financial services provided by other financial institutions prof. (dr.) paresh shah fcma., ph.d....
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FINANCIAL SERVICES PROVIDED BY OTHER FINANCIAL INSTITUTIONS
Prof. (Dr.) Paresh ShahFCMA., Ph.D. (Finance)., F.D.P. (IIMA)
Prof. (Dr.) Paresh Shah1
Session 4
INVESTMENT INSTITUTIONS
Prof. (Dr.) Paresh Shah2
INSURANCE:PUBLIC SECTOR
LICGIC
PRIVATE SECTORMUTUAL FUNDS
PUBLIC SECTORSBI, LIC, GIC, BOI, BOB, PNB, IDBI, IL & FS, INDEX
FUNDPRIVATE SECTOR
INSURANCE BUSINESS
Prof. (Dr.) Paresh Shah3
Since 1818Entire insurance business brought under
social control Life insurance in 1956General insurance in 1972
Life insurance corporation of India set up in 1956
Negligible business by P & T department
WHAT IS LIFE INSURANCE?
Prof. (Dr.) Paresh Shah4
A contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) on the happening of the event insured against.
The contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs earlier.
WHAT IS LIFE INSURANCE?
Prof. (Dr.) Paresh Shah5
The contract provides for the payment of premium periodically to the corporation by the assured.
Life insurance is universally acknowledged to be an institution which eliminates ‘risk’, substituting certainty for uncertainty, and comes to the timely aid.
LIFE INSURANCE SUPERIOR TO OTHER FORMS OF SAVINGS
Prof. (Dr.) Paresh Shah6
Protection – full protection against risk of death of the saver
Aid to thrift – long term savings made in a relatively ‘painless’ manner
Liquidity – security for a commercial loan
Tax relief – tax rebate availed from tax liability
Money when you need itAlso extends individual insurance
abroad
INVESTMENT POLICY OF LIC
Prof. (Dr.) Paresh Shah7
According to the provisions of Insurance act, 1936
At least Avenues50% Govt., and other approved
securities15% Other investments like State
Govt., for housing and water supply schemes, to municipal
corporations, govt. guaranteed loans to municipal committees and cooperative sugar factories
INVESTMENT POLICY OF LIC
Prof. (Dr.) Paresh Shah8
35% In approved investments which include shares, and debentures of public and private limited companies, of co-operative societies, immovable property, loans to policy holders and fixed deposits with banks and co- operative societies.
RECENT MODIFICATION 5% National Housing Bank
INVESTMENT POLICY OF LIC
Prof. (Dr.) Paresh Shah9
Long term life cover is essential purpose of life insurance, speculative investments are strictly avoided.
The investment policy reflecting the LIC’s judiciously MIXING SAFETY WITH HIGHER YIELD
GENERAL INSURANCE CORPORATION (GIC)
Prof. (Dr.) Paresh Shah10
GIC and its four subsidiariesNational insurance co. ltd.New India assurance co. ltd.Oriental fire and general insurance co. ltd.United India insurance co. ltd.
GIC is the holding company and its direct business restricted to the aviation insurance; general insurance is handled by the subsidiaries.
GENERAL INSURANCE CORPORATION (GIC)
Prof. (Dr.) Paresh Shah11
General insurance business is classified as:marine, fire and miscellaneous.
Marine insurance for transportation of goods and commoditiesGENERAL INSURANCE COVER based on sharing risks that may arise on accidental, fortuitous occurrence.
GENERAL INSURANCE CORPORATION (GIC)
Prof. (Dr.) Paresh Shah12
Of a shorter duration normally year or lessOffer insurance cover:
Fire, automobiles, ocean and inland marine, theft, loss, damage, etc.
GENERAL INSURANCE CORPORATION (GIC)
Prof. (Dr.) Paresh Shah13
Non-traditional schemesComprehensive Crop Insurance scheme,Cattle and livestock insurance scheme,Innovative schemes like mediclaim, personal
accident, householders’ comprehensive insurance policy, professional products, nuclear insurance pool, etc.
GIC’s INVESTMENT POLICIES
Prof. (Dr.) Paresh Shah14
Maximise income, ensure the safety, and liquidity of funds, and deploy consistent with national objectives resources and priorities.
As liabilities are of short-term nature and claims thereby unpredictable, - fairly liquid assets coupled with higher returns
Industrial securities followed by government securities
IRDA
Prof. (Dr.) Paresh Shah15
Insurance regulatory and development authority (IRDA) was enacted in 1999.
Objectives:Take care of the policy holders interestOpen the insurance sector for private useEnsure continued financial soundness and
solvencyRegulate insurance and reinsurance
companies
IRDA’s Objectives
Prof. (Dr.) Paresh Shah16
To eliminate dishonesty and unhealthy competition
Supervise the activities of intermediariesAmend insurance act, 1938; life insurance
corporation act, 1956 and the general business nationalisation act, 1972
MUTUAL FUNDS
Prof. (Dr.) Paresh Shah17
IN 1822, King William I of the NetherlandsWHAT IS MUTUAL FUND?
A group of investors, individuals and institutions with common investment goals, pooled their investment and placed them with fund managers. These professional money managers then invested these funds in securities, and distributed profits among the funds members.
Mutual funds came in India in 1960s.
MUTUAL FUNDS
Prof. (Dr.) Paresh Shah18
Mutual fund units are investment vehicles that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake direct investment in equities successfully.
A mutual fund is divided into equal portfolios called units
MUTUAL FUNDS
Prof. (Dr.) Paresh Shah19
The prices are quoted for units – The higher (offer) price being the price the
investor pays to buy units;The lower (bid) price being the price he will
receive for units sold back to the managers.
TYPES OF MUTUAL FUNDS
Prof. (Dr.) Paresh Shah20
OPEN AND CLOSE ENDED FUNDS:If the period and/or target amount of the fund
is definite, the fund is called close-ended. If indefinite, it is called open ended.
INCOME AND GROWTH ORIENTED FUNDS:The income oriented funds aims at distribution
of income periodically amongst investors.The growth oriented funds meets the investors
need for appreciation, high risk bearing capacity and ability to defer liquidity.
The fund which partially meets the needs for income and growth are called ‘balance’ or ‘income-cum-growth’ fund.
TYPES OF MUTUAL FUNDS
Prof. (Dr.) Paresh Shah21
AREA, INDUSTRY, CUSTOMER GROUP FUNDS:
TAXATION FUNDS
ADVANTAGES OF MUTUAL FUNDS
Prof. (Dr.) Paresh Shah22
Advantages of investing in mutual funds:Professional management – experienced and
skilled professionalsDiversification – number of companies across
a broad cross-section of industries and sectors
Convenient administration like avoiding bad deliveries, delayed payments and unnecessary follow up with brokers and companies
ADVANTAGES OF MUTUAL FUNDS
Prof. (Dr.) Paresh Shah23
Return potential – over a medium to long term
Low costs – less expensive way to invest compared to directly investing in capital market
LiquidityTransparencyFlexibilityChoice of schemesWell regulated through SEBI and AMFI