombudsman within three months

Manner of lodging complaint

The complaint by an aggrieved person has to be in writing, and addressed to the

insurance Ombudsman of the jurisdiction under which the office of the insurer

falls. The complaint can also be lodged through the legal heirs of the insured.

Before lodging a complaint:

23

i) the complainant should have made a representation to

the insurer named in the complaint and the insurer either

should have rejected the complaint or the complainant

have not received any reply within a period of one month

after the concerned insurer has received his complaint or

he is not satisfied with the reply of the insurer

ii) The complaint is not made later than one year after the

insurer had replied.

iii) The same complaint on the subject should not be

pending with before any court, consumer forum or

arbitrator.

Recommendations of the Ombudsman

When a complaint is settled through the mediation of the Ombudsman, he shall

make the recommendations which he thinks fair in the circumstances of the case.

Such a recommendation shall be made not later than one month and copies of

the same sent to complainant and the insurance company concerned. If the

complainant accepts recommendations, he will send a communication in writing

within 15 days of the date of receipt accepting the settlement.

Award

The ombudsman shall pass an award within a period of three months from the

receipt of the complaint. The awards are binding upon the insurance companies.

If the policy holder is not satisfied with the award of the Ombudsman he can

approach other venues like Consumer Forums and Courts of law for redressal of

his grievances.

As per the policy-holder's protection regulations, every insurer shall inform the

policy holder along with the policy document in respect of the insurance

Ombudsman in whose jurisdiction his office falls for the purpose of grievances

redressal arising if any subsequently. Steady increase in number of complaints

24

received by various Ombudsman shows that the policy-holders are reposing their

confidence in the institution of Insurance Ombudsman.

APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR

There is a evolutionary change in the technology that has revolutionized the

entire insurance sector. Insurance industry is a data-rich industry, and thus, there

is a need to use the data for trend analysis and personalization.

With increased competition among insurers, service has become a key issue.

Moreover, customers are getting increasingly sophisticated and tech-savvy.

People today don’t want to accept the current value propositions, they want

personalized interactions and they look for more and more features and add

ones and better service

The insurance companies today must meet the need of the hour for more and

more personalized approach for handling the customer. Today managing the

customer intelligently is very critical for the insurer especially in the very

competitive environment. Companies need to apply different set of rules and

treatment strategies to different customer segments. However, to personalize

interactions, insurers are required to capture customer information in an

integrated system.

With the explosion of Website and greater access to direct product or policy

information, there is a need to developing better techniques to give customers a

truly personalized experience. Personalization helps organizations to reach their

customers with more impact and to generate new revenue through cross selling

and up selling activities. To ensure that the customers are receiving personalized

information, many organizations are incorporating knowledge database-

repositories of content that typically include a search engine and lets the

customers locate the all document and information related to their queries of

request for services. Customers can hereby use the knowledge database to

manage their products or the company information and invoices, claim records,

and histories of the service inquiry. These products also may be able to learn

25

from the customer’s previous knowledge database and to use their information

when determining the relevance to the customers search request.

There is a probability of a spurt in employment opportunities. A number of web-

sites are coming up on insurance, a few financial magazines exclusively devoted

to insurance and also a few training institutes being set up hurriedly. Many of the

universities and management institutes have already started or are

contemplating new courses in insurance. Life insurance has today become a

mainstay of any market economy since it offers plenty of scope for garnering

large sums of money for long periods of time. A well-regulated life insurance

industry which moves with the times by offering its customers tailor-made

products to satisfy their financial needs is, therefore, essential if we desire to

progress towards a worry-free future.

26

COMPANY PROFILE

ORIGIN OF THE ORGANIZATION

Introduction

HDFC is a professionally managed organization with a board of directors

consisting of eminent persons who represent various fields including

finance, taxation, construction and urban policy & development. The board

primarily focuses on strategy formulation, policy and control, designed to

increasing value to shareholders.

About HDFC

HDFC is India’s leading housing finance institution and has helped build

more than   23, 00,000 houses since its incorporation in 1977.

In Financial Year 2003-04 its assets under management crossed Rs.

36,000 Cr.

As at March 31, 2004, outstanding deposits stood at Rs. 7,840 crores.

The depositor   base now stands at around 1 million depositors.

Rated ‘AAA’ by CRISIL and ICRA for the 10th consecutive year

Stable and experienced management

High service standards

Awarded The Economic Times Corporate Citizen of the year Award for

its long-standing commitment to community development.

Presented the ‘Dream Home’ award for the best housing finance

provider in 2004 at   the third Annual Outlook Money Awards.

It entered into various sectors and offering services like banking, mutual

funds etc, and with the privatization in insurance sector, it also entered

into insurance market.

27

Features of HDFC

1. Investment returns:

Investment returns and business growth provided by HDFC is validated by

Bajaj Capital report. HDFC pacify the need of investors up to healthy level

and make the strong relationship with them.

2. Financial Background and Experience:

HDFC is a key market player since 1977. It has a very handsome

experience in the field of finance because it completely involved in finance

Sector only where as the others are running in many other field also like

Reliance (Petroleum, Textile, Telecom etc.)

3. Ethics and Values:

HDFC is an ethical and cultural organization, which prevents the false

selling and prohibits the false commitment to the customer.

4. Sales Force:

Properly trained, licensed and educated people are the strength of the

company. Such personnel can provide the best customer service.

5. Branch:

Huge branch network HDFC is having 450 branches in all over the country.

6. Online accessibility:

It makes the process faster and adds to customer delight.

28

Family companies:

HDFC Limited

HDFC Bank Ltd

HDFC Asset Management Co. Ltd

HDFC Securities Ltd

HDFC Chubb General Insurance Co Ltd

About Standard Life

· The Standard Life group has been looking after the financial needs of

customers for   over 180 years. Standard life currently has a customer base

of around 7 million people who rely on the company   for their insurance,

pension, investment, banking and health-care needs. Its investment

manager currently administers £125 billion in assets It is a leading pensions

provider in the UK, and is rated by Standard & Poor's as   'strong' with a

rating of A+ and as 'good' with a rating of A1 by Moody's. Standard Life was

awarded the 'Best Pension Provider' in 2004, 2005 and 2006 at the Money

Marketing Awards, and it was voted a 5 star life and pension’s provider at

the Financial Adviser Service Awards for the last 10 years running. The '5

Star'  accolade has also been awarded to Standard Life Investments for the

last 10 years,  and to Standard Life Bank since its inception in 1998.

Standard Life Bank was    awarded the 'Best Flexible Mortgage Lender' at

the Mortgage Magazine Awards in    2006. Its business operates within six

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

International.

29

The partnership:

HDFC and standard life insurance first came together for a possible joint

venture, to enter life insurance market, in January 1995. It was clear from

the outset both companies shared values and beliefs and a strong

relationship quickly formed. In October 1995 the companies signed a 3-year

joint venture agreement.

Around this time standard life purchased a 5% stake in HDFC, further

strengthening the relationship.

The next three years were filled with uncertainty, due to changes in

government and ongoing delays in getting the IRDA (Insurance Regulatory

and Development Authority) Act passed in parliament. Despite this both

companies remained firmly committed to the venture.

In October 1998, the joint venture agreement was renewed and additional

resource made available. Around this time standard life purchased 2% of

Infrastructure Development Finance Company Ltd. (IDFC) standard Life

also started to use the services of the HDFC Treasury department to advise

them upon their investment in India.

Towards the end of 1999, the opening of the market looked very promising

and both companies agreed the time was right to moves the operation to

the next level. Therefore in January 2000 an export team from the UK

joined pocked team from HDFC to r\from the core project team, based in

Mumbai. Around this time standard life purchased a further 5% stake in

HDFC and 5% stake in HDFC Bank.

In a further development standard life agreed to participates in the Asset

Management Company promoted by HDFC to enter the mutual fund

market. The mutual fund was launched on 20th July 2000.

30

Incorporation of HDFC Standard Life Insurance Company Limited:

The company was incorporated on 14th August 2000 under the name of

HDFC Standard Life Insurance Company Limited. Company’s ambition from

as far back as October 1995, was to be first private company to re-enter the

life insurance market in India. On the 23rd of October 2000, this ambition

was realized when HDFC Standard Life Insurance was the only life

company to be granted a certificate of registration.

HDFC and Standard Life are the main shareholders of HDFC Standard

Life, HDFC with 81.4%while standard Life owns 18.6% Given Standard

Life’s existing investment in the HDFC Group, this is the maximum

investment under current regulations.

HDFC and standard life have a long and relationship built upon shared

values and trust. The ambition of HDFC Standard Life is to mirror the

success of the parent companies and be the yardstick by which all other

insurance companies in India are measured.

HDFC Standard Life Insurance Company Limited. is one of India's leading

private insurance companies, which offers a range of individual and group

insurance solutions. It is a joint venture between Housing Development

Finance Corporation Limited (HDFC Limited), India's leading housing

finance institution and a Group Company of the Standard Life Plc, UK. As

31

on February 28, 2009 HDFC Ltd. Holds 72.43% and Standard Life

(Mauritius Holding) 2006, Ltd. holds 26.00% of equity in the joint venture,

while the rest is held by others.

Key Strengths

Financial Expertise

As a joint venture of leading financial services groups, HDFC Standard Life

has the financial expertise required to manage your long-term investments

safely and efficiently.

Range of Solutions

HDFC has a range of individual and group solutions, which can be easily

customized to specific needs. It’s group solutions have been designed to

offer you complete flexibility combined with a low charging structure.

Vision Statement

“The most successful and admired life insurance company, which means

that we are the most trusted company, the easiest to deal with, offer the

vest values for money, and easiest the standards in the industry, In short, “

The most obvious choice for all. ”

Growth and Development of the Organization:

Current position:

Our gross premium income, for the year ending March 31, 2009 stood at

Rs. 5,564.69 Crores.

32

As on March 31, 2009, the company has more than 27 lakh policies in

force.

Vision & Values

Our Vision

'The most successful and admired life insurance company, which means

that we are the most trusted company, the easiest to deal with, offer the

best value for money, and set the standards in the industry'. 'The most

obvious choice for all'.

Values observed at work:

Integrity

Innovation

Customer centric

People Care “One for all and all for one”

Team –work

Joy and Simplicity

Associate Companies

HDFC Limited

HDFC Bank

HDFC Mutual Fund

HDFC Sales

HDFC ERGO General Insurance

Strong promoter

HDFC Standard Life is a strong, financially secure business supported by

two strong and secure promoters – HDFC Ltd and Standard Life. HDFC

Ltd’s excellent brand strength emerges from its unrelenting focus on

corporate governance, high standards of ethics and clarity of vision.

33

Standard Life is a strong, financially secure business and a market leader in

the UK Life & Pensions sector.

Preferred and trusted brand

Our brand has managed to set a new standard in the Indian life insurance

communication space. We were the first private life insurer to break the ice

using the idea of self-respect instead of ‘death’ to convey our brand

proposition (Sar Utha Ke Jiyo). Today, we are one of the few brands that

customers recognize, like and prefer to do business. Moreover, our brand

thought, Sar Utha Ke Jiyo, is the most recalled campaign in its category.

Investment philosophy

We follow a conservative investment management philosophy to ensure

that our customer’s money is looked after well. The investment policies and

actions are regularly monitored by a formal Investment Committee

comprising non-executive directors and the Principal Officer & Executive

Director.

As a life insurance company, we understand that customers have invested

their savings with us for the long term, with specific objectives in mind.

Thus, our investment focus is based on the primary objective of protecting

and generating good, consistent, and stable investment returns to match

the investor’s long-term objective and return expectations, irrespective of

the market condition.

Need based selling approach

Despite the criticality of life insurance, sales in the industry have been

characterized by over reliance on tax benefits and limited advice-based

selling. Our eight-step structured sales process ‘Disha’ however, helps

customers understand their latent needs at the first instance itself without

focusing on product features or tax benefits. Need-based selling process,

'Disha', the first of its kinds in the industry, looks at the whole financial

picture. Customers see a plan not piecemeal product selling.

34

Risk control framework

HDFC Standard Life has fully implemented a risk control framework to

ensure that all types of risks (not just financial) are identified and measured.

These are regularly reported to the board and this ensures that the

company management and board members are fully aware of any risks and

the actions taken to ensure they are mitigated

Transparent dealing

One of the few companies whose product details, pricing, clauses are

clearly communicated to help customers take the right decision.

Strict compliance with regulation

We have initiated and implemented many new processes, some of which

were found useful by the IRDA and later made mandatory for the entire

industry. The agents who successfully completed this training only, were

authorized by the company to sell ULIPs. This has now been made

compulsory by IRDA for all insurance companies under the new Unit Linked

Guidelines.

Accolades and Recognition

Rated by 'Business world' as 'India's Most Respected Private Life Insurance

Company' in 2004.

Rated as the "Best New Insurer - 2003" by Outlook Money magazine,

India’s number 1 personal finance magazine.

35

PRODUCT PROFILE:

HDFC offers products as per the life stages of the customers and their

respective needs.

Your insurance need will change as your life does, from starting to work to

enjoying your golden years and all the stages in between. Each one of these

stages may pose a different insurance need/cover for you. In this section, we

have drawn up the basic life stages and help you analyze various insurance

needs accordingly.

36

Products

Financial Year Name of the Product

In operation

Remarks, if any,

by IRDA

From

(opening

date*)

To

(closing

date)

2000-01 HDFC Endowment Assurance 12-Dec-00 13-Mar-02

2001-02 HDFC Endowment Assurance 13-Mar-02

2000-01HDFC Money BachHDFC Money Back 12-Dec-00

2000-01HDFC Development Insurance

Plan30-Mar-01 16-Feb-06

2005-06HDFC Development Insurance

Plan16-Feb-06

2000-01HDFC Single premium Whole of

Life Insurance30-Mar-01

2001-02 HDFC Group Term Insurance 7-Jun-01 6-Dec-06

2006-07 HDFC Group Term Insurance 6-Dec-06

2001-02 HDFC Protection Series 13-Sep-01 15-Mar-02

2001-02 HDFC Protection Series 15-Mar-02

2008-09 HDFC Protection Series 3-Mar-09

2001-02 HDFC Immediate Annuity 31-Jan-02 21-Feb-07

2004-05 HDFC Immediate Annuity 21-Feb-07

2001-02 HDFC Personal Pension Plan 8-Feb-02

2002-03 HDFC Bima Bachat Yojana 27-Nov-02

2007-08 HDFC Bima Bachat Yojana

2002-03 HDFC Children's Plan 14-Feb-03

2003-04 HDFC Group Unit Linked Plan 31-May-03 28-Mar-06

37

2005-06HDFC Group Unit Linked Plan

Option A28-Mar-06 31-Aug-10 Withdrawn

2003-04 HDFC Deposit Insurance Plan 19-Sep-03 28-Mar-05 Withdrawn

2003-04HDFC Home Loan Protection

Plan6-Oct-03 5-Aug-04

2004-05HDFC Home Loan Protection

Plan5-Aug-04

2003-04 HDFC Savings Assurance Plan 23-Dec-03

2003-04HDFC Unit Linked Endowment

Plan30-Dec-03 23-Jun-06

Financial Year Name of the Product In operation Remarks

From

(opening

date*)

To

(closing

date)

2006-07 HDFC Unit Linked Endowment 23-Jun-06 1-Mar-08 withdrawn

2003-04 HDFC Unit Linked Pension Plan 30-Dec-03 26-Jun-06

2003-04 HDFC Leave Encashment Plan 29-Jan-04 1-Jul-06 Withdrawn

2004-05 HDFC Assurance Plan 7-May-04

2004-05HDFC Unit Linked Young Star

Plan21-Jun-04 22-Jun-06

2006-07 HDFC Unit Linked Young Star 22-Jun-06 1-Mar-08 withdrawn

2005-06HDFC Group Flexible Term

Insurance23-Jun-05

2005-06HDFC Group Variable Term

Insurance26-Dec-05

2005-06HDFC Group Unit Linked Plan

Option B28-Mar-06 31-Aug-10 Withdrawn

38

2005-07HDFC Group Unit Linked Plan

Option B1-Feb-11

2006-07HDFC Unit Linked Young Star

Plus22-Jun-06 1-Mar-08 withdrawn

2006-07HDFC Unit Linked Endowment

Plus23-Jun-06 1-Mar-08 withdrawn

2006-07HDFC Unit Linked Young Star

Suvidha23-Jun-06 15-Dec-08 withdrawn

2006-07HDFC Unit Linked Young Star

Suvidha Plus23-Jun-06 15-Dec-08 withdrawn

2006-07HDFC Unit Linked Endowment

Suvidha26-Jun-06 15-Dec-08 withdrawn

2006-07HDFC Unit Linked Endowment

Suvidha Plus26-Jun-06 15-Dec-08 withdrawn

2006-07 HDFC Unit Linked Pension Plus 26-Jun-06 8-Oct-08 Withdrawn

2007-08HDFC Unit Linked Enhanced Life

Protection II4-Feb-08 1-Jan-10 Withdrawn

2007-08HDFC Unit Linked Endowment

Plus II4-Feb-08 1-Jan-10 Withdrawn

2007-08HDFC Unit Linked YoungStar

Plus II5-Feb-08 1-Jan-10 Withdrawn

2008-09 HDFC SimpliLife 14-Jul-08 16-Dec-09

2008-09 HDFC SimpliLife 16-Dec-08 30-Dec-09

2009-10 HDFC SimpliLife 30-Dec-09 31-Aug-10 Withdrawn

2008-09HDFC Unit Linked Wealth

Maximiser Plus14-Jul-08 1-Jan-10 Withdrawn

2008-09 HDFC Critical Care Plan 14-Jul-08

Financial Year Name of the Product In operationRemarks

39

2008-09 HDFC Young Star II 31-Jul-08 1-Jan-10 Withdrawn

From

(opening

date*)

To

(closing

date)

2008-09 HDFC Unit Linked Endowment II 31-Jul-08 1-Jan-10 Withdrawn

2008-09 HDFC Unit Linked Pension II 17-Sep-08 1-Jan-10 Withdrawn

2008-09HDFC Unit Linked Pension

Maximiser II17-Sep-08 1-Jan-10 Withdrawn

2008-09HDFC Unit Linked Endowment

Winner17-Nov-08 1-Jan-10 Withdrawn

2008-09HDFC Unit Linked Young Star

Champion17-Nov-08 1-Jan-10 Withdrawn

2008-09HDFC Standard Life Surgicare

Plan10-Feb-09

2009-10HDFC Unit Linked Wealth

Multiplier27-May-09 1-Jan-10 Withdrawn

2009-10HDFC Gramin Bima Kalyan

Yojana7-Oct-09

2009-11HDFC Gramin Bima Kalyan

Yojana

2009-10 HDFC Premium Guarantee Plan 7-Oct-09

2009-10 HDFC Pension Super 3-Nov-09 31-Aug-10 Withdrawn

2009-10 HDFC Young Star Super 4-Nov-09 31-Aug-10 Withdrawn

2009-10 HDFC Endowment Super 8-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Young Star Super Suvidha 8-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Endowment Super Suvidha 15-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Young Star Supreme 15-Dec-09 31-Aug-10 Withdrawn

40

Suvidha

2009-10HDFC Endowment Supreme

Suvidha15-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Wealth Builder 24-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Pension Supreme 31-Dec-09 31-Aug-10 Withdrawn

2009-10 HDFC Pension Maximiser II 18-Jan-10 31-Aug-10 Withdrawn

2009-10 HDFC Pension Champion 18-Jan-10 31-Aug-10 Withdrawn

2009-10 HDFC Endowment Supreme 28-Jan-10 31-Aug-10 Withdrawn

2009-10HDFC Young Star Champion

Suvidha11-Feb-10 31-Aug-10 Withdrawn

2009-10 HDFC YoungStar Supreme 26-Feb-10 31-Aug-10 Withdrawn

2009-10HDFC Endowment Champion

Suvidha8-Mar-10 31-Aug-10 Withdrawn

2010-11 HDFC SL Group Savings Plan 14-Jun-10

Financial Year Name of the Product

In operation

RemarksFrom

(opening

date*)

To

(closing

date)

2010-11 HDFC SL New Money Back Plan 20-Aug-10

2010-11HDFC SL Group Conventional

Plan22-Nov-10

2010-11 HDFC SL Endowment Gain 9-Dec-10

2010-11 HDFC SL Group Traditional Plan 10-Feb-11

2010-11HDFC SL Classic Assure

Insurance Plan10-Feb-11

New ULIPs to be offered for sale w.e.f. 01.09.2010

2010-11 HDFC SL Crest 27-Aug-10

41

2010-11 HDFC SL Youngstar Super II 30-Aug-10

2010-11 HDFC SL ProGrowth Super II 13-Sep-10

2010-11 HDFC SL ProGrowth Maximiser 21-Oct-10

2010-11HDFC SL Young Star Super

Premium1-Nov-10

2010-11 HDFC SL ProGrowth Flexi 21-Dec-10

2010-11HDFC SL Group Unit Linked

Option I3-Jan-11

2010-11 HDFC SL pension Maximus 14-Jan-11

Table 1 Products available in HDFC SL

List of funds in HDFC Standard Life

1. Blue chip wealth builder fund.

2. Income wealth builder fund.

3. Opportunities wealth builder fund.

4. Vantage wealth builder fund.

5. Bond opportunities Fund

6. Large Cap Niche Life Fund

7. Mid Cap Niche Life Fund

8. Managers Fund

9. Money Plus Fund

1. Blue chip wealth builder fund:

The fund aims to provide medium to long term capital appreciation by investing in

a portfolio of pre-dominantly large cap companies which can perform through

economic and market cycles. The fund will invest at least 80% in companies

which have a market capitalization greater than the company with the least

42

weight in BSE100 index. The fund may also invest up to 20% in money market

instruments/cash.

2. Income wealth builder fund:

The fund aims to provide superior returns through investments in high credit

quality debt instruments while maintaining an optimal level of interest rate risk.

The fund may also invest up to 20% in money market instruments/cash.

3. Opportunities wealth builder fund:

The fund aims to generate long term capital appreciation by investing pre-

dominantly in mid cap stocks which are likely to be the blue chips of tomorrow.

The fund will invest in stocks which have a market capitalization equal to or lower

than the market capitalization of the highest weighted stock in the NSE CNX

Midcap Index. The fund may also invest up to 20% in money market

instruments/cash.

4. Vantage wealth builder fund:

This is a fund of funds which will invest in the Income Wealth Builder Fund, Blue

chip Wealth Builder Fund and Opportunities Wealth Builder Fund. The allocation

to each fund will depend on the fund manager's market view and will be within

the limits.

5. Bond opportunities Fund:

To provide reasonable returns through investments in high credit quality debt

instruments while maintaining an optimal level of interest rate risk.

6. Large Cap Niche Life Fund:

To generate long term capital appreciation from a diversified portfolio of pre-

dominantly in large cap equity and equity related securities.

7. Mid Cap Niche Life Fund:

43

To generate long term capital appreciation from a diversified portfolio of pre-

dominantly in mid cap equity and equity related securities

8. Managers Fund:

This is a fund of funds which will invest in Money Plus Niche Life Fund, Bond

Opportunities Niche Life Fund, Large Cap Niche Life Fund and Mid Cap Niche

Life Fund. The allocation to each fund will depend on the fund manager's market

view and will be within the limits.

9. Money Plus Fund:

To generate optimal returns from investments biased to the highest credit quality

at the short end of the yield curve, such that interest rate risks and credit risks

are low.

RESEARCH METHODOLOGY

Objectives of study:

To study the funds available for investment in HDFC Standard Life.

To suggest better investment policy for the funds collected through

insurance policies in insurance products in order to get maximum returns.

To help in optimum portfolio construction.

Research design

Research design is the plan, structure and strategy of investigation conceived so

as to obtain answer to research questions and to control variance. Research

design is in fact the conceptual structure with in which the research is conducted.

Bernard Phillips has described the research design as “blue print for the

collection, measurement and analysis of data”.

44

Sources of data

Primary sources:

Interactions with the employees of the organization.

Secondary sources:

When an investigator uses the data which has already been collected by others,

such data is called secondary data. This data is primary data for the agency that

collects it and it becomes secondary data for someone else who uses this data

for his own purpose.

Secondary data for the study is collected from Internet, Government publication,

publication of professionals and research organizations. Following are few

sources for secondary data.

Model of Research:

The present research is conducted for analyzing a quantitative data. Hence, the

research model selected is Analytical Research.

Analytical Research:

Analytical research tests a pre-planned hypotheses basing on existing

knowledge. It is a procedure or technique of analysis applied to quantitative data.

It may consist of a system of mathematical models or statistical techniques

applicable to numerical data. It concentrates on analyzing data in depth and

examining relationship for various angels by bringing in as many relevant

variables as possible in the analysis plan. This method is extensively used in

business and other fields in which quantitative numerical data are generated.

45

Scope of study:

This study will help to understand portfolio construction, Evaluation, Revision of

insurance funds of HDFC standard life insurance, at the same time gives an idea

whether company is gaining maximum returns.

Limitation of the study:

Secondary data can be general and vague and may not really help

companies with decision making.

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

must always be checked.

The data maybe old and out of date.

The sample used to generate the secondary data maybe small.

The company publishing the data may not be reputable.

The analysis is mainly done for two quarters(i.e for a short period of time)

Analysis and Interpretation

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

Return = *100

2. Formula for calculating Portfolio Return

Portfolio Return = w1*R1+w2*R2+w3*R3……..

46

(Current price – Base price)

Base price

Where,w1= Weight of stock 1 in portfolio.

w2= Weight of stock 2 in portfolio.

R1= Return of stock 1.

R2 = Return of stock 2

47

1. Variation in premium collection for 3 years.

Year Premium (in cr.)

2010 4858.56

2011 5564.69

2012 7005.10

Table 2 Variation in premium collection for 3 years

2010 2011 20120.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

8000.00

Premium (in cr.)

Premium (in cr.)

Figure+ 1 Premium collection for 3 years.

Analysis:

The above graph clearly shows that there is a growth in premium collection of the

HDFC SL over the past 3 years.

48

2.Net investment for 3 years.

Year Premium (in cr.)

2010 36020822

2011 39057231

2012 48767468

Table 3 Net investment for 3 years

2010 2011 20120

10000000

20000000

30000000

40000000

50000000

60000000

Premium (in cr.)

Premium (in cr.)

Figure 2 Net investment for 3 years

Analysis:

The graph shows that there is a continuous increase in the net investment made

by the HDFC SL over the past 3 years.

49

3. Blue chip wealth builder fund

3.1 Sector wise Investment in Equity of Blue Chip Wealth Builder Fund

SECTOR INVESTMENT%

Finance14.60

oil and Gas 13.70

Capital Goods 10.44

FMCG 10.00

Information Technology 8.95

Health care 6.31

Transport Equipments 5.65

Banks 4.12

Metal and Mining 3.67

Power 3.33

Cement 2.93

Marine port and services 2.49

Media and publishing 2.40

Telecom 2.25

IT Consulting and Software 1.93

50

Pharmaceuticals 1.85

Automobiles – 2,3 Wheelers 1.48

Consumer Durables 1.36

SECTOR INVESTMENT%

Agrochemical 1.10

Electric Utilities 1.05

Others 0.39

Table 4 Sector wise Investment Blue Chip Wealth Builder Fund

51

Finance

oil and gas

Capital goods

Fast moving consumer goods

information Technology

Health care

Transport Equipments

Banks

Metal and Mining

Power

Cement

Marine port and services

Media and publishing

Telecom

IT Consulting and Software

Pharmaceuticals

Automobiles – 2,3 Wheelers

Consumer Durables

Agrochemical

Electric Utilities

Others

0 2 4 6 8 10 12 14 16

Percentage of investment in various sectors

INVESTMENT%

Figure 3 Blue Chip Wealth Builder Fund Investments

Analysis:

From the graph it is evident that the company has invested a large portion of its

pooled money in the finance sector and least of 1.05% in Electric Utilities when

blue chip wealth builder fund is considered.

52

3.2 Portfolio Structure of Blue chip wealth builder fund

Portfolio Component %investment

Equity 92.71

Debt 7.29

Table 5 Portfolio Structure

92.71%

7.29%

EquityDebt

Figure 4 Portfolio Structure of Blue chip wealth builder fund

Analysis:

In blue chip wealth builder fund the company has invested up to 92.71% in equity

market and just 7.29% in debt market.

53

4. Income Wealth Builder Funds

Portfolio component %investment

Debentures/Bonds 60.43

Government securities 12.39

Deposits and money market instruments 18.18

Table 6 Portfolio Structure of Income wealth Builder Fund

60.43%12.39%

18.18%

Debentures/BondsGovernment securitiesDeposits and money market instruments

Figure 5 Income Wealth Builder Funds

Expected portfolio Yield: 9.32%

Analysis:

From the graph we can say that in Income wealth builder fund portfolio the

company has invested majorly in debentures and bonds and least of 12.39% in

government securities.

54

5. Opportunities Wealth Builder Fund

Portfolio Component Investment in

percentage

Equity 89.56

Money Market

Instruments

10.16

Table 7 Portfolio Structure of Opportunities wealth Builder Fund

89.46%

10.16%

EquityMoney Market In-struments

Figure 6 Opportunities Wealth Builder Fund

Analysis:

In opportunities wealth builder fund portfolio 89.46% investment is made in equity

market and 10.16% of investment is made in money market and other investment

avenues.

55

5.1 Sector wise Investment in Equity of Opportunities Wealth Builder Fund

Sector %investment

Finance 29.95

Oil and Gas 16.99

Health care 14.11

Cement 9.73

Consumer Durables 7.37

Pharmaceuticals 4.87

Media and Publishing 4.51

Bank 3.62

Electric utilities 2.98

Fertilizers 2.22

Diversified 2.05

Others 1.58

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

56

Finance

Oil and Gas

Health care

Cement

Consumer Durables

Pharmaceuticals

Media and Publishing

Bank

Electric utilities

Fertilizers

Diversified

Others

0 5 10 15 20 25 30 35

Figure 7 Opportunities Wealth Builder Fund Investments

Analysis:

Out of 89.84% of opportunities wealth builder fund, 29.95% is in finance sector

and a least of 2.22% in Fertilizer sector is allocated.

57

6. Vantage Wealth Builder Fund

Portfolio component %Investment

Income Wealth Builder fund 49.35

Bluechip Wealth Builder Fund 25.90

Opportunities Wealth Builder Fund 24.75

Table 9 Portfolio Structure of Vantage wealth Builder Fund

49.35%

25.9%

24.75%Income Wealth Builder fundBluechip Wealth Builder FundOpportunities Wealth Builder Fund

Analysis:

Vantage wealth builder fund is a fund of funds in which 49.35% of investment is

made in Income wealth builder Fund and 25.9% each in blue chip wealth builder

fund and 24.75% in

Opportunities Wealth Builder fund.

58

7. Bond opportunities Fund

Portfolio Component %investment

Debentures/Bonds 25.18

Government securities 56.31

Deposits and money market instruments 18.51

Table 10 Portfolios Structure of Bond opportunities Fund

25.18%

56.31%

18.51%

Debentures/BondsGovernment securitiesDeposits and money market instruments

Figure 8 Portfolio structure of Bond opportunities Fund

59

Analysis:

In bond opportunities fund 56.31% investment is in government securities,

25.18% in debentures and bonds and 18.51% in Deposits and money market

instruments is made. Expected Portfolio Yield is 8.34%.

8. Large Cap Niche Life Fund

Portfolio component %investment

Equity 95.81

Deposit and Money market

Instruments

4.19

Table 11 Portfolio Structure of Large Cap Niche Life Fund

95.81%

4.19%

EquityDeposit and Money market Instruments

Figure 9 Portfolio Structure Large Cap Niche Life Fund

60

Analysis:

In large cap niche life fund 95.81% of investment is made in equity and only

4.19% in money market instruments.

8.1 Sector wise allocation of funds in equity in Large Cap Niche Life fund

SectorInvestment in

percentage

Finance 18.17

Oil and Gas 15.56

Capital Goods 11.63

Information Technology 10.55

Fast moving consumer

goods8.99

Healthcare 6.82

Metal, Metal products &

Mining5.48

Power 4.04

Transport Equipment 3.65

Banks 3.37

Telecom 2.64

Automobiles 2.07

Media and publishing 1.95

Chemical & Petrochemical 1.43

IT Consulting and Software 1.30

Others2.34

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

61

Finan

ce

Oil and Gas

Capita

l Goods

Informati

on Tech

nology

Fast

moving c

onsumer

goods

Health

care

Metal, M

etal p

roducts

& M

iningPower

Transp

ort Eq

uipment

Banks

Telec

om

Automobiles

Media

and publish

ing

Chemica

l & Petr

ochem

ical

IT Consu

lting and So

ftware

Others0

2

4

6

8

10

12

14

16

18

20

Figure 10 Investment in different sectors Large Cap Niche Life fund

Analysis:

Out of 95.81% of Large Cap Niche Life fund, 18.17% is in finance sector and a

least of 1.30% in IT consulting and Software

62

9. Mid Cap Niche Life Fund

Portfolio Component % investment

Equity 97.14

Money market and others 2.86

97.14%

2.86%

EquityMoney market and others

Figure 11 Portfolio Structure of Mid Cap Niche Life Fund

Analysis:

In mid cap niche life fund 97.14% of investment is made in equities and only 2.86

% in money market instruments.

63

10. Managers Fund

Component of Portfolio %

investment

Bond Opportunities Niche Life Fund 44.81

Large cap Niche Life Fund 25.64

Mid Cap Niche Life Fund 24.88

Money Plus Niche Life Fund 4.67

Table 13 Managers Fund

44.81%

25.64%

24.88%

4.67%

Bond Opportunities Niche Life FundLarge cap Niche Life FundMid Cap Niche Life FundMoney Plus Niche Life Fund

Figure 12 Portfolio structure of Managers Fund

Analysis:

It is also a fund of funds where maximum investment is made in Bond

opportunities niche life fund and minimum investment is made in Money Plus

niche life fund.

64

11. Money Plus Fund:

Component of Portfolio % investment

Debentures/Bonds 3.72

Government Securities 73.12

Deposits and money market Securities 23.16

Table 14 Portfolio structure of Money plus Fund

3.72%

73.12%

23.16%

Debentures/BondsGovernment SecuritiesDeposits and money market Securities

Figure 13 Portfolio structure of Money plus Fund

Analysis:

From the chart it is clear that in money plus fund major portion of investment is

made in government securities i.e. 73.12%. 23.16% and 3.72% in money market

and debentures respectively

65

Funds Considered for in depth Analysis

1. Large cap Niche Life Fund

2. Blue chip Wealth Builder Fund

Large cap Niche Life Fund details

Particulars March 2012 April 2012 May 2012

Entry of new

security to Portfolio

Base portfolio* 1. Cairn India

Limited

2. Mphasis Ltd

1. Mundra

Port &

Special

Economic

Zone ltd.

Exit of the security

from the portfolio

Base portfolio* 1. Punjab

National

Bank

2. Siemens Ltd

1. Oil India

Ltd.

Table 15 Large cap Niche Life Fund details

*Base portfolio is taken as portfolio on March 31ST 2012

Base index: NIFTY

Bench mark return as on March 31 2012(3 months) : -4.90%

Fund Return as on March 31 2012(3 months) : -6.25%

Bench mark return as on May 31 2012(3 months) : 4.25%

Fund Return as on May 31 2012(3 months) : 4.80%

Bench mark return from past 2 years as on May 31 2012 : 11.79%

66

Fund Return from past 2 years as on May 31 2012 : 17.25%

NAV (June 20th 2012) : 13.47

Blue Chip Wealth Builder Fund details

Particulars March 2012 April 2012 May 2012

Entry of new

security to

Portfolio

Base portfolio* 1. Indian

Overseas

Bank

2. Cairn India

Ltd.

1. Bank of

Baroda

Exit of the security

from the portfolio

Base portfolio* 1. Siemens Ltd

2. Kotak

Mahindra

Bank Ltd

3. Bank of

Baroda

4. United

Phosphorous

Ltd.

1. Mundra Port

& Special

Economic

Zone Ltd.

2. Blue Star Ltd.

3. National

Thermal

Power

Corporation

Ltd.

Table 16 Blue chip Wealth Builder Fund

*Base portfolio is taken as portfolio on March 31ST 2012

Base index: BSE 100

Bench mark return as on March 31 2012(3 months) : -5.43%

Fund Return as on March 31 2012(3 months) : -5.91%

67

Bench mark return as on May 31 2012(3 months) : 4.98%

Fund Return as on May 31 2012(3 months) : 6.39%

Bench mark return from past 1 years as on May 31 2012 : 7.52%

Fund Return from past 1 years as on May 31 2012 : 9.68%

NAV (June 20th 2012) : 9.98

(Source: Fund sheet of HDFC SL)

Details of stocks that entered or moved out of the Fund

Large Cap Niche Life Fund

Stock NameEntry

Month

Exit

Month

28-02-

2012

closing

31-03-

2012

closing

29-04-

2012

closing

31-05-

2012

closing

%

growth

Cairn India Ltd.APR

2012- 339.1 351.25 349.25 339.35 -3.39

Mphasis Ltd.APR

2012- 431.25 415.55 469.15 467.6 12.53

Mundra Port & Special

Economic Zone Ltd.

MAY

2012- 138.4 136.45 144.35 160.85 11.43

Punjab National Bank -APR

20121054.75 1220.15 1185.85 1099.7 15.68

Siemens Ltd. -APR

2012846 881.35 864.3 871.05 4.18

Oil India Ltd. -MAY

20121233.75 1312.85 1385.45 1286.35 12.3

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

68

Cairn India Ltd.

Mphasis Ltd.

Mundra Port & Special

Economic Zone Ltd.

Punjab National

Bank

Siemens Ltd.

Oil India Ltd.

-5

0

5

10

15

20

% growth

Figure 14 Graphical representation of stocks that entered or moved out of the

Fund

Blue Chip Wealth Builder Fund

Stock Name

Entry

Mont

h

Exit

Month

28-

02-

2012

closi

ng

31-

03-

2012

closi

ng

29-

04-

2012

closi

ng

31-

05-

20112

closi

ng

%

growt

h

Indian Overseas BankAPR

2012-

132.7

5143.6

152.6

5

142.2

5-0.94

Cairn India Ltd.APR

2012- 339.1

351.2

5

349.2

5

339.3

5-3.39

Bank of BarodaMAY

2012-

870.8

5

963.1

5

912.1

5863.4 -5.34

Siemens Ltd. -APR

2012846

881.3

5864.3

871.0

54.18

Kotak Mahindra Bank

Ltd.-

APR

2012

405.3

5

456.8

5430.2

440.5

54.16

Bank of Baroda - APR 870.8 963.1 912.1 863.4 10.56

69

2012 5 5 5

United Phosphorous

Ltd.-

APR

2012

135.6

5150.4 151.9 162.1 10.87

Mundra Port &

Special Economic Zone

Ltd.

-MAY

2012138.4

136.4

5

144.3

5

160.8

54.3

Blue Star Ltd. -MAY

2012322.9

371.8

5367 317 13.66

National Thermal

Power Corporation-

MAY

2012

170.0

5193

181.9

5

168.9

57.0

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

Indian O

verse

as Ban

k

Cairn In

dia Ltd

.

Bank o

f Baro

da

Siemen

s Ltd.

Kotak M

ahindra

Bank L

td.

United Phosp

horous L

td.

Mundra Port

&

Speci

al Eco

nomic Zone L

td.

Blue Star

Ltd.

National

Therm

al

Power Corp

oration

-5

0

5

10

15

% growth

70

Figure 15 Graphical representation of stocks that entered or moved out of the

Fund

Analysis:

The analysis is done keeping in mind the base portfolio as March 31st 2012. So

any portfolio changes in the manner of stocks entering or leaving in April and

May is considered. The performance and growth of the stock is calculated as

follows. If the stock has entered the fund portfolio then the growth is calculated

from the month in which it enters till the month in which it leaves or till the end

period of study i.e. May 31st 2012 as the case may be. If the stock has exited

from the fund portfolio then the growth is calculated from the month in which it

enters or from the previous close of the start of the base portfolio i.e. 28 th

February 2012 as the case may be. This is done because if the stock is not

present in the fund portfolio then the performance of it is irrelevant to the fund’s

performance. Hence only the period in which the stock performance bears a

significant impact on the fund’s performance is taken into consideration. Hence

from the graph it is inferred that the stock performance of Punjab National Bank

in case of Large Cap Niche Fund and Blue Star for Blue Chip Wealth Builder

Fund was beneficial for the fund’s growth and Cairn India Ltd. had a negative

impact on the growth of both the funds.

Current price of the stock that entered or moved out of the funds:

Stock Name Fund Name SectorPrice on Jun

20th 2012

Cairn India Ltd.Large Cap Niche Life Fund/ Blue

Chip Wealth Builder FundOIL & GAS 307.7

Mphasis LtdLarge Cap Niche Life Fund

IT 426.2

Mundra Port &

Special Economic Zone

Large Cap Niche Life Fund/ Blue

Chip Wealth Builder Fund

Marine Port

& Services

146.85

71

Ltd.

Punjab National Bank Large Cap Niche Life Fund Bank 1050.05

Siemens Ltd.Large Cap Niche Life Fund/ Blue

Chip Wealth Builder Fund CG 846.65

Oil India Ltd. Large Cap Niche Life Fund OIL & GAS 1251.95

Indian Overseas Bank Blue Chip Wealth Builder Fund Bank 144.55

Bank of Baroda Blue Chip Wealth Builder Fund Bank 858.65

Kotak Mahindra Bank

Ltd.Blue Chip Wealth Builder Fund Bank 433.6

United Phosphorous

Ltd.Blue Chip Wealth Builder Fund Agrochemica

l146

Blue Star Ltd. Blue Chip Wealth Builder Fund CD 307.85

National Thermal

Power Corporation Ltd.Blue Chip Wealth Builder Fund Power 174.45

Table 19 Current price of the stock that entered or moved out of the funds

Analysis:

It can be seen that Cairn India Ltd. is performing badly as its stock price has

reduced even further and from the earlier table it can be seen that there is a

decreasing trend altogether. Hence it is best that it be removed from both the

fund’s portfolio for better fund performance. Its assets can be allocated in another

stock of the same sector which is analyzed in the later stage. Mundra Port &

Special Economic Zone has fallen rapidly and its performance must be monitored

and exited at the right time.

72

Sector wise return as on May 31st 2012

Name of the

stock Return

AUTO 0.97%

POWER 1.58%

OIL & GAS 1.18%

HEALTH CARE 1.87%

IT 0.5%

FMCG 2.25%

BANK 2.13%

CG 1.3%

CD 1.33%

Table 20 Sector wise return as on May31st 2012

73

AUTO POWER OIL & GAS

HEALTH CARE

IT FMCG BANK CG CD0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Bullish Performance of Sectors

Percentage Increase

Figure 15 Sector wise return as on May 31st 2012

Analysis:

In the bullish sectors, FMCG sector saw a considerable increase of 2.25% and

moderate increase was in the IT Sector of 0.5%. Good time to buy stocks of good

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

the fund value.

Better performers in the considered sectors:

Sector Name Stock Name

Percentage

growth

Auto Mahindra & Mahindra 9.5%

Power

Power Grid

Corporation 2.08%

Oil & Gas Petronet LNG Ltd. 23.16%

Health Care Fortis Healthcare Ltd. 11.08%

IT

HCL Technologies

Ltd. 16.43%

FMCG ITC 14.41%

74

Bank YES Bank 17.12%

CG Suzlon Energy 15.54%

Table 21 Better performers in the considered sectors

Mahindra & Mahindra

Power Grid Corp.

Petronet LNG Ltd.

Fortis HC Ltd.

HCL Tech. Ltd.

ITC YES Bank Suzlon En-ergy

Percentage growth

0.095 0.0208 0.2316 0.1108 0.1643 0.1441 0.1712 0.155400000000001

2.50%

7.50%

12.50%

17.50%

22.50%

Figure 16 Performance of Good Stocks in the various sectors

Analysis:

The graph is showing the return of stocks which performed well in the Bullish

market trend. Petronet LNG Ltd. showed the highest growth and also the forecast

is positive. Hence Cairn India Ltd. can be replaced by this stock for better fund

performance. Also YES Bank had outperformed the other banks like Punjab

National Bank, Kotak Mahindra Bank, Indian Overseas Bank and Bank of Baroda

and hence sufficient assets should be allocated for better fund performance as

this Bank does not feature in any of the fund’s asset allocation.

75

Graphical comparative analysis of Large Cap Niche Life Fund vs. the Bench

Mark Indices (3 months)

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

Analysis:

It is seen that the fund performance of the HDFC Large Cap Niche Life Fund is

much better than its bench mark index which is the NIFTY and has closely

followed its ups and downs. It has done much better when NIFTY was down and

has held up moderately when NIFTY was up. The fund’s performance especially

in the month of May 2012 is outstanding when compared to its Bench Mark Index

and is showing a high positive trend in the month of June. Hence customers who

have invested in this fund have and will benefit to a large extent.Graphical

76

comparative analysis of Blue Chip Wealth Builder Fund vs. the Bench Mark

Indices (3 months)

Figure 18 BSE 100 vs. Blue Chip Wealth Builder Fund Performance

For the considered 3 months study

Analysis:

The performance of the HDFC Blue Chip Wealth Builder Fund is a little lower

than its bench mark index which is the BSE 100 thought it has closely followed its

ups and downs. But towards the end of the study month i.e. in the month of May

2012 and June 2012 it can be seen that the fund is outperforming its bench mark

index and is showing a favorable trend.

77

FINDINGS

Premium collection over the past 3 years has continuously increased.

Large Cap Niche Life Fund

For the past 2 years the bench mark index return is 11.79%.

For the past 2 years the fund return is 17.25%.

In the last quarter the bench mark return is 4.25%.

For the same quarter fund return is 4.80%.

This shows that the fund has been performing well compared to its bench

mark index return.

The stocks which moved out of this fund showed the following returns

after they moved out. This is calculated from the month of exit till the date

of study i.e. 20th June 2012:

STOCK NAME RETURN PERCENTAGE

Punjab National Bank -13.94%

Siemens Ltd. -3.94%

Oil India Ltd. -9.64%

78

While PNB and Siemens exited out of the fund in the month of April 2012, Oil

India exited in the month of May 2012. The growth percentage shows negative

which in fact is a good sign and reflects on the Fund Manager’s intelligence in

de-allocating the stock from the portfolio.

NAV (Net Asset Value) of this fund is 13.47 (on June 20th 2012)

Blue Chip Wealth Builder Fund

For the past 1 year the benchmark index return is 7.52%.

For the past 1 year the fund return is 9.68%.

In the last quarter the bench mark index return is 4.98%.

For the same quarter fund return is 6.39%.

This shows that the fund has been performing well compared to its bench

mark index returns.

The stocks moved out of this fund showed the following returns after they

are moved out. This is calculated from the month of exit till the date of

study i.e. 20th June 2012:

79

STOCK NAME RETURN PERCENTAGE

Siemens Ltd -3.94%

Kotak Mahindra Bank Ltd. 5.10%

United Phosphorous Ltd. 2.93%

Mundra Port & Special economic Zone

ltd

1.73%

Blue Star Ltd. -16.12%

National Thermal Power Corporation -4.12%

(Bank of Baroda is not considered as it moved out of the fund portfolio on April

2012 but again re-entered the portfolio on May 2012)

Though Kotak Mahindra Bank, United Phosphorous and Mundra Port have

positive growth it is a slight marginal increase. The Fund Manager’s ability is

brought out in the exit of Blue Star Ltd. as there is a steep fall in the stock

performance and hence the fund manager is right in moving out of the stock thus

protecting the fund.

NAV (Net Asset Value) of this fund is 9.98(on June 20th 2012).

80

MARKET ANALYSIS OF THE STOCKS WHICH MOVED OUT OF THE FUNDS

Various market triggers might have made the fund manager to exit from the stock

to keep the fund performance good. Some of the market updates during the

period of study and their analysis have been given below.

Punjab National Bank

The exit of Punjab National Bank in the month of April is more on an

intuitive level by the fund manager than a market triggered cause. Though

the bank had been performing very well during the month of March, it was

more of a make the best when it is doing well and exit out fast approach

which would explain as to why the fund manager choose to exit out of the

stock even when most market analyst predicted the better for bank.

However whatever the reasons had been it proved for the better because

Punjab National Bank went downhill after that.

Some of the market updates were:

o The company is going to issue 15.10 lakh shares to government at

Rs 1218.82 per share, reports CNBC-TV18 on 24th March 2012

o Top loser on the Nifty on April 1st 2012

o CBI has filed a case alleging Venkoba Gujjal, deputy general

manager of Punjab National Bank for giving bribes to get loans on

April 20th 2012

Siemens Ltd.

The market went bullish on Siemens Ltd. No particular reason as to why

the fund manager chose to exit out of this but there was some volatile

performance. On some days Siemens would be among the top market

gainers and other days it would be in the top market losers.

Some of the market updates were:

o Siemens closed at Rs 857.85 on March 14th 2012 with an intraday

high of Rs 860.35. There were pending buy orders of 29,456

shares, with no sellers available. (52-week high Rs 884.95).

o Top loser in Nifty on April 11th.

81

o Siemens moves up smartly on April 13th with an intraday high of Rs

879.

o Siemens among major losers on April 15th.

Oil India Ltd.

Various factors led to the decline in stock prices of Oil India during the

close of April 2012 and the beginning of May 2012 which may have

resulted in the Fund Manager to pull out of the stock.

Some of the market updates during those months were:

o Uncertainty due to petrol hike on May 17th 2012.

o Share prices of upstream companies, led by ONGC, took a hit on

the BSE on 20th May 2012 after the government increased the

burden of fuel subsidy payable by the oil firms from one-third to

38.8 per cent.

o Morgan Stanley’s views on Oil India estimated a fall of 31% on 20th

May 2012.

Kotak Mahindra Bank Ltd.

Few factors may have provoked the fund manager to move out of Kotak

Mahindra Bank.

Some of the market updates during those months triggering the exit might

have been:

o Kotak Mahindra Bank tripped on selling pressure on 26th April 2012.

o RBI penalized the bank for violating rules on derivatives and

imposed a fine of 15 lacs.

o Kotak Mahindra Bank was among major losers on the Nifty on 2nd

May 2012.

82

The exact reason as to why the fund manager chose to exit from the stock

is still confusing because the above reasons hardly make any impact on

the stock price at a major level.

Kotak Mahindra Bank continued to do well and it would have been better if

the fund manager had kept the stock invested to gain good returns. It

looks more like an exit before facing a downslide as a precaution without

any strong bases.

United Phosphorous Ltd

Here also there is no strong reason as to why the fund manager chose

United Phosphorous to exit out of the fund even though it had been

performing very well in the period of study.

Some of the market updates during those months that showed favorable

reasons to stay invested in the stock are:

o One of India’s largest agrochemical makers United Phosphorous

has struck its third overseas acquisition this financial year by

acquiring 50% in Sipcam Isagro Brazil (SIB) for an undisclosed

value on 7th March 2012.

o United Phosphorus Limited had informed the Exchange that "United

Phosphorous enters into an agreement to acquire strategic stake in

Brazilian Company." The Company has now informed the

Exchange that on 4th April 2012 the UPL, through its subsidiary has

purchased 50 percent stake in Sipcam Isagro Brasil SA.

o United Phosphorus declares dividend at Rs 2 per share on 29th

April 2012.

Mundra Port & Special Economic Zone Ltd

Highly conflicting decisions here. When one fund manager includes

Mundra Port into the portfolio of Large Cap Niche Life Fund, another fund

manager exits from Mundra Port in Blue Chip Wealth Builder Fund at the

same period i.e. May 2012.

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The fact is that the stock actually performed very well during May 2012

and there is no strong clue as to why the fund managers decided to exit

out of Mundra Port.

Some of the market updates during those months that showed favorable

reasons to stay invested in the stock are:

o The Adani Group-promoted Mundra Port & Special Economic Zone

(MPSEZ) has said it will be developing a coal import terminal on the

Visakhapatnam Port on 26th March 2012.

o Shares of Mundra Port and Special Economic Zone (MPSEZ) rose

over 3% and analysts say it could have to do with the company’s

foray in the eastern coast of the country on 25th March 2012.

o Mundra Port crosses a record 50 MT cargo handling on 4th April

2012.

o Mundra Port to consider second interim dividend on 25th April 2012.

o Mundra Port earmarks Rs 3200cr to grow across India on 10th May

2012.

Blue Star Ltd

According to market analysts during the period of study, investing in Blue

Star was meant for short term. So it was more of a get in, take the benefits

and get out thing.

It was a good decision as the share prices of Blue Star show a downward

slope from mid of April 2012 all the way till May and June 2012 with slight

variations but it never performed as well as in the month of March 2012.

Some of the market updates during the period of study are:

o To counter the escalating raw material prices, Blue Star hiked

prices of its air-conditioning and refrigeration products on 28th

March 2012.

o Blue Star to consider dividend on 11th May 2012.

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o Blue Star announced its fourth quarter results. The company's Q4

standalone net profit was down 28% on 24th May 2012.

o Blue Star declared dividend at Rs. 7 per share on 24th May 2012.

National Thermal Power Corporation

The stock prices of NTPC had picked up remarkably well during the end of

March and beginning of April 2012. But somewhere in the mid of April

2012 the share prices started falling. It only peaked once during 10 th May

2012.

It was time to exit out of the stock as market experts were also of the view

that it would not perform as good as this for some time to come.

Some of the market updates during the period of study are:

o India's top power utility NTPC plans joint ventures in three months

to build USD 3.5-billion power plants in Bangladesh and Sri Lanka,

marking the firm's first overseas venture on 11th March 2012.

o NTPC top loser on Nifty on 7th April 2012.

o NTPC among the major gainers on the sensex on 10th May 2012.

o NTPC declares final dividend at Rs. 0.80 per share on 10 th May

2012.

o NTPC top loser on sensex on 11th May 2012.

Though market experts had advised to exit out of NTPC predicting it would

never do as well for nearly a year because there was negative perception

on the Power Sector, NTPC again pulled up and did remarkable well in

June 2012.

Hence exiting out of NTPC was purely based on the fund manager’s

choice rather than on any market triggers.

Inference:

From the above market analysis we can infer that though certain parameters

might have led the fund manager to exit out of the above stocks to keep the fund

performing well, the decision ultimately always rests with the fund manager

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himself and many times there would be no particular reason to exit out of the

stock but rather to just reap the benefits when the stock is performing well and

exit out before any downslide begins.

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CONCLUSION:

From the study it is revealed that the funds considered for analysis has

performed well in the past. Here the important thing to be considered is when the

market was in a bullish trend both the funds outperformed the benchmark index

in the long run.

The analysis also shows that the two funds are risky investments compared to

the selected benchmark index. It also reveals the efficiency of fund manager who

did not allow the fund to suffer loss in the long run by exiting out of the fund much

earlier. But careful analysis could be done in order to reap maximum benefits

from the portfolio rather than exiting out of the stocks early.

Both the insurance investment Blue Chip Wealth Builder Fund and Large Cap

Niche Life fund both can be considered as a good avenue. Because both the

funds are well diversified hence risk will be less as we have seen in the past two

year’s performance of the fund as compared to their bench mark index were

good and worthy of customers buying the funds.

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RECOMMENDATIONS

Achieving better returns are depended on prudent allocation of assets or

can be done with random selection of opportunities.

For structuring the right investment portfolio of customers we need to

know the risk profile and objective of the customers.

The company should perform the study of profiling customers, try to

understand their specific needs and work towards providing right solutions

to specific requirements like safety, liquidity, return and risk.

The company should make the best use of the technology for doing

research

The company needs to promote the financial products through

advertisements and other activities

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