Standar Chareterd Project

8/9/2019 Standar Chareterd Project

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Report on

Study of Banking Products and

Investment Behavior of consumers

Summer Project Report Submitted For the Partial Fulfillment of Two Years Full Time Post Graduate Diploma of Management

(2007-2009)

Project supervisor Project by

Prof.Moid Uddin Ahmed Pankaj Bishnoi

Faculty, JIM Noida PGSF0827

Jaipuria Institute of Management

Noida



ACKNOWLEDGEMENT

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

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

our knowledge by granting permission to do our summer training project under

their guidance.

The project of the kind, that I am fortunate enough to be involved in, needed the

vision, guidance and expertise of various persons. Thus it was the vision, untiring

guidance and on-hand support and help of PROF.Moid Uddin Ahmed which

actually allowed me to do justice to the given topic.

I am grateful to Mr. Nitish Dipankar (area sales manager), our guide, for his

invaluable guidance and cooperation during the course of the project. He

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

instrumental in completion of this project.

Finally I would like to thank the members of my family and all my friends for their

support and encouragement.

The learning during the project was immense & invaluable. Our work basically

included the study of various financial products of the bank and understanding

the customer investing patterns. The present report is an amalgamation of our

thoughts and our efforts to study the present banking and investment scenario

and market potential for the sale of products like ULIP and Mutual Funds.

Pankaj Bishnoi



EXECUTIVE SUMMARY

The title of the project is to study the banking product and investment behavior of

consumers while the objective of project is to find out the potential customers for

Standard Chartered bank and to find the investment behavior of investors which

would help the bank personal to decide proper strategy to tap a larger market

The Marketing Manager, Mr.Nitish Dipankar manages the entire sales functions

of north zone of Standard Chartered bank. He wants to provide such type of

products and services which can satisfy to his customers. He also suggests

some strategic and innovative ideas for improvement.

Chapter 1– The Indian banking system deals with introduction of the

investment scenario in India and the investment process. Standard Chartered

bank deals with the history of the bank, products offered by it and extensive

study of savings account, ULIP, and mutual fund.

Chapter 2 Introduction to study deals with scope and need of study,

Objective of the Study provides the direction to the study means it defines the

strategy to achieve the objective of the study.

Chapter 3 Research Methodology defines all those method by which the

researcher has done the research.

Chapter 4 Review of Relevant Literature literatures were reviewed to

understand the changes in banking system and modification of banks as per the

need of the consumers.

Chapter 5 Findings and Analysis contains the survey outputs relating

investment behavior using SPSS software, and analysis of the output.

Chapter 6 Conclusion, Limitations and Suggestions concludes the whole

study by telling limitations and suggestions.



Table Contents

S.No. PARTICULAR PAGE NO.

i. Company Certificate i

ii. College Certificate ii

iii. Acknowledgement iii

iv. Executive Summary iv

Lists of Figures

Lists of Tables

Chapter 1. Introduction - The Indian Banking System

1.1 The Current State and Road Ahead 1

1.2 New Business Opportunities 2

1.3 Major foreign banks in India 2 - 3

1.4 Investment Strategies in India 3 - 4

1.5 Introduction to Standard Chartered 4 - 7

1.6 Products offered by Standard Chartered 7 - 8

1.7 Savings account 8 -11

1.8 ULIP (Unit Linked Insurance Plan) 12 - 28

1.9 Concept of mutual fund 29 - 40

Chapter 2. Introduction to the Study

2.1 Needs of study 41 - 42

2.2 Scope of study 42 - 43

2.3 Objective of study 43

Chapter 3. Research Methodology 44

Chapter 4. Review of Relevant Literature 45 - 46

Chapter 5. Findings and Analysis 47 - 57



Chapter 6. Conclusion, Limitation and Solutions

6.1 Conclusion 58

6.2 Limitations 59

6.3 Suggestions 59 - 60

Appendix

Bibliography

Miscellaneous

Lists of Figures



S.No. Particulars Page No.

Chapter 1 Introduction - The Indian Banking System

1.1 New business opportunity tapped by banks 2

1.2 Mutual fund operation flow chart 29

Chapter 7 Findings and Analysis

5.1 Age group pie chart 47

5.2 Type of investor according to age 48

5.3 Investment made as per age 49

5.4 Investment made as per income 50

5.5 Influence pie chart 51

5.6 Factors affecting investment decision 52

5.7 Reinvestment as per age 53

5.8 Reinvestment as per income 53

5.9 Investment horizon as per age 53

5.10 Investment horizon as per income 54

5.11 Maturity sum use as per age 55

5.12 Maturity sum use as per income 56

Lists of Tables



S.No. Particulars Page No.

Chapter 1 introduction to Indian banking system

1.1 Parameters and service charges charged by bank 10 - 11

1.2 ULIP expense table 16

1.3 Comparison table of ULIP 28

Chapter 5 Findings and Analysis

5.1 Age distribution 47

5.2 Influence frequency chart 51

5.3 Factor affecting investment decision 52



Chapter-1

INRODUCTION

The Indian Banking System

1.1 The Current State and Road Ahead

India’s banking sector is growing at a fast pace. India has become one of the

most preferred banking destinations in the world. The reasons are numerous: the

economy is growing at a rate of 8%, Bank credit is growing at 30% per annum

and there is an ever-expanding middle class of between 250 and 300 million

people (larger than the population of the US) in need of financial services. All this

enables double-digit returns on most asset classes which is not so in a majority

of other countries. Foreign banks in India achieving a return on assets (ROA) of

3%, their keen interest in expanding their businesses is understandable. Indian

markets provide growth opportunities, which are unlikely to be matched by the

mature banking markets around the world. Some of the high growth potential

areas to be looked at are: the market for consumer finance stands at about 2%-

3% of GDP, compared with 25% in some European markets, the real estatemarket in India is growing at 30% annually and is projected to touch $ 50 billion

by 2009, the retail credit is expected to cross Rs5,70,000 crore by 2010 from

the current level of Rs1,89,000 crore in 2004-05 and huge SME sector which

contributes significantly to India’s GDP.

In order to gain further access to the global trade, the government is expanding

the Free Trade Agreements (FTA’s) with many countries (like Singapore,

Thailand, and other ASEAN members). After the Comprehensive Economic Co-

Operation Agreement (CECA) with Singapore, the government is now planning a

similar deal with the 25-member European Union. The EU is also likely to ask

India to liberalize its financial sector on the lines of the India-Singapore CECA.



1.2 New Business Opportunities

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

expanding fee-based income activities. Banks are increasingly getting attracted

towards activities such as marketing mutual funds and insurance policies,

offering credit cards to suit different categories of customers and services such

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

profitable for banks than plain vanilla lending and borrowing.

New Business Opportunities tapped by banks

Derivatives Trading

36.8%

WealthManagement

21.05%

Forex Management

68.4%Bancassurance

73.6%

Selling of MutualFunds 73.6%

Fig 1.1 New business opportunity tapped by banks

Major foreign banks in India are

ABN-AMRO Bank

Abu Dhabi Commercial Bank Ltd.

American Express Bank Ltd

BNP Paribas

Citibank

DBS Bank Ltd

Deutsche Bank

HSBC Ltd

Standard Chartered Bank

http://www.iloveindia.com/finance/bank/foreign-banks/abn-amro-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/abu-dhabi-commercial-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/american-express-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/bnp-paribas.html

http://www.iloveindia.com/finance/bank/foreign-banks/citibank.html

http://www.iloveindia.com/finance/bank/foreign-banks/dbs-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/deutsche-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/hsbc-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/standard-chartered-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/abu-dhabi-commercial-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/american-express-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/bnp-paribas.html

http://www.iloveindia.com/finance/bank/foreign-banks/citibank.html

http://www.iloveindia.com/finance/bank/foreign-banks/dbs-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/deutsche-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/hsbc-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/standard-chartered-bank.html

http://www.iloveindia.com/finance/bank/foreign-banks/abn-amro-bank.html



Silver have highly appreciated in value both in the domestic as well as the

international markets

• Stock Market – Indian stock markets particularly the BSE and the NSE,

had been a preferred destination not only for the Indian investors but also

for the Foreign investors. This is evident from the fact that FIs are buying

huge stakes on the Indian bourses. Although Indian Markets had been

through tough times due to various scams, but history shows that they

recovered very fast. Many scrip’s had been value creators for the

investors. People have earned fortunes from the stock markets, but there

are people who have lost everything due to incorrect timings or selection

of fundamentally weak companies.

• Real Estate – Approximately one fourth of all homes sold in 2006 have

been purchased as an investment. Returns are almost guaranteed

because property values are always on the rise due to a growing world

population. Residential real estate is more than just an investment.

• Mutual Funds - There is a collection of investors in Mutual funds that

have professional fund managers that invest in the stock market

collectively on behalf of investors. Mutual funds offer a better route to

investing in equities for lay investors. A mutual fund acts like aprofessional fund manager, investing the money and passing the returns

to its investors. All it deducts is a management fee and its expenses,

which are declared in its offer document.

• Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual

funds in terms of their structure and functioning; premium payments made

are converted into units and a net asset value (NAV) is declared for the

same. In traditional insurance products, the sum assured is the corner

stone; in ULIPs premium payments is the key component.

1.5 Introduction to Standard Chartered



Standard Chartered is one of the world's most international banks, employing

almost 60,000 people, representing over 100 nationalities, worldwide. This

diversity lies at the heart of the Bank's values and supports the Bank's growth as

the world increasingly becomes one market.

Standard Chartered PLC is listed on both the London Stock Exchange and the

Hong Kong Stock Exchange and is consistently ranked in the top 25 among

FTSE-100 companies by market capitalization.

Standard Chartered has a history of over 150 years in banking and operates in

many of the world's fastest-growing markets with an extensive global network of

over 1,400 branches (including subsidiaries, associates and joint ventures) in

over 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa,

the United Kingdom and the Americas. With strong organic growth supported by

strategic alliances and acquisitions and driven by its strengths in the balance and

diversity of its business, products, geography and people, Standard Chartered is

well positioned in the emerging trade corridors of Asia, Africa and the Middle

East. Standard Chartered derives over 90 per cent of profits from Asia, Africa

and the Middle East. Serving both Consumer and Wholesale Banking customers

worldwide, the Bank combines deep local knowledge with global capability to

offer a wide range of innovative products and services as well as award-winning

solutions. Trusted across its network for its standard of governance and

corporate responsibility, Standard Chartered takes a long term view of the

consequences of its actions to ensure that the Bank builds a sustainable

business through social inclusion, environmental protection and good

governance. Standard Chartered is also committed to all its stakeholders by

living its values in its approach towards managing its people, exceeding

expectations of its customers, making a difference in communities and working

with regulators. It serves both Consumer and Wholesale Banking customers.

Consumer Banking provides credit cards, personal loans, mortgages, deposit

taking and wealth management services to individuals and small to medium

sized enterprises. Wholesale Banking provides corporate and institutional clients



with services in trade finance, cash management, lending, securities services,

foreign exchange, debt capital markets and corporate finance.

1.5.1 Standard Chartered Bank in India

Standard Chartered Bank is the largest international banking Group in India with

78 branches in 30 cities. The Bank is having a combined customer base of 2.5

million in retail banking and over 1200 corporate customers.

The key businesses of Standard Chartered Bank in India include consumer

banking - primarily credit cards, mortgages, personal loans and wealth

management - and - wholesale banking, where the Bank specializes in the

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

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

issue Photo card, the first Picture Card and was the first credit card issuer to be

awarded the ISO 9002 certification. Some other product innovations of Standard

Chartered Bank in India include the 'Sapnay' credit card, the international debit

card that provides free access to over 1500 Visa ATM's, a first in the banking

industry, Mileage, an overdraft facility against the security of a car and Smart

Credit, a personal line of credit for salaried customer.

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

Africa merged with Chartered Bank of India, Australia and China in 1969.

Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April

1858. During that time Kolkata was the most important commercial city and was

the hub of jute and indigo trades. The merger with the Standard Bank of British

South Africa in 1969 and the acquisition of Grindlays Bank in 2000 were two key

events that have played an important role in making the Bank the largest

international bank in India.

1.5.2 CSR by Standard Chartered

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

Chartered Bank. The Bank is committed to the communities and environments in



which it operates. The Bank strongly supports the trend towards delivering

shareholder value in a socially, ethically and environmentally responsible

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

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

through workshops and amongst stakeholders by providing thought leadership.

Under ‘Seeing believes’, a programme that aims to restore sight to one million

people globally by 2006, the Bank has raised funds to help 8000 people to see.

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

involved in two flagship projects at Vishakhapatnam and Muzaffarpur, both aimed

at the elimination avoidable blindness. Furthermore, in support of the

communities ravaged by the Asian Tsunami Crisis in 2004 the Standard

Chartered Group committed US$ 1 million to India. The Bank is utilizing these

funds for the rehabilitation of two villages adopted near Chennai.

In 2004, Standard Chartered initiated the phenomenally successful Standard

Chartered Mumbai Marathon - an event dedicated to charity fund raising. The

two marathons held so far have forged partnerships with customers and charities

and deepened the Bank’s ties with the community, with over US$ 1 million being

raised in 2005.

1.6 Products offered by Standard Chartered

Standard Chartered bank provides different products and services in order to

cater the needs of the customers which can be broadly classified into the

following categories:

1.6.1 Personal Banking

To cater the diverse financial needs, Standard Chartered offers a wide range of

premium banking products and services through its network of 81 branches in 31

cities across the country. As a privileged customer of this bank, the customers

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

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

http://www.standardchartered.com/in/home/branch.html

http://www.standardchartered.com/in/home/branch.html



1.6.2 SME Banking

SME Banking provides integrated financial solutions to small and medium

businesses, through a relationship management approach. Its customer focused

product offerings include working capital finance, trade services, foreign

exchange, and cash management.

1.6.3 Commercial Banking

Standard Chartered has maintained a long local presence, since 1858, with

particular emphasis on relationship banking. Significant networks have been

established with vendors and financial-related organizations to enable it to offer

the customers a comprehensive range of flexible financial services, with special

focus on transactional banking products. Supported by state-of-the-art

operations, Standard Chartered is pro-active in improving every part of services.

Electronic Delivery system has been put in place to ensure that transactions are

handled speedily. It has its Cash Product Specialists and dedicated Customer

Service Centers to provide its customers with effective solutions. to fully

understand the workings and functions of Standard Chartered Bank, the scope of

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

by this bank under the above mentioned categories:

Savings Account : Personal banking

Unit Linked Insurance Plan (ULIP): Personal banking

Mutual Funds: Commercial banking

1.7 Savings account

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

numbers of transactions are few and which give the customer liquidity, with the

facility to earn some interest on the residual balances.

Standard Chartered bank offers 4 types of Savings account matching different

needs of customers namely:

1. Axcess Plus :The Standard Chartered Bank have launched the Excess Plus

saving account as a premium product placed in the market with maintenance of



minimum quarterly balance of 10,000/- The product in supposed to be targeted

to a specific group elite of customers. This will help to increase the volume and

as such the profitability of the company. The name axcess plus means that the

account is accessible anywhere anytime, as well as it will be an innovative and

convenient services for the customers needs.

2. Super Value

3. Parivaar account

4. No frills Account

5. Aasaan account

6. 2-in-1 account

1.71 Eligibility criteria

Indian Residents

NRI’s

Clubs, Associations, Trusts and Registered Societies

HUF (Hindu Undivided Family)

Foreign Nationals (QA-22)

1.7.2 Product feature in generalAccount can be in sole name or in joint names

Minimum balance: Minimum Quarterly balance of a specific amount is to be

maintained failing to which a specific fees per quarter has to be paid.

Account can be operated at any branch across the country.

.



PARAMETERS charges Charges

SAVINGS ACCOUNT NAME AXcessPlus Savings Account

SuperValue Savings

Account

ACCOUNTS CHARGES FOR OPENING THE

ACCOUNT NIL NILAVERAGE QUARTERLY

(DAILY)BALANCE REQD. Rs.10000 Rs 50,000

PENALTY FOR UNSUFFICIENT

AQB

Rs. 1500/qtr (Bal<Rs.5000)

Rs.750/qtr(Rs.10000>Bal>Rs.5

000)

Rs. 1250/qtr (Rs.5000<=Bal<10k)

Rs.1250/qtr(Rs.1000

0>Bal>Rs.5000)DORMANT A/C CHARGES Rs.1000 per yr. Rs.1000 per yr.

ACCOUNT CLOSURE Rs.500 (within 6 months)

Rs.500 (within 6

months) DEMAND DRAFT

DRAWN AT OWN BANK(min feeRs.50 & max Rs.1500) 0.25% FREECANCELLATION Rs 250 Rs.250DRAWN AT OTHER BANK( Min Fee

Rs.250) 0.30% 0.25%PAY ORDER Rs.75 FREE STATEMENTS STATEMENT OF ACCOUNT,(E-

STMT) FREE/qtr FREE/qtr

CHARGES FOR DUPLICATE

STATEMENT Rs.100 Rs.100MONTHLY STATEMENT CHARGES Rs.100 FREEISSUE BALANCE CONFIRMATION

CERTIFICATE Free for 1st Yr yr,250/yr

Free for 1st Yr

yr,250/yr

CARDS DEBIT CARD ANNUAL FEE Rs.200 per year FREEDEBIT CARD REPLACEMENT FEE Rs.200 Rs.200

ATM INTERCHANGE(NON

PARTNER)

Free for first 4 transactions per

month/ Rs.50 for beyond 4

trans.SERVICES NETBANKING FREEINTERBRANCH/ INTERCITY

BANKING Rs.50BILLPAY FREEPHONE BANKING FREEMOBILE BANKING(SMS) NOT AVAILABLE



PARAMETERS

aXcessPlus Savings

Account

SuperValue Savings

AccountSTANDING INSTRUCTIONS

SETTING UPRs.100(for setting)Rs.25(on execution)

Rs.100(for setting)Rs.25(on execution

DOOR STEP BANKING FREECASH PICK UP FREECASH DELIVERY/TRANSACTION FREE CHEQUE BOOKS CHEQUE BOOK CHARGES(AT PAR) FREE FREECHARGES FOR STOP PAYMENT OF

INSTRUMENT Rs.100 FREE

CHEQUE RETURNCHARGES(Issued)

Rs.250 + other banks charges Rs.250

CHEQUE RETURN

CHARGES(Deposited)

Rs.100 + other

banks charges FREE MISCELLANEOUSBALANCE CERTIFICATE(Upto 1

Yr)/more Than 1 Yr old FREE/Rs.250 FREE/Rs.250BANKER'S REPORT Rs.50 FREESIGNATURE VERIFICATION Rs.25 FREE

INSURANCE PARTNER BAJAJ ALLIANZ BAJAJ ALLIANZ

Table 1.1 parameters and service charges charged by bank

1.8 ULIP (Unit Linked Insurance Plan)

A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with

a life insurance cover and the premium paid is invested in either debt or equity

products or a combination of the two. In other words, it enables the buyer to

secure some protection for his family in the event of his untimely death and at the

same time provides him an opportunity to earn a return on his premium paid. In



the event of the insured person's untimely death, his nominees would normally

receive an amount that is the higher of the sum assured or the value of the units

(investments). To put it simply, ULIP attempts to fulfill investment needs of an

investor with protection/insurance needs of an insurance seeker. It saves the

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

products.

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

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

premium money is invested. Premium from, say, an endowment plan, is invested

primarily in risk-free instruments like government securities (gsecs) and AAA

rated corporate paper, while ULIP premiums can be invested in stock markets in

addition to corporate bonds and gsecs.

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

instance, an individual with an above-average risk appetite can choose a ULIP

option that invests upto 60% of premium in equities. Likewise, an individual with

a lower risk appetite can select a ULIP that invests upto 20% of premium in

equities.

1.8.1 ULIP VS Traditional insurance plan

It wasn't too long back, when the good old endowment plan was the preferred

way to insure oneself against an eventuality and to set aside some savings to

meet one's financial objectives. Then insurance was thrown open to the private

sector. The result was the launch of a wide variety of insurance plans, including

the ULIPs.

Two factors were responsible for the advent of ULIPs on the domestic insurance

horizon. First was the arrival of private insurance companies on the domestic

scene. ULIPs were one of the most significant innovations introduced by private

insurers. The other factor that saw investors take to ULIPs was the decline of

assured return endowment plans. Of course, the regulator -- IRDA (Insurance

and Regulatory Development Authority) was instrumental in signaling the end of



assured return plans. Today, there is just one insurance plan from LIC (Life

Insurance Corporation) -- Komal Jeevan -- that assures return to the

policyholder.These were the two factors most instrumental in marking the arrival

of ULIPs, but another factor that has helped their cause is a booming stock

market. While this now appears as one of the primary reasons for their

popularity, we believe ULIPs have some fundamental positives like enhanced

flexibility and merging of investment and insurance in a single entity that have

really endeared them to individuals.

1.8.2 Sum assured

Perhaps the most fundamental difference between ULIPs and traditional

endowment plans is in the concept of premium and sum assured.

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

ask you are -- how much insurance cover do you need? Or in other words, what

is the sum assured you are looking for? The premium is calculated based on the

number you give your agent.

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

answer the question -- how much premium can you pay?

Depending on the premium amount you state, you are offered a sum assured as

a multiple of the premium. For instance, if you are comfortable paying Rs 10,000

annual premium on your ULIP, the insurance company will offer you a sum

assured of say 5 to 20 times the premium amount.

1.8.3 Investments

Traditionally, endowment plans have invested in government securities,

corporate bonds and the money market. They have shirked from investing in the

stock markets, although there is a provision for the same. However, for some

time now, endowment plans have discarded their traditional outlook on investing

and allocate about 10%-15% of monies to stocks. This percentage varies across



life insurance companies. ULIPs have no such constraints on their choice of

investments. They invest across the board in stocks, government securities,

corporate bonds and money market instruments. Of course, within a ULIP there

are options wherein equity investments are capped.

1.8.4 Expenses

ULIPs are considered to be very expensive when compared to traditional

endowment plans. This notion is rooted more in perception than reality. Sale of a

traditional endowment plan fetches a commission of about 30% (of premium) in

the first year and 60% (of premium) over the first five years. Then there is

ongoing commission in the region of 5%. Sale of a ULIP fetches a relatively lower

commission ranging from as low as 5% to 30% of premium (depending on the

insurance company) in the first 1-3 years. After the initial years, it stabilizes at 1-

3%. Unlike endowment plans, there are no IRDA regulations on ULIP

commissions. Broadly speaking, ULIP expenses are classified into three major

categories:

1) Mortality charges

Mortality expenses are charged by life insurance companies for providing a life

cover to the individual. The expenses vary with the age, sum assured and sum-

at-risk for the individual. There is a direct relation between the mortality expenses

and the abovementioned factors. In a ULIP, the sum-at-risk is an important

reference point for the insurance company. Put simply, the sum-at-risk is the

difference between the sum assured and the investment value the individual's

corpus as on a specified date.

2) Sales and administration expenses

Insurance companies incur these expenses for operational purposes on a regular

basis. The expenses are recovered from the premiums that individuals pay

towards their insurance policies. Agent commissions, sales and marketing

expenses and the overhead costs incurred to run the insurance business on a

day-to-day basis are examples of such expenses.



3) Fund management charges (FMC)

These charges are levied by the insurance company to meet the expenses

incurred on managing the ULIP investments. A portion of ULIP premiums are

invested in equities, bonds, G.secs and money market instruments. Managing

these investments incurs a fund management charge, similar to what mutual

funds incur on their investments. FMCs differ across investment options like

aggressive, balanced and debt ULIPs; usually a higher equity option translates

into higher FMC. Apart from the three expense categories mentioned above,

individuals may also have to incur certain expenses, which are primarily 'optional'

in nature- the expenses will be incurred if certain choices that are made available

to individuals are exercised.

a) Switching charges

Individuals are allowed to switch their ULIP options. For example, an individual

can switch his fund money from 100% equities to a balanced portfolio, which has

say, 60% equities and 40% debt. However, the company may charge him a fee

for 'switching'. While most life insurance companies allow a certain number of

free switches annually, a switch made over and above this number is charged.

b) Top-up charges

ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in

addition to the premium amount for a particular year. Insurance companies

deduct a certain percentage from the top-up amount as charges. These charges

are usually lower than the regular charges that are deducted from the annual

premium.

c) Cancellation charges

Life insurance companies levy cancellation charges if individuals decide to

surrender their policies (usually) before three years. These charges are levied as

a percentage of the fund value on a particular date.

Illustration-: of different charges on ULIP

table 1.2 ULIP expense table

Expenses (%)



Tenure

(Yrs)

Yearly

premium

(Rs)

Fund

value

(Rs)

Effective

rate of

return

(%)**

Initial

2 yrs

(pa)

Remaining

tenure

(pa)

Annual

administration

expenses*

(Rs)

Annual fund

management

charges (%)

10

25,000 27.00 3.00 180.00 1.00

358,417 6.48

15 703,694 7.53

20 1,232,827 7.98

25 2,042,497 8.22

30 3,281,631 8.36

pa: per annum

* Subject to inflation @ 5% pa. ** CAGR

Suppose an individual aged 30 years, wants to buy an 'aggressive' ULIP for asum assured of Rs500,000 for 30-Yr tenure. The premium he pays for the same

is Rs25,000. The expenses for the initial 2 years is assumed to be 27% while for

the remaining tenure, it is 3%. Fund management charges are assumed to be

1% p.a. of the corpus for the entire tenure. We have also assumed that the

individual stays aggressive throughout the tenure and does not shift his money

between the various fund options.

Assuming the investments appreciate at 10% compounded annualized growth

rate (CAGR). Thus fund value at the end of 10 years is Rs358,417 and the

effective CAGR net of expenses is approximately 6.48%. However, it can be

seen that as the years roll by, the CAGR keeps going up with a corresponding

increase in the fund value. For example, the fund value at the end of the 20th

year is Rs1,232,827 while the CAGR has gone up to approximately 7.98%. At the

end of the 30th year, the CAGR has gone up to 8.36%.

The reason why the CAGR goes up over a period of time is because the ULIP

expenses even out over a period of time. The 'evening out' occurs because

although the expenses are high in the initial years, they fall thereafter. And as the

years roll by, the expenses tend to 'spread themselves' more evenly over the

tenure of the ULIP. Another reason is also because the expenses are levied on

the annual premium amount, which stays the same throughout the tenure.



Therefore, the expenses do not have any impact on the returns generated by the

corpus. Mortality expenses for ULIPs and traditional endowment plans remain

the same as also the administration charges. One area where ULIPs prove to be

more expensive than traditional endowment is in fund management. Since ULIPs

have an equity component that needs to be managed actively, they incur fund

management charges. These charges fluctuate in the 0.80%-1.50% (of premium)

range.

1.8.5 Flexibility

As we mentioned, one aspect that gives ULIPs an edge over traditional

endowment is flexibility. ULIPs offer a host of options to the individual based on

his risk profile.

There are insurance companies that offer as many as five options within a ULIP

with the equity component varying from zero to a maximum of 100%. You can

select an option that best fits your objectives and risk-taking capacity.

Having selected an option, you still have the flexibility to switch to another option.

Most insurance companies allow a number of free 'switches' in a year.

Another innovative feature with ULIPs is the 'top-up' facility. A top-up is a one-

time additional investment in the ULIP over and above the annual premium. This

feature works well when you have a surplus that you are looking to invest in a

market-linked avenue, rather than stash away in a savings account or a fixed

deposit. ULIPs also have a facility that allows you to skip premiums after regular

payment in the initial years. For instance, if you have paid your premiums

religiously over the first three years, you can skip the fourth year's premium. The

insurance company will make the necessary adjustments from your investment

surplus to ensure the policy does not lapse. With traditional endowment, there

are no investment options. You select the only option you have and must remain

with it till maturity. There is also no concept of a top-up facility. Your premium

amount cannot be enhanced on a one-time basis and skipped premiums will

result in your policy lapsing

.



1.8.6 Transparency

ULIPs are also more transparent than traditional endowment plans. Since they

are market-linked, there is a price per unit. This is the net asset value (NAV) that

is declared on a daily basis. A simple calculation can tell you the value of your

ULIP investments. Over time you know exactly how your ULIP has performed.

ULIPs also disclose their portfolios regularly. This gives you an idea of how your

money is being managed. It also tells you whether or not your mutual fund and/or

stock investments coincide with your ULIP investments. If they are, then you

have the opportunity to do a rethink on your investment strategy across the board

so as to ensure you are well diversified across investment avenues at all times.

With traditional endowment, there is no concept of a NAV. However, insurers do

send you an annual statement of bonus declared during the year, which gives

you an idea of how your insurance plan is performing.

Traditional endowment also does not have the practice of disclosing portfolios.

But given that there are provisions that ensure a large chunk of the endowment

portfolio is in high quality (AAA/sovereign rating) debt paper, disclosure of

portfolios is likely to evoke little investor interest.

1.8.7 liquidity

Another flexibility that ULIPs offer the individual is liquidity. Since ULIP

investments are NAV-based it is possible to withdraw a portion of your

investments before maturity. Of course, there is an initial lock-in period (3 years)

after which the withdrawal is possible.

Traditional endowment has no provision for pre-mature withdrawal. You can

surrender your policy, but you won't get everything you have earned on your

policy in terms of premiums paid and bonuses earned. If you are clear that you

will need money at regular intervals then it is recommended that you opt for

money-back endowment.

1.8.8 Tax benefits



Taxation is one area where there is common ground between ULIPs and

traditional endowment. Premiums in ULIPs as well as traditional endowment

plans are eligible for tax benefits under Section 80C subject to a maximum limit

of Rs 100,000. On the same lines, monies received on maturity on ULIPs and

traditional endowment are tax-free under Section 10.

1.8.9 ULIP - Key features in general

1. Premiums paid can be single, regular or variable. The payment period too can

be regular or variable. The risk cover can be increased or decreased.

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

3. The maturity benefit is not typically a fixed amount and the maturity period can

be advanced or extended.

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

growth funds or bonds.

5. The policyholder can switch between schemes, for instance, balanced to debt

or gilt to equity, etc.

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

7. The costs in ULIP are higher because there is a life insurance component in it

as well, in addition to the investment component.

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

portfolios.

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

10. Being transparent the policyholder gets the entire episode on the

performance of his fund.

11. Lead to an efficient utilization of capital.

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

13. Provides capital appreciation.

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

1.8.10 ULIP – Standard Chartered

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

the opportunity to participate in market-linked returns while enjoying the valuable



benefits of life insurance. Insurance Plans for Standard Chartered Bank

customers is issued by Bajaj Allianz Life Insurance Company Limited.

1.8.11 BAJAJ ALLIANZ- Background

Bajaj Allianz Life Insurance Co Ltd is a joint venture between two leading

conglomerates- Allianz AG, one of the world's largest insurance companies, and

Bajaj Auto, one of the biggest two and three wheeler manufacturers in the world.

Allianz Group is one of the world's leading insurers and financial service

providers. Founded in 1890 in Berlin, Allianz is now present in over 70 countries

with almost 174,000 employees. Allianz Group provides its more than 60 million

customers worldwide with a comprehensive range of services in the areas of

Property and Casualty Insurance, Life and Health Insurance, & Asset

Management and Banking.

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

manufacturer of two-wheelers and three-wheelers in India and one of the largest

in the world. Bajaj Auto has a strong brand image & brand loyalty synonymous

with quality & customer focus in India

Allianz AG with over 110 years of experience in over 70 countries and Bajaj Auto,

trusted for over 55 years in the Indian market, together are committed to offer

Insurance solutions that provide all the security needed for a family.

1.8.12 Capital unit gain a unit liked plan

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

benefit of life protection offered by Bajaj Allianz. By choosing an appropriate

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

specific savings need such as child’s education, wedding, retirement etc. It has

unmatched flexibility to meet any emergency or any financial need. Bajaj Allianz

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

ensure that your investment income gets accelerated from the first year itself.

With Bajaj Allianz Capital Unit Gain one can get to choose from a wide range of



high quality investment funds coupled with flexible investment management. This

is the one-stop solution to investment, tax-saving and protection needs.

The Key Features of the Capital Unit Gain Plan are:

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

match insurance needs.

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

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

Illness

Benefit and UL Hospital Cash Benefit

• Increase savings by paying top up premiums.

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

premiums.

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

the policy .

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

option of changing funds at any time and also invest in the newer funds that

would be introduced from time to time.

• Partial withdrawals without any surrender charge .

• Flexibility to increase / decrease the regular premiums

1.8.13 COMPARISON OF BAJAJ ALLIANZ ULIP vis-à-vis OTHER POPULAR

ULIPS AVAILABLE IN INDIA

1.3 comparison table of ULIP

Features Bajaj Allianz ICICI ABN Amro

Policy Name Capital Unit Gain Life time Plus Life Bond



Age

Minimum age at

entry

0 Yrs (Risk

commences at age 7)

0 1Maximum age at

entry 60 Yrs 65 65Risk covered for

age between 7-70 years 0-75 7-70 yearsPremium Amount

(minimum) Annual Rs.10000 20000 NAHalf-Yearly Available NAQuarterly Available NA

Monthly

Rs.1000 (Rs.5000 for

top up) NASingle premium

payment option Available Available

Available

Min.25000

Maximum

Assured Amount

Y times the annual

prem. depending on

age

Annual Premium*

(Term/2)

1.25 times the

Single

Premium

Age Y 0-30 10031-35 8536-40 7041-45 5046-55 3056-60 20

Minimum AssuredAmount

0.5 times the Policy

Term times AnnualizedPremium.

Annual Premium*(Term/2) As aboveannual premium

Regular Premium

allocation

Allocation charge in

%

Allocation rate Allocation

rate



<Rs. 35000

95% 73% 97%Rs.35000-

Rs.99999 95%

73% 99%Rs. 100000-

Rs.149999 95%

99% 101%Rs.150000-

Rs.2499999

95%(Uptil Rs.199999),

96% 99% 102%Rs.2500000-

Rs.9999999 96% 103%Rs.10000000-

Rs.4999999 97% 104%Rs.5000000&above 97% 104.5%

Benefits offered

Death Benefit

Sum Assured or

Fund Value

Sum assured

or fund value

(which ever is

higher)Before Age of 7

yrs Fund value

Between age of 7

yrs & 60 yrs

Sum assured less

partial withdrawals/

fund value on as on

date of intimation

On & after 60 yrs

Sum assured less

partial withdrawals/

fund value on as on

date of intimation

Maturity Benefit Fund value Fund Value Fund value



Minimum partial

withdrawal amount Rs.5000 Rs.2,000 Rs.5000(at bid price)

Investment

Options

Liquid Fund- Risk

profile –Low Flexi Growth II Protector

Bond Fund- Risk

profile- Moderate Maxi miser II Growth

Equity Growth Fund-

Risk Profile- Very High Flexi Balanced II Balanced

Equity Index Fund II-

Risk profile- High Balancer II

Accelerator Mid-Cap

Fund – Risk profile-Very High Protector II

Preserver

Minimum Balance

across all funds Rs.10000 Rs.10000 Rs.10000

Tax Benefits

Sec 80(c)

Save up to Rs.33660

each

Save up to

Rs.33660 each

Save up to

Rs.33660 each

year as prem. Up to

Rs.100000

year as prem. Up to

Rs.100000

year as prem.

Up to

Rs.100000

are allowed as a

deduction

are allowed as a

deduction

are allowed as

a deduction

Sec 10(10(d)) Benefits are tax free

Benefits are tax

free

Benefits are

tax free

Charges Annual Mortality

charges

Depending on your

age

Depending sum

Assured Sum at Riskcharged every month



Annual

Administration

charges Rs.600p.a. per policy Rs.60 per month

15% of single

premium for

first 5 years

&1%

thereafter

Annual Fund

Management

charges

2.75%p.a.of the NAV

for Equity growth fund

& Accelerator Midcap

Fund

1.5%p.a. Flexi

Growth II

1%p.a. Profit

Funds

2.25%p.a.for Equity

Index Fund II

1.5%p.a. Maxi

miser II

1%p.a.

Protector 1.75%p.a.for Liquid

Fund Bond Fund

1.0%p.a. Flexi

Balanced II

1.25%p.a.

Balancer 1.0%p.a. Balancer

II

1.5%p.a.

Growth .

0 .75%p.a.Protecto

r II0.75%p.a.

Preserver No. of free switches

annually 3 4 2

Charges for

additional switches Rs.200/ 5% of switch

Rs.100 of switch

amount

0.5% subjectto max. of

Rs.500 per

switch

amount (which ever is

lower)Minimum Switch

amount Rs.5000 or Fund value 2000 Rs.10000(lower)

Minimum Top-up

premium Rs.1000 NA Rs.6250

Top up allocation 100% NA

Depending

upon the

amount



Flexibility To increase

premium every 3rd year up to not available

every 3rd year

up to5 times of revised

regular prem. /

3 times.

Quantum of half of the term times

revised regular

premium

Increase would

be

(which ever is higher)

25%of sum

assured/

Rs. 100000.

(lower)

to pay top up

premiums Level of top up prem. not applicableBetween 1.25 times to

5 times

To decrease

premium

Proportionate

decrease of sum

assured Available Available

(reduced regular prem.

Not to be less than

regular prem.)

available

Any amount,

but only on

Policy

anniversariesavailable

20% of

chosen

premium



Cancellation or

surrender

100 % penalty on

partial or full

withdrawal before

completion of firt three

years

4% and 2% of

value of

accumulation

units.

Charges

Of single

premium

1.9 Concept of mutual fund

A Mutual Fund is a body corporate that pools the savings of a number of investors and invests the same in a variety of different financial instruments, or

securities. The income earned through these investments and the capital

appreciation realized by the scheme is shared by its unit holders in proportion to

the number of units owned by them. Mutual funds can thus be considered as

financial intermediaries in the investment business that collect funds from the

public and invest on behalf of the investors. The losses and gains accrue to the

investors only. The Investment objectives outlined by a Mutual Fund in its

prospectus are binding on the Mutual Fund scheme. The investment objectives

specify the class of securities a Mutual Fund can invest in. Mutual Funds invest

in various asset classes like equity, bonds, debentures, commercial paper and

government securities



1.9.1 Structure of mutual fund

The structure of a mutual fund differs from country to country. In India the

structure of mutual fund is determined by SEBI regulations. These regulations

are required to be established in the form of a trust under the Indian trust act;

1882.in India. The mutual fund industry has a four tier structure. The four parties

that are required to be involved are;

These four entities operate in the following manner

Fig 1.2 Mutual Fund Operation Flow Chart

1.9.2 Working of mutual fund and their performance

Mutual funds invest their funds in capital market instruments such as shares,

debentures, bonds and money market instruments and therefore the net asset

value of such investments will reflect the market values of underlying assets.

These market values fluctuate and therefore the net asset values of the mutual

fund schemes also fluctuate.

All the capital market instruments have varying degrees of risk, the degree of risk

being the highest in equities and the risk factor is highlighted in the respective

offer documents as well as in the abridged offer documents. The investor

therefore is in the full knowledge and understanding of the risks involved in

various schemes. As per SEBI regulation all mutual funds disclose their portfolio

SPONSOR

BOARD OF TRISTEES/DIRECTORS OF TRUSTEES COMPANY

ASSET MANAGEMENT COMPANY

CUSTODIAN



periodically and all open-ended funds offer exit option to investors at NAV based

price.

In the current year, the share market is passing through a bear phase with prices

falling across the board and steeply in the technology scrips. Reflecting this fall in

share prices, the NAVs of most of the equity schemes in general and of the

technology funds in particular have also fallen. This fall in the NAVs should

therefore be viewed in the context of the fall in the share prices, a phenomena

which is world wide today. The fall in NAVs not only affects the investors but it

has an impact on the fees and earnings of the investment managers also.

It may be recalled that the mutual funds have given good returns while the

market was in the upswing and even today, the non-equity schemes which

account for about 60 percent of total assets under management provide

competitive rates of returns.

1.9.3 Mutual funds work under strict regulatory frame work

The Association of Mutual Funds In India (AMFI) reassures the investors in units

of mutual funds that the mutual funds function within the strict regulatory

framework.

The different entities such as the Mutual Fund, the Asset Management Company

and the Custodian operate as per the provisions of the SEBI Mutual Fund

Regulation 1996 and the rules and guidelines issued by SEBI. Each of these

entities has independent Boards of Directors and separate auditors. SEBI keeps

a close watch on the mutual funds through periodical reports and every three

months, each mutual fund submits to SEBI a report conforming compliance with

regulatory provisions and mutual funds are required to record their investment

decisions. Any deficiency or non-compliance is dealt with suitably by SEBI.

Every year, each mutual fund is inspected by SEBI and such inspection is both a



detailed scrutiny of operations and a rectification exercise. Thus, the mutual

funds are strictly supervised and regulated entities and the regulatory provisions

match with international standards. AMFI also is engaged in upgrading

professional standards and in promoting best industry practices in diverse areas

such as valuation, disclosure, transparency etc

1.9.4 Types of mutual funds

Mutual funds differ from each other on the basis of various factors like their

structure, their investment objective, and the type of investors, management style

and load. The various classes of funds are:

TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE

Open – Ended Schemes.

Close – Ended Schemes.

Interval Schemes.

BY INVESTMENT OBJECTIVEGrowth Schemes.

Income Schemes.

Balanced Schemes.

OTHER SCHEMES

Tax Saving Schemes.

Special Schemes.

Index Schemes.

Sector Specific Schemes

1.9.4.1 Open – ended schemes

The units offered by these schemes are available for sale and repurchase on any

business day at NAV based prices. Hence, the unit capital of the schemes keeps



changing each day. Such schemes thus offer very high liquidity to investors and

are becoming increasingly popular in India. Please note that an open-ended fund

is NOT obliged to keep selling/issuing new units at all times, and may stop

issuing further subscription to new investors. On the other hand, an open-ended

fund rarely denies to its investor the facility to redeem existing units.

1.9.4.2 Closed – ended schemes

The unit capital of a close-ended product is fixed as it makes a one-time sale of

fixed number of units. These schemes are launched with an initial public offer

(IPO) with a stated maturity period after which the units are fully redeemed at

NAV linked prices. In the interim, investors can buy or sell units on the stock

exchanges where they are listed. Unlike open-ended schemes, the unit capital in

closed-ended schemes usually remains unchanged. After an initial closed period,

the scheme may offer direct repurchase facility to the investors. Closed-ended

schemes are usually more illiquid as compared to open-ended schemes and

hence trade at a discount to the NAV. This discount tends towards the NAV

closer to the maturity date of the scheme.

1.9.4.3. Interval schemes

These schemes combine the features of open-ended and closed-ended

schemes. They may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV based prices.

1.9.4.4 Growth schemes

These schemes, also commonly called Equity Schemes, seek to invest a majority

of their funds in equities and a small portion in money market instruments. Such

schemes have the potential to deliver superior returns over the long term.

However, because they invest in equities, these schemes are exposed to

fluctuations in value especially in the short term.



1.9.4.5 Income schemes

These schemes, also commonly called Debt Schemes, invest in debt securities

such as corporate bonds, debentures and government securities. The prices of

these schemes tend to be more stable compared with equity schemes and most

of the returns to the investors are generated through dividends or steady capital

appreciation. These schemes are ideal for conservative investors or those not in

a position to take higher equity risks, such as retired individuals. However, as

compared to the money market schemes they do have a higher price fluctuation

risk and compared to a Gilt fund they have a higher credit risk.

1.9.4.6 Balanced schemes

These schemes are commonly known as Hybrid schemes. These schemes

invest in both equities as well as debt. By investing in a mix of this nature,

balanced schemes seek to attain the objective of income and moderate capital

appreciation and are ideal for investors with a conservative, long-term

orientation.

1.9.4.7 Tax saving schemes

Investors are being encouraged to invest in equity markets through Equity Linked

Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot

be assigned / transferred/ pledged / redeemed / switched – out until completion

of 3 years from the date of allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India (Mutual Funds)

Regulations, 1996 and the notifications issued by the Ministry of Finance

(Department of Economic Affairs), Government of India regarding ELSS.

Subject to such conditions and limitations, as prescribed under Section 88 of the

Income-tax Act, 1961.

1.9.4.8 Index Schemes



The primary purpose of an Index is to serve as a measure of the performance of

the market as a whole, or a specific sector of the market. An Index also serves as

a relevant benchmark to evaluate the performance of mutual funds. Some

investors are interested in investing in the market in general rather than investing

in any specific fund. Such investors are happy to receive the returns posted by

the markets. As it is not practical to invest in each and every stock in the market

in proportion to its size, these investors are comfortable investing in a fund that

they believe is a good representative of the entire market. Index Funds are

launched and managed for such investors.

1.9.4.9 Sector specific schemes

Sector Specific Schemes generally invests money in some specified sectors for

example: “Real Estate” Specialized real estate funds would invest in real estates

directly, or may fund real estate developers or lend to them directly or buy shares

of housing finance companies or may even buy their securitized assets.

1.9.5 Tax benefit in mutual fund

The taxman has, over’s the years , been more or less kind to mutual fund .with

laws varying from time to time , the overall objective has been encourage the

growth of the mutual fund Industry . Currently, a variety of tax laws applies to

mutual funds, which are broadly listed below:-

1.9.6 Capital gain

Units of mutual fund schemes held for a period for more than twelve months are

treated as long term capital assets. In such cases, the unit holder has the option

to pay capital gain tax either 20% with indexation or 10% without indexation.

1.9.7 Tax deducted at source



For any income credited or paid by a fund, no tax is deducted withheld at source.

The relevant sections in the income tax act governing this provision are section

194k 196A.

1.9.8 Wealth tax

Mutual fund units are not currently treated as assets under section 2 of the

wealth tax act and are therefore not liable to tax.

1.9.9 Income from units

Any income received from units of the schemes of a mutual fund specified under

section 23(D) is exempt under section 10(33)of the act . While section 10 (23D)

exempt income of specified mutual funds from tax (which currently includes all

mutual funds operating in India), section 10(33) exempt income from funds in the

hands of the unit holders. However, this does not mean that there is no tax at all

on income distribution by mutual funds.

1.9.10 Income distribution tax

As per prevailing tax loss , income distributed by scheme other than open end

equity scheme is subject to tax at 20% (plus surcharge of 10%) . for this

purpose , equity schemes have been defined to be those schemes that have

more than 50% of their assets in the form of equity. Open end equity schemes

have been left out of the purview of this distribution tax for a period of three years

beginning from April 1999.

1.9.11 Section 88

The investment in mutual funds designated as equity linked saving scheme

(ELSS) qualifies for rebate under section 88. The maximum amount that can be

invested in these schemes is Rs10000, therefore the maximum tax benefit

available works out to Rs2000. Apart from ELSS schemes, the benefit of section

88 is also available in selected scheme in some funds such as UTI ULIP, KP

pension plan etc.

1.9.12 Income received from mutual funds



The finance bill 1999 made income (i.e. dividends) received from all mutual funds

tax free in the hands of investors. Investors need not pay any tax on dividends

received from a mutual fund for a period of three years effective from April 1,

1999. For the investors it does not matter what kinds of mutual fund schemes

they have invested in. Dividend whether received from equity, equity and debt

or a debt scheme will all be tax free for the investors.

While dividend in the hands of the investor are free from tax, mutual funds are

now required to pay a “distribution tax” of 20% from the financial year 2000-2001

(instead of 10% as distribution tax last year ). The distribution tax is nit to be paid

on all types of mutual fund schemes. Effective April 1, 1999, for a period of three

years, open-end equity oriented schemes will be exempt from paying the

distribution tax.

1.9.13 Tax implication for income received on open end equity oriented

schemes

As per the finance bill 1999, income distributed under the US-64 scheme and

other open ended equity oriented scheme of UTI and mutual funds are exempt

from the levy of this tax for a period of three financial years starting from

1.4.1999. An open ended equity oriented scheme is defined as one where more

than 50% of the schemes investible funds are invested in domestic equities. The

50% is computed taking the opening and closing percentage of particulars

month’s equity holdings, in turn, calculate the monthly average.

1.9.14 Long term capital gains arising from sale of mutual fund units

As per the current provision of the budget, long term capital gains arising from

the sale of listed securities and shares as define under the securities

contracts(regulations)act , 1956 (SCRA)are now chargeable to tax at a maximum

rate of 10%. As per the earlier income tax law, units of mutual funds did not

qualify as listed securities under the SCRA, but as per the provision of union

budget 2000-2001 units of all mutual funds will be considered as listed securities

and long term capital gains from units of mutual funds will be taxed at 20% after



giving benefit of past inflation indexation, or a flat rate of 10% whichever is lower.

That is, persons would have the option of either availing of cost indexation on the

capital gains and paying 20% capital gains tax or paying a flat rate of 10%

without cast indexation. As a result, the maximum capital gains tax payable has

been capped at 10%.

1.9.15 Advantage of investing in mutual fund

The advantages of investing in a Mutual Fund are:

• Professional Management.

The major advantage of investing in a mutual fund is that you get a

professional money manager to manage your investments for a small fee.

You can leave the investment decisions to him and only have to monitor the

performance of the fund at regular intervals.

• Diversification.

Considered the essential tool in risk management, mutual funds make it

possible for even small investors to diversify their portfolio. A mutual fund can

effectively diversify its portfolio because of the large corpus. However, a

small investor cannot have a well-diversified portfolio because it calls for

large investment. For example, a modest portfolio of 10 bluechip stocks callsfor a few a few thousands.

• Convenient Administration.

Mutual funds offer tailor-made solutions like systematic investment plans and

systematic withdrawal plans to investors, which is very convenient to

investors. Investors also do not have to worry about investment decisions,

they do not have to deal with brokerage or depository, etc. for buying or

selling of securities. Mutual funds also offer specialized schemes like

retirement plans, children’s plans, industry specific schemes, etc. to suit



personal preference of investors. These schemes also help small investors

with asset allocation of their corpus. It also saves a lot of paper work.

• Costs Effectiveness

A small investor will find that the mutual fund route is a cost-effective method

(the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as

mutual funds get concession from brokerages. Also, the investor gets the

service of a financial professional for a very small fee. If he were to seek a

financial advisor's help directly, he will end up paying significantly more for

investment advice. Also, he will need to have a sizeable corpus to offer for

investment management to be eligible for an investment adviser’s services.

• Liquidity.

You can liquidate your investments within 3 to 5 working days (mutual funds

dispatch redemption cheques speedily and also offer direct credit facility into

your bank account i.e. Electronic Clearing Services).

• Transparency.

Mutual funds offer daily NAVs of schemes, which help you to monitor your

investments on a regular basis. They also send quarterly newsletters, which

give details of the portfolio, performance of schemes against various

benchmarks, etc. They are also well regulated and SEBI monitors their actions closely.

• Tax benefits.

You do not have to pay any taxes on dividends issued by mutual funds. You

also have the advantage of capital gains taxation. Tax-saving schemes and

pension schemes give you the added advantage of benefits under section

88.

• Affordability

Mutual funds allow you to invest small sums. For instance, if you want to buy

a portfolio of blue chips of modest size, you should at least have a few lakhs

of rupees. A mutual fund gives you the same portfolio for meager investment



Chapter- 2

Introduction to study

2.1 Need of study

Fifteen years ago, a customer would have been content with just a fixed deposit

or a recurring deposit in addition to his savings account. Today, he wants to

spread his wealth around. He wants to park his savings in equities, fixed de-

posits, mutual funds, pension products and insurance. The bank has a choice -

either offer the customer all these products or lose him. While there has been a

lot of debate on which is a more successful model - niche banking or universal

banking - in India, at least for now, it is quite clear that it is the latter and banks

will necessarily have to offer every imaginable financial product to the customer

to avoid losing him to competition. The desire, or rather, the compulsion to be a

one-stop shop for the customer's investment and borrowing needs, has given

birth to what is being termed ‘the financial conglomerate' - a model that we are

g6ing to see an increasing number of banks adopt. Banking, until a few years

ago, was what I would call a desk job. You sat at your desk everyday, accepted

deposits, assessed loan applications and disbursed funds. The customer came

to you and you dictated terms to him. If your terms were not acceptable to him

and he went away, it never bothered you. The next person was already at the

door before the disappointed customer even left. Banking was a seller's market.

That is all now a thing of the past. The customer now decides which bank hewants to deal with. He shops around to get the best price and if your prices are

not competitive enough or acceptable to him, he simply goes to another bank.

Bankers today need to be out there in the field, talking to the customer, finding

out and understanding his needs and, more importantly, making sure that they

are able to offer him a better deal than the competition. But while the corporate



customer is already changing the terms on which banks deal with him, I believe

that it is going to be the retail customer that is going to change the very face of

banks in India in the years to come. No one, not even the most far-sighted of

bankers, could have ever foreseen what banking might have looked like at the

turn of the 21 st century. Retail banking had a good buzz about it, there was

money to be made from it but no one ever imagined that this business would

drive the growth of the banking industry on a scale that we are now beginning to

see. The Indian financial system is typified by low financial product penetration.

The domestic loan to Gross Domestic Product (GDP) ratio in India is at only

62.4% compared to China which is 166.3% and even Malaysia which is 104.5%.

Consumer credit in India is still only 7% of GDP compared to Indonesia which is

22% or the US where it is as high as 70%. Only 8% of the population in India is

currently insured compared to 32% in Malaysia. Only one in every 23 of India's

bank account holders owns a credit card compared to Thailand where one in

every four Thais own a credit card. Life insurance premiums account for just 2%

of GDP and the mutual funds industry makes up under 2% of household savings.

India lags behind most other emerging markets in retail lending. For instance,

home loans as a percentage of GDP is at less then 3%. Compare this to

.Malaysia, where it is at 23% and Australia at 44% and you get a clear sense of

the potential that India, with its burgeoning middle class, has.

The Indian customer of today has become more demanding as a result of which

most banks in India now offer a full gamut of products to their retail clients. In

addition to the plain vanilla deposits, banks are striving to get a larger share of

their customers' wallets by undertaking mutual funds and insurance sales.

After seeing the immense competition and changing investment behavior

Standard Chartered Bank, personal decided that there is a need to understand

the investment behavior of investors as a result a market research was decided

to understand the need of the investors.



2.2 Scope of the study

The project will give an idea to standard chartered bank personnel an idea about

the investment behavior of the investors. It will guide them in creating strategies

for sales force to target their potential customers. Questionnaire developed for

the survey will help standard chartered bank to identify its potential customers for

its products like ULIP and mutual fund. The study will also guide them to identify

the need of the up coming generation and their investment styles which will help

in development of the product for this generation.

2.3 Objective of study

The main objective of the research is the comprehensive study of banking

products like saving accounts, ULIP, mutual fund. Different service charges

charged by banks on these products by banks and understanding the product. A

comparative study of various charges charged by Bajaj Allianz , ABN amro bank

and ICICI . And the survey was carried to study the investment behavior of

investors. And to find out the potential customers for products of standard

chartered bank like ULIP and mutual fund

2.3.1 Objective of the survey

To know the existing investment pattern among different age groups and different

income group.

To know the present portfolio of the investors, their perceptions about different

investment schemes, their investment concerns, their present returns, and their

future expectations from different investment schemes.

.To know the potential customers for the investment schemes: ULIP and Mutual

Funds of Standard Chartered bank.



Chapter- 3

Research Methodology

Types of Research: descriptive study

Sampling: Convenient sampling

Types of Data

Collected: Primary Data – Through Questionnaire

Secondary Data – through extensive searchWebsites and study material

Time Dimensions : The Time Dimensions of the study was

approximately eight weeks as it was

provided by the institute

The survey process involved two phases: First phase included identification and

selection of the target audience to be studied and to determine the parameters

on which respondents will justify their preferences. The audience were targeted

and analyzed basically on the basis of two important parameters: Age, and

Income. Demographical information was also taken in order to know the

investment patterns according to the location, age etc. A questionnaire was

designed to collect the needed information from the respondents. (See the

annexure)

In the second phase data was collected through questionnaire from more than

100 respondents within DELHI. Results were viewed cautiously as sample wasfrom a specific population. The responses that were generated during this

exercise were converted in the form of percentages to have a comparative

outlook, as the numbers itself cannot explain the true picture. These percentages



were then represented through the simple tools like bar graphs, pie charts using

SPSS software.

Chapter- 4

Review of the Relevant Literature

There used to be a time, not so long ago, when young boys doffed their caps as

their headmaster passed by; when the bank manager was held in such high

regard that it was inconceivable to question his authority; and when politicianswere revered as the custodians of a civilised society. And there also used to be

that enviable epoch when the consumer believed all he or she saw on television

and a comprehensive ad campaign could change the habits of a generation.

How adland must be missing these times as time moves on and behaviour

changes. However, the consumer no longer feels the need to reference its

behaviour against a small band of individuals and has slowly changed the shape

of the ‘authoritative’ pyramid it so longingly coveted. There is an ever increasing

chasm of trust between the historical mandarins and today’s consumer. Today

the trust in the aforementioned has wavered considerably and in many cases

vanished altogether. And every brand now needs to consider what the trust

deficit means to it. For instance, a recent study undertaken by YouGov on behalf

of Team spirit found that only half of consumers claimed to trust banks and

building societies and that just 5% trust investment companies and 8% insurance

companies

By Joanne Parker, Managing Director of Team spirit, economics times, 10 july 2004.

There is no denying the fact that the financial services industry has gone through

the most change since the process of liberalization began a little over a decade

ago. And while indeed Regulation has played a key role in the transformation of

Indian banks, I would include three other broad factors that have been



responsible for this change. These are Technology, the Customer and

Consolidation. The demographics of our country will also be a key driver in

creating a large retail customer base that banks just cannot afford to ignore with

54% of the Indian population under 25 years of age. As this population enters the

'wage earner' category by the year 2011, the propensity to use multiple financial

products will be high. Over 60% of this age group will be under 40 years of age

and a prime customer segment for insurance, mutual funds, credit cards etc.

Already, many banks enjoy a higher cross-sell ratio with customers in the 25-35

age group than they do with older customers.

CHANGING FACE OF INDIAN BANKING by NAINA LAL KIDWAL 31 st March 2005 ,

Coming to banking again, Banks are offering facilities to suit every pocket and

every segment of the Society. Human capital of the banks is facilitated to fine

tune their skills and attitudes to handle any type of complex and challenging

environment to ensure the needs of the society are met. So to say, the bank staff

are fully equipped and empowered to handle the job. The core function of HRD in

the banking industry is to facilitate performance improvement, measured not only

in terms of financial indicators of operational efficiency but also in terms of the

quality of financial services provided. Factors like skills, attitudes and knowledge

of the human capital play a crucial role in determining the competitiveness of the

financial sector. The quality of human resources indicates the ability of banks to

deliver value to customers

Address by Shri Vepa Kamesam, Chairman, Governing Council, IDRBT, Hyderabad and former

Deputy Governor, Reserve Bank of India at the Meet of General Managers in charge of HRD &

Training at JNIBD, Hyderabad on February 7, 2004.



Chapter- 5

Analysis and Finding

As a part of our project, in order to know the behavior of the investors about the

investment schemes basically ULIP and MUTUAL FUNDS, a survey was being

conducted by us in Delhi region.5.2Age distribution in sample

Table 5.1 Age distribution

Frequency Percent Valid PercentCumulative

Percent

Valid 18-25 23 23.0 23.0 23.0

26-35 29 29.0 29.0 52.0

36-50 25 25.0 25.0 77.0

>50 23 23.0 23.0 100.0

Total 100 100.0 100.0



18-2526-35

36-50

>50

age

Fig 5.1 Age group pie chart

For the study proper attention was paid on the selection of respondent . a proper

proportion of different age group were taken for study .23%of the respondent are

from age group of 18 – 25, 29% from 26 -35, 25% from age group 36 -50. and

23% above the age group of 50 years.



5.5 Investment made as per income

<15000 15000 - 30000 30000 -50000 >50000

0

5

10

15

20

C o u n t

investmentmade

ulip

mf

fd

ulip+mf

fd+insr

Bar Chart

Fig 5.4 Investment made as per income

Analysis

Studying the survey data revels that according to income the investment

strategies opted by people differ according to income level. Income group Rs

15000- 30000 monthly have made their maximum investment in ULIP and mutual

fund. Almost 48.4% have invested in ULIP and 28.6% in mutual fund. in Income

group Rs30000 – 50000, 68.8% of respondent have invested their money in ulip

and mutual funds. In income group above Rs50000 there most of the investor

have made investment in fixed deposit and insurance.



5.6 Influence on investment decisions

agents, brokers

peers

self analysis

influnce

Fig 5.5 Influence pie chart

Table 5.2 Influence frequency chart


Percent

Valid agents,brokers

40 40.0 40.0 40.0

peers 37 37.0 37.0 77.0

self analysis

23 23.0 23.0 100.0

Total 100 100.0 100.0

Survey shows that 40% of people are influenced by their agents or broker. This

behaviour revels that sales force of banks is the major factor to turn the

investment need of people into final investment of their investment option.

Second influencing factor that is the effect of peers is seen to be 37% among

respondents, thus we can say that a large portion of population are influenced by

their peers and their experiences.



5.7 Reasons for investment

increase in wealt

monthly incomegenereted

safety of principal

factors

Fig 5.6 Factors affecting investment decision

Table 5.3 Factors affecting investment decisions


Percent

Valid increase inwealth

46 46.0 46.0 46.0

monthlyincomegenerated

24 24.0 24.0 70.0

safety of principal

30 30.0 30.0 100.0

Total 100 100.0 100.0

After going through the survey data we come to know that a major portion of

population makes investment in different investment option to increase their

wealth and this group is 46% in size of total population. 30% of the respondent

are concerned about the safety of their principal amount invested. In other words

they are moderate risk taker and want security of their funds first. 24% of the

people make investment to get good monthly return.



5.8 Reinvestment decision as per age

18-25 26-35 36-50 >50

0

5

10

15

20

C o u n t

reinvestment

if services aregood

if returns arebetter

services+returnsare good

Bar Chart

Fig 5.7 Reinvestment as per age

<15000 15000 - 30000 30000 -50000 >50000

0

5

10

15

20

25

30

C o u n t

reinvestment

if services aregood

if returns arebetter

services+returnsare good

Bar Chart

Fig 5.8 Reinvestment as per income



On going through the age and reinvestment graph and income and reinvestment

graph we can see that in every age group and in every income group people

reinvest in the same company’s product if the services provided by the company

are good and the investor gets a good return in comparison to the other service

providers. 55% of the respondents are in this view.

5.9 Investment horizon as per age and income

18-25 26-35 36-50 >50

0

5

10

15

20

C o u n t

investmenthorizon

upto 1 year

up to 3 yr

up to 5 yr

up to10 yr

Bar Chart

Fig 5.9 Investment horizon as per age



<15000 15000 - 30000 30000 -50000 >50000

0

5

10

15

20

25

C o u n t

investmenthorizon

upto 1 year

up to 3 yr

up to 5 yr

up to10 yr

Bar Chart

Fig 5.10 Investment horizon as per income

Analysis

On study data revels that in any age group or of any income group usually the

investor have investment horizon of three to five years. 36% of the respondent of

any age group have investment horizon of three years and 39% have horizon of

five years. According to income class also the same data comes to picture. dueto the changing interest rates and different investment options available in

today’s economy investors usually do not go for ver large duration investment

schemes.



5.10 Use of maturity amount as per age and income

18-25 26-35 36-50 >50

0

2

4

6

8

10

12

14

C o u n t

maturity

reinvst in same

use for other purpose

invet in other product

Bar Chart

Fig 5.11 Maturity sum use as per age

<15000 15000 - 30000 30000 -50000 >50000

0

5

10

15

20

C o u n t

maturity

reinvst in same

use for other purpose

invet in other product

Bar Chart

Fig 5.12 Maturity sum use as per income



6.3 Suggestions

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

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

Rs15000 – 30000 per month. The company can target this segment by offering

its ULIP product both as an insurance and investment product, which can provide

high returns as the investments and provide the insurance cover too, as a large

segment doesn’t have an insurance cover. The return in new Capital Unit Gain

Plan is around 20% which is quit good enough. Mutual Fund Schemes can also

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

mutual funds small amounts can invested. The need is to make this segment

aware of the products like ULIP (which is promising return of 20-25% p.a.) and

tap as many customers as possible. Also Positioning of the Mutual Funds should

be such that attracts customers.

In order to tap the larger segment of 26-35 years age group customers ULIP can

be promoted as an investment option rather than an insurance product. though

this group is making most of its investment in ULIP and mutual fund yet there

remains a large portion of this population to be taped. Mutual funds and ULIP

both can be the best investment option for this segment.

As the segment 36-50 years is an investing and risk taking segment, Mutual

funds promising higher returns can be promoted in this segment. The product

ULIP is also highly acceptable by this segment, so both of these products can be

promoted as a best investment options promising high returns and low risks. This

group has a mix portfolio and there are moderate investors who can be

converted into potential customers for ULIP and mutual fund if they are provided

good returns and better services.

In the segment of 50 & above age group people be targeting for the Mutual funds

as can be seen that very few people are investing M.Fs. this is because this

segment consists of risk averters as this segment have invested in Fixed

Deposits and government securities and insurance than any other investment

product as safety is the most important factor which is being considered while



investing by this segment. But these people are neutral for these investments.

Thus theses products can be promoted as safe investments and better than

FD’s only then this segment can be tapped for mutual fund and ULIP.

The income bracket less than Rs.15000 per month are basically safe investors

and have not and do not prefer investing in mutual funds except some risk

takers. But they have started investing in ULIP as it gives good return and

insurance cover. Thus positioning of these products should be such that people

are attracted towards this scheme. Emphasis on marketing of the products

should be given..

Income Bracket of Rs.30000-Rs.50000 are the strong contenders for investing

their money and these people have invested mutual fund and ULIP, insurance

and fixed deposits. Moreover there is mixed preferences for their investments

thus proper segmentation of the sample should be done accordingly marketing

strategies should be adopted.

Though there is a small percentage of respondents in income bracket above

Rs.50000 who least prefer investing in ULIP. But this is the segment which can

be well targeted and their portfolio should be such that gives them more returns.

The case of mutual fund is different as people strongly prefer investing in this

investment strategy. Thus emphasis for selling mutual fund in this income

bracket.

Our survey reveals that most of the investor reinvest their amount money

received after maturity with the same organization if the services provided are

good and returns in comparison to others are better. To create loyalty from

customers institutions should give importance to their customers and make their

investment process simple and easy. Rate of return should be comparative to

other institutions.



APPENDIX

Survey questionnaireDear respondent, this survey is carried to find the investment behavior of consumers and is for academic purpose only, all your disclosures will be kept

confidential.

Respondent detailsName………………………………..address …………………………………………Ph no………………………………. ………………………………………...

Please tick mark the suitable option.

1. what is your present age?a) 18 – 25 b) 26 – 35 c) 36 – 50 d). >50

2. what is your monthly income? a) up to 15000 b) 15000 – 30000 c) 30000 – 50000 d) > 50000

3. in which of the options you have made your maximum investment?

a) ULIP b) mutual fund c) fixed deposit d) traditional insurance e) ULIP+MF f) FD+ insurance

4. what is your investment horizon?

a) up to 1 year b) up to 3 year c). up to 5 year. d) up to 10 year e) > 10 year

5. what factors would you consider most important before choosing aninvestment option?

a) how quickly I will be able to increase my wealthb) the opportunity for steady growthc) the amount of monthly income the investment will generated) the safety of my investment principal

6. your financial investment are influenced /based on which of the following?

a) information received by broker agent.b) influence of peersc) self analysis

7. what do u do on receiving the maturity amount of investment?

a) reinvest in same investment options



BIBILIOGRAPHY

BOOKS:

Mutual funds in India by Sadhak, 2005.

Indian Mutual Funds Handbook by Sankaran S.

AMFI Mutual Fund Investments.

Portfolio management and security analysis, Jordan and Fisher

WEBSITES:

www.mutualfundsindia.com

www.valueresearchonline.com

www.myiris.com

www.standardchartered.com

www.hindubusinessline.com

www.amfiindia.com

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http://www.iloveindia.com/finance/bank/index.html

http://www.valueresearchonline.com/

http://www.myiris.com/

http://www.standardchartered.com/

http://www.hindubusinessline.com/

http://www.iloveindia.com/finance/bank/index.html

http://www.valueresearchonline.com/

http://www.myiris.com/

http://www.standardchartered.com/

http://www.hindubusinessline.com/



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