A Project Report On How to Plan Invest In Insurance Sector And Tax Planning At

By: Aparna .J. Raut MBA Semester II Under The Guidance Of Prof. Meenal Dhotre In Partial Fulfillment of the Requirement of the Two Year Full-Time PGPM Programe Of The SMVIM Pune A.Y. 2006-2008

Acknowledgment
First of all I would like to express my intellectual debt of gratitude to the

Assistant Manager, Mr. Rudra Mishra HDFC Standard Life Insurance, Pune for

giving me such an innovative and interesting subject which gave me thorough

knowledge of the subject and which will help me in future.

Thanks to Sales Development Managers Mr. Ajay Mukhekar, Mr. Mandar

Kulkarni and Mr. Amandeep Bakshi for the precious time they devoted to the project

and also the confidence they showed in me with whom the project could not have

seen the light of the day and also providing us with relevant material and information.

I am deeply indebted to the Staff Member of HDFC Standard Life Insurance

for their time and support, which helped us to study such an extensive and complex

subject.

I am extremely grateful to Prof. Meenal Dhotre of Vishwakarma Institute of

Management for her wholehearted support and guidance at every stage of this project.

Content

Sr. No.
1 2 3 4

Content
Executive Summary Company Profile Objectives of The Project Research Methodology Project Work Undertaken
Overview of Indian Investment Market Personal Financial Planning Various Investments Avenues Insurance Market in India Insurance Companies in India Underwriting in Insurance Industry Inflation Why Mutual Funds are not that Safe Investment Option? Portfolio of Blue Chip Companies ULIP Insurance Investment Tax Exemption in Life Insurance Policy Undertaken Of HDFC Standard Life Insurance

Page No.
4 5 22 23

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6 7 8 9

Analysis & Interpretation of the data Recommendation Conclusion Bibliography

115 116 117 118

Chapter 1 Executive Summary

The farsightedness of HDFC Standard Life Insurance, Pune to maintain and manage a decent amount of business in the more competitive time, ushered its way ahead in Life Insurance Services. This is a project that not only provides the information about investment in insurance sectors but also gives a details idea about how an insurance industry works, following various IRDA guidelines. This project helped me to understand various parameters taken into consideration while planning insurance investment for individual client. And with this valuable knowledge provide by HDFC Standard Life Insurance I am able to suggest people that what insurance plan is suitable for them according to their needs and benefits. The schedule of the project was for three months and was divided into two phases. The first phase consisted about learning insurance as an investment sector and the second phase consisted about pitching individual to become the Financial Consultant of the company. The first phase consisted of three stages:1. Training. 2. Product Information. 3. To pitch prospective clients for insurance. The second phase consisted of three stages:1. Telecalling. 2. Interview or visit to prospective Financial Consultant. 3. Scrutinizing prospective Financial Consultant and recruiting them and forming a team of Financial Consultant.

Chapter 2 Company Introduction 2.1 HDFC

Incorporated in 1977 with a share capital of Rs. 10 crores, HDFC has since emerged as the largest residential mortgage finance institution in the country. The corporation has had a series of share issues raising its capital to Rs. 119 crores. The net worth of the corporation as on March 31, 2000 stood at Rs. 2,096 crores.

HDFC operates through 75 locations throughout the country with its Corporate Headquarters in Mumbai, India. HDFC also has an international office in Dubai, U.A.E., with service associates in Kuwait, Oman and Qatar.

HDFC, the first specialized housing finance institution in India has been providing financial assistance to individuals, corporate and developers for the purchase or construction of residential properties besides providing property related services, training and consultancy. In its 27 years of business presence, the company has developed close relationships with all major developers, local development bodies, state governments, regulators and has a branch network of over 180 offices across the country catering to over 2400 towns and cities.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

2.2 HDFC & Its Sister Concern HDFC Bank Limited

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive approval from the Reserve Bank of India to set up a bank in the private sector. The bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its registered office in Mumbai.

HDFC Securities Limited

HDFC Securities Ltd was promoted by the HDFC Bank & HDFC with the objective of providing the diverse customer base of the HDFC Group and other investors, a capability to transact in the Stock Exchanges & other financial market transactions HDFC securities, provides you with the necessary tools to allocate, select and manage your investments wisely, and also support it with the highest standards of service, convenience and hassle-free trading tools.

HDFC Asset Management Company Limited

HDFC Fund is a dominant player in the Indian mutual fund space, recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests.

HDFC Realty Limited

HDFC Realty is a new, organized electronic marketplace for properties. HDFC realty provides the entire gamut of real estate services, bringing together the "clicks world" and the "bricks world" in a revolutionary and user-friendly way. Making available the best guidance and the most professional, transparent, efficient service to the real estate customer.

CHUBB
HDFC Chubb General Insurance Company Ltd., a joint venture between HDFC, Indias premier financial services company, The Chubb Corporation, a leading global non-life insurance holding company. HDFC Chubb offer insurance to owners of private-passenger cars and twowheeler vehicles. HDFC Chubb has been set up with a capital of Rs. 101 crores. HDFC holds a 74 % interest in the joint venture, while The Chubb Corporation ownership, through its subsidiary Chubb Global Financial Services Corporation, is 26%.

CIBIL
State Bank of India (SBI) and Housing Development Finance Corporation Limited (HDFC) have divested a portion of their equity shareholding in Credit Information Bureau (India) Limited (CIBIL) in favour of significant data providers. CIBIL, Indias first credit information bureau was established by SBI and HDFC with shareholding of 40 % each, while Dun & Bradstreet Information Services India Private Limited (D&B) and Trans Union International Inc. (TU) hold 10 % each. D&B and TU have also provided the necessary technical and software support to CIBIL. CIBIL had launched its Consumer Bureau operations last year with a database size of 4 million records from 12 members. The database has since grown significantly to over 20 million from approximately 30 members. Credit information reports from CIBIL enable banks to offer differential pricing to customers with a good credit record and reduce defaulters, thereby decreasing potential NPAs.

2.3 HDFC Standard Life Insurance Company Ltd.

HDFC Standard Life Insurance Company is a joint venture between India's largest housing finance provider, HDFC and Europe's largest mutual life assurance company - The Standard Life Assurance Company (U. K). HDFC Standard Life Insurance Company Limited is the First Private Sector Life Insurance Company to be granted a license.

HDFC and Standard Life first came together for a possible joint venture, to enter the Indian Life Insurance market, in January 1995.

HDFC SLIC has: 6 Zonal offices 29 Regional offices 276 Branch offices 203 Spoke Locations

Foreign Partner: Standard Life, UK

Standard Life, UK, founded in 1825, has been at the forefront of the UK insurance industry for 175 years by combining sound financial judgment with integrity and reliability. It is the Largest Mutual Life company in Europe and has total assets of Rs. 5, 50,000 crore. Standard Life currently has over 7 million customers worldwide. Standard Life listed on 10th July, the biggest float on the London Stock Exchange in the last five years.

Standard Life has: Head Office in Edinburgh, Scotland (U.K). 31 braches in United Kingdom. 11 branches in Canada. 7 branches in Ireland. 1 branches in Germany. 1 Sales Office in Austria. 1 Representative Office in Hong Kong. 2 Representative Offices in China.

It is one of the very few insurance companies in the world to have received 'AAA' rating from two of the leading international credit rating agencies, Moody's and Standard & Poor's. The Independent Brokers called IFAs recently voted Company of the Decade standard Life in U.K. 8

2.4 Stake Holding Pattern

18.60%

Standard Life HDFC

81.40%

2.5 CORPORATE OFFICE

HDFC Standard Life Insurance Company, 2nd Floor, Trade Star Building, a Wing Junction of Kondivita & M.V. Road Andheri Kurla Road Andheri (E) Mumbai 400 059 Ph: 022-28220055 Fax: 022-28222113 Website: www.hdfcinsurance.com

2.6 PROJECT DONE AT

2nd Floor, The 5th Avenue, Next to Hotel Regency, Dhole Patil Road, Pune 411 001, Ph: 020-26114942/43. Fax: 020-26120340.

2.7 HDFC Standard Life: Milestones

Partnership discussion with standard Life commenced in January 1995 It resulted into signing of joint venture agreement in October 1995. The agreement was later renewed in October 1998. With government clearing the decks, a project team was established in Mumbai in January 2000 Company got certificate of incorporation on 14th August 2000 HDFCSLIC became the first private sector life insurance company when certificate of registration was granted on 23rd October 2000. The initial shareholdings were HDFC 81.4% and Standard Life 18.6% Since then, its the journey of excellence.

Performance Highlights
HDFCSLIC has insured over 3, 50,000 lives and have already underwritten a sum assured of Rs. 15,000 Crores. HDFCSLIC is the first private life insurance company to declare the bonus and last years bonus declaration was 4th in the row. It makes them the only private sector company to have declared bonuses for 4 consecutive years. Winner of Outlook Money Award for 2 years. Company with its largest distribution network among the private life insurers Their claims experience has been best so far across the industry. Recently Business World has voted HDFCSLIC as Indias most respected private insurance company.

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Vision Statement
The most successful and admired life insurance company, which mean that we are the most trusted company, the easiest to deal with, offer the best value for money, and set the standards in the industry. In short, The most obvious choice for all.

Values that observed while working with HDFCSLIC:

Integrity Innovation Customer centric People Care Team work One for all and all for one Joy and Simplicity

2.8 Board of Directors Chairman

Mr. Deepak S. Parekh is the Chairman of the Company. He is also the Executive Chairman of Housing Development Finance Corporation Limited (HDFC Limited). He joined HDFC Limited in a senior management position in 1978. He was inducted as a whole-time director of HDFC Limited in 1985 and was appointed as its Executive Chairman in 1993. He is the Chief Executive Officer of HDFC Limited. Mr. Parekh is a Fellow of the Institute of Chartered Accountants (England & Wales).

Directors
Mr. K. M. Mistry joined the Board of Directors of the Company in December, 2000. He is currently the Managing Director of HDFC Limited. He joined HDFC Limited in 1981 and became an Executive Director in 1993. He was appointed as its Managing Director in November, 2000. Mr. Mistry is a Fellow of the Institute of Chartered Accountants of India and a member of the Michigan Association of Certified Public Accountants

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 Mr. Alexander M Crombie joined the Board of Directors of the Company in April, 2002. He has been with the Standard Life Group for 34 years holding various senior management positions. He was appointed as the Group Chief Executive of the Standard Life Group in March 2004. Mr. Crombie is a fellow of the Faculty of Actuaries in Scotland. Ms. Renu S. Karnad is the Executive director of HDFC Limited, is a graduate in law and holds a Master's degree in economics from Delhi University. She has been employed with HDFC Limited since 1978 and was appointed as the Executive Director in 2000. She is responsible for overseeing all aspects of lending operations of HDFC Limited. Ms. Marcia D. Campbel is currently the Group Operations Director in the Standard Life group and is responsible for Group Operations, Asia Pacific Development, Strategy & Planning, Corporate Responsibility and Shared Services Centre. Ms. Campbell joined the Board of Directors in November 2005. Mr. Norman Keith Skeoch is currently the Chief Executive in Standard Life Investments Limited and is responsible for overseeing Investment Process & Chief Executive Officer Function. Prior to this, Mr. Skeoch was working with M/s. James Capel & Co. holding the positions of UK Economist, Chief Economist, Executive Director, Director of Controls and Strategy HSBS Securities and Managing Director International Equities. He was also responsible for Economic and Investment Strategy research produced on a worldwide basis. Mr. Skeoch joined the Board of Directors in November 2005. Mr. Gautam R Divan is a practising Chartered Accountant and is a Fellow of the Institute of Chartered Accountants of India. Mr. Divan was the Former Chairman and Managing Committee Member of Midsnell Group International, an International Association of Independent Accounting Firms and has authored several papers of professional interest. Mr. Divan has wide experience in auditing accounts of large public limited companies and nationalized banks, financial and taxation planning of individuals and limited companies and also has substantial experience in structuring overseas investments to and from India.

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 Mr. Ranjan Pant is a global Management Consultant advising CEO/Boards on Strategy and Change Management. Mr. Pant, until 2002 was a Partner & VicePresident at Bain & Company, Inc., Boston, where he led the worldwide Utility Practice. He was also Director, Corporate Business Development at General Electric headquarters in Fairfield, USA. Mr. Pant has an MBA from The Wharton School and BE (Honors) from Birla Institute of Technology and Sciences. Mr. Ravi Narain is the Managing Director & CEO of National Stock Exchange of India Limited. Mr. Ravi Narain was a member of the core team to set-up the Securities & Exchange Board of India (SEBI) and is also associated with various committees of SEBI and the Reserve Bank of India (RBI).

Managing Director and CEO

Mr. D. M. Satwalekar is the Managing Director and CEO of the Company since November, 2000. Prior to this, he was the Managing Director of HDFC Limited since 1993. Mr. Satwalekar obtained a Bachelors Degree in Technology from the Indian Institute of Technology, Bombay and a Masters Degree in Business Administration from The American University, Washington DC.

2.9 Companys key strengths Financial Expertise

As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage your long-term investments safely and efficiently.

Range of Solutions
we has a range of individual and group solutions, which can be easily customized to specific needs. Our group solutions have been designed to offer you complete flexibility combined with a low charging structure.

Track Record so far

our cumulative premium income, including the first year premiums and renewal premiums is Rs. 1532.21 Crores Apr-Mar 2005 - 06. We have covered over 1.6 million individuals out of which over 5, 00,000 lives have been covered through our group business tie-ups.

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2.10 Organizational set up of HDFC Standard Life, Pune Branch

MD & CEO

SALES

OPERATIONS

FINANCE & ACCOUNTS

IT

LEGAL & SECRETAIAL

HR

RETAIL SALES ACCOUNTS GROUP SALES MEDICAL ALTERNATE CHANNELS UNDERWRITTING SALES TRAINING ACTURIAL

REGIONAL TRAINING MANAGER

BRANCH TRAINING OFFICER

MARKETING

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2.11 Organizational set up of HDFC Standard Life

MD & CEO

G.M SALES & MARKETING

HOD IT

HOD LEGAL & SECRETARIAL

GM FINANCE & ACTURIAL

HOD H.R.

GM OPERATION & UNDERWRITING

BUSINESS HEAD NORTH ZONAL MANAGERS

MEDICAL

BUSINESS HEAD SOUTH ZONAL MANAGERS

ACCOUNTS

ACTURIAL HOD INSTITUTIONAL SALES

HOD CHANNEL DEVELOPMENT & SALES TRANNING

HOD - MARKETING

HOD - BUSINESS PROCESS & RESEARCH

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2.12 Capital Structure OPERATIONAL HIGHLIGHTS

PARTICULARS OF POLICYHOLDERS FUND New Business Premium written Individual business a. Regular Premium b. Single Premium Group business a. Regular Premium b. Single Premium Pensions a. Regular Premium b. Single Premium TOTAL RISK CLAIMS Financial Year ended March 31, 2007
(Rs.

Previous year ended March 31, 2006

in lacs) 53,314.20 7,856.40 3,035.29 8978.34 24,551.27 4,883.10 1,02,618.60 80,154

79,286.97 6,298.26 4,426.22 12,674.09 45,518.67 14,219.36 1,62,423.57 108,025

The first year premium income increased by over 58% from Rs. 1,026.18 crores in the previous year to Rs.1, 624.23 crores in the current year. The cumulative Sum Assured in respect of policies issued increased from Rs.47, 730.40 crores as at 31st March, 2006 to Rs.67, 192.97 crores as at 31st March, 2007. During the year, the company introduced a revised version of the Group as well as Individual Unit Linked Plans to conform to the new guidelines issued by the IRDA. The company now has a portfolio of 21 retail and 6 group products, along with five optional rider benefits catering to the savings, investment, protection and retirement needs of the customer. Most retail products are offered on both, the conventional and unit linked platforms.

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The endeavor of the sales force is to help customers assess their financial and insurance needs and then offer them an appropriately customized solution through the combination of one or more riders together with the basic plan. As the age profile of our customers is relatively young, the company has made a conscious effort to offer them long term policies, with adequate life cover. The company believes that in most cases a regular premium paying policy would be in the interest of the policyholder- 80% of the policies written this year are regular premium policies. The company has significantly leveraged the barbell shaped demographic profile of the population and is one of the biggest providers of i) Retirement solutions for the individual market segment ii) Solutions for planning childrens financial futures. The market for company retirement plans is yet evolving and is currently very pricing sensitive. The company is a key player in the group business market. During the year, the company issued over 5, 23,000 policies and has covered more than 8, 77,000 live.

2.13 Distribution Offices

In its drive to deepen and widen the penetration in the market, the company opened an additional 107 offices during the year, taking the total to 276 across 28 regions. In addition the company also adopted the Hub and Spoke model and opened 162 spokes during the year. Through the network of these offices the companys Financial Consultants, Corporate Agents and Brokers are able to service customers in almost 700 cities and towns across the country.

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Financial Consultants
The Companys distribution strategy continues to lay strong emphasis on the development of the agency channel. The number of licensed Financial Consultants appointed by the company increased from over 33,000 in the previous year to over 74,000 in the current year, with a large part of the increase happening in the latter part of the year. This positions us well to take advantage of a larger trained sales force in the coming year. The company provides extensive and thorough training, to not only complies with the regulatory requirements, but also to equip the financial consultants to appropriately assess the customers insurance needs. The needs based analysis approach adopted by our sales force has resulted in a significant increase in the average premium, even beyond the limits of tax benefits available

Corporate Agents
Simultaneously the company took advantage of the interest in distributing insurance products that was evinced by banks and other corporate agents. This channel has yielded good results and accounts for over 43% of all first year premia collected during the year.

3.14 Investments
Investments of insurance companies are regulated under the IRDA (Investment) Regulations, 2000 as amended from time to time. The company has complied with all the requirements under the said Regulations. The total assets under management as on March 31, 2007 are Rs. 4,976 crores as against Rs.2, 554 crores in the previous year. Under the unit linked products, the company offers a choice of 6 funds ranging from growth to liquid funds.

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Bonus
The company declared the sixth consecutive bonus on all with profits policies as follows: PRODUCT HDFC Endowment PREMIUM FREQUENCY REVERSIONARY INTERIM BONUS BONUS TERMINAL BONUS

Assurance Plans, HDFC Childrens Plans, Regular HDFC Plans, HDFC Personal Pension Plans Savings Assurance Plan HDFC Assurance Plan Single Premium Whole of Life Policies Personal Pension Plan Regular 3.25% 3.25% Money Back Regular 2.25% 2.25%

Not applicable

Single Single

5% 5%

5% 5% 15%

Solvency
The company has been continuously monitoring its solvency margins and has ensured that at all times, in keeping with the requirements of IRDA (Assets, Liabilities, and Solvency Margin of Insurers) Regulations, 2000; the margin is maintained at least at 1.50 times the statutory required level.

Capital
During the year, the company raised the paid-up equity share capital from Rs. 620 crores to over Rs. 801 crores. Further the company also enhanced its authorized capital from Rs. 620 crores to Rs. 1,500 crores. The shares subscribed to by Standard Life Assurance Company are yet to be allotted and are awaiting approval from IRDA since Standard Life Assurance Company had de-mutualised during the year.

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2.15 Competitors
Aviva Bajaj Allianz Birla Sun Life Insurance Company Limited ICICI Prudential Life Insurance ING Vysya Max New York Life MetLife India Life Insurance Corporation of India (LIC) OM Kotak Mahindra Life Insurance Reliance Life Insurance SBI Life insurance Tata AIG

Awards Won
- Standard Life Investment won the Investment Provider 5 Star Award for the 11th consecutive year at the Financial Advisor Service Awards 2006. - In Oct. 2006, Standard Life Investment won UK Equity Manager of the Year at Financial News. Award for Excellence in Institutional Asset Management Europe 2006. - In April 2006 Standard Life Investment was names Property Manager of the year 2006 in the Professional Persions Award. The accolade was for the product innovation, fund performance and client servicing. - In Mar. 2006, Standard Life Investment won 1st place in - 2000 CII EXIM Bank Commendation Certificate for TQM - 2001 Euro money Asias top 10 Best managed companies in the finance sector. - 2002 Rated as the Best Non-Banking Finance Company in Asia by Institutional Investor Research Group.

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- 2002 Won the International Financing Review Asias India capital Markets Deal of the year for 2002. Award for its FRN issue in the international market. - 2002 Identified as the Best managed financial institution in India in the Fox-Pitt Keltons survey of Asias best managed bank and financial institution. - Among the top ten Most Respected Company in India Business World. - 2003 Among the top ten Most Admired Companies in India Business Barons. - 2003 Indias 2nd Best Managed Company - Finance Asia. - National Award for Excellence in Corporate Governance by the Institute of Company Secretaries of India.

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Chapter 3

Objectives of the Project

1. To do a comparative study about the project features offered by HDFC Standard Life Insurance.

2. Mapping up of potential client for HDFC Standard Life Insurance.

3. To convince the client about the importance to invest in Insurance.

4. To understand the importance of client relationship with the company.

5. List the different kinds of investment an individual can sought in insurance.

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Chapter 4 Research Methodology

Name Of The Study Descriptive Research Method

Observation of Sales Talk By Research Method Personal Visit To Individual

Insurance Client

Target Group

Salaried Individuals

Research Location

Pune

Sample Size

140

Primary Data Observation Data Collection Method Secondary Data Companys Intranet Internet

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Chapter 5 Project Work Undertaken

As my research subject is How to invest in insurance sector and Tax Planning. The major objective was to study how investment in insurance is useful to the people in which investing money for a longer period of time give them good returns and also help them to save tax and to build up a client database for HDFC Standard Life Insurance through recruitment of Financial Consultants. I undertook a descriptive market research study through which I could analyze the reasons why insurance is better option to Traditional investments and Mutual Funds. The collection of information on investment of people insurance sector was done through observation and Personal Visit to the clients with the company SDM. To gain a thorough knowledge about the topic direct observation proved to be beneficial because behavior of a person was observed as it occurs. First of all appointments was fixed with individual insurance clients. They were extensively observed on the bases of the way they invest in particular investment and provided with proper guidance how they change their mind to investing in insurance. The collected information was then tabulated according to appoint fixed of the client and policy undertaken. Master table was then prepared giving a detailed comparative analysis of various insurance clients and the policy undertaken by them. This led me to the analysis of data. Secondary data was collected through companys intranet and different business website. Analysis of the data was done accordingly through table and graph.

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Chapter 5.1 Overview of Indian Investment Markets

The economy of India has proven to be highly conducive in terms of domestic and foreign investments, in recent years. India Investments have been predicted as the propelling force towards the country's attainment of self-sustained growth by rapid industrialization. The most discussed forms of investments in India have been Foreign Direct Investment and Investments made by NRIs.

Foreign Direct Investment (FDI) in India is one of the most talked about issues today. Rated among the top emerging nations, India's liberalization policies are paying rich dividends to the economy as a whole.

Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor." The FDI relationship consists of a parent enterprise and a foreign affiliate, which together form a Trans-national Corporation (TNC). The Indian economy is well suited to the small and medium American companies which may find it difficult to operate in the saturated western markets. With the vast technical and managerial skills available in India, Indian and American Small and Medium sized Enterprises (SMEs) can join hands both as complementary and supplementary partners to cater to the vast Indian market.

India has emerged as a low cost base, attractive enough for multinationals to open shop in the country. More than 100 of the Fortune 500 companies have a presence in India, as compared to only 33 in China. To sum up, best investment in India would be such that would create employment and bring in technology and not just investment that would replace the mammoth labor force of the country

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Chapter 5.2 Personal Financial Planning Financial Planning

Financial Planning has everything to do with wealth creation. Wealth enables you to achieve your financial goals; from your day to day goals, like meeting your basic expenses to distant goals, like having a financially secure retirement. Goals like buying a house, your childrens education and planning for your retirement need some serious financial planning. Financial planning is not just planning investments. Financial planning is creating, managing and enhancing wealth during your lifetime. Your aspirations and realities influences youre planning. For instance, you might want to build an independent house but your finances may allow you to buy only a flat. With financial planning, you can ensure that the right amount of money is available at the right time to be deployed in the right financial instruments to achieve future goals. Goals act like milestone that you hope to reach in life. Your financial resources play the most important role to help you achieve this. Milestones could range from buying a microwave in the next six months to ensuring a regular income when you retire 15 to 20 years from now. Identify your financial goals before you start planning your finances. Chart out your roadmap only after you have your milestones identified. Put a date and monetary value against your goals. Classify these goals into three categories. Risk mitigation goals. Responsibilities and commitments. Aspirational goals.

Risk mitigation goals

Risk mitigation goals are needed to secure you and your family.

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Responsibilities and commitments

Responsibilities and commitments include goals like childrens educational and marriage.

Aspirational goals
An aspirational goal could be a vacation abroad with your family. It is not enough to just identify and categorize goals; they need to be prioritized too. All goals are important, yet there could be some that are more important than others. For instance, you want to save for your childs education, which is now; than save to buy a house later in life. Similarly, you will have to pay more attention to saving for your immediate payments than for retirement. You need too periodically review your goals; maybe every year, reset them and change your financial plan as and when required.

Three-steps to Effective Planning

Identify your financial needs. Convert them into goals and assign monetary to each. Make adequate investments over time to meet future needs and goals.

Planning your finances make you efficient with money management. You should allocate your earnings systematically to work towards specific goals. This will help you attain your goals in time. The same holds true for expenses. You will begin prioritizing expenses and try to get more value from what you spend, and also learn to avoid unnecessary expenses

The Need to Plan

There is an absence of a stable social security structure in India, which is why you need to have a financial back-up to cushion you against any kind of emergencies. Financial planning helps you tackle inflation and taxes too. Assuming an inflation rate of 5%, the value of your Rs. 1 lakh today will get eroded to approx. Rs. 46329 in 2020. Plan your investments in such a way that your Rs. 1 lakh keeps growing despite inflation. You can keep the growth momentum on with tax planning

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Financial savings, investments, taxes, retirement and your estate, all require individual plans. It is a process of creating, implementing and updating your financial road map at the same time. Most of all, financial planning allows you to reach a specific goal without compromising on your standard of living. Plan your savings and investments in a way that buy your dream house, but not at the cost of compromising on your short term goals and standard of living.

Money Matters
A little planning can go a long way, when it comes to attaining goals. Financial planning involves understanding of financial goals along with creating wealth. Wealth creation is as important as financial planning. It is wealth that enables you to meet your goals, be they long term or short term. Your needs and goals dont always remain the same. The need for wealth is a lifelong one. Wealth depends on what is left after your various expenses and how your savings grow. We could define wealth as the difference between what you own, or your assets, and what you owe, or your liabilities. This difference is also called net worth. The more the asset, lesser the liabilities the wealthier you are! Control your expenses by sticking to your budget. Keep a budget where you record your daily expenditure or your expenses for a particular period. Your budget provides details of your expenses, like where you spend the most in month or why you fall short of money. Keeping your expenses in check will also lead to saving on a regular basis.

Wealth Basics
Start investing early and do it regularly. Give your investments time to grow and benefit from compounding. Be aware of risk-reward relationship and your risk appetite while making investments.

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The Wealth pyramid

RETIRED LIFE Equity, Equity Funds

ASSET CREATION AND CHILDRENS FUTURE Small Savings, Bonds, Debt and Balanced Funds.

INSURANCE Life, Health, Auto,Home, Disability Cover

LIQUDITY Savings and Two in one Accounts, Liquid Funds

Your wealth is shaped like a pyramid. The base helps provide stability and security; contains risks and also takes care of regular expenses. Insurance polices covering heath, life and assets besides savings accounts, two-in-one accounts and liquid funds are all part of this base. It must consist of investments that may give low but predictable returns. The base of the pyramid is where all your security rest. These assets are meant to take care of contingencies. The middle of this pyramid contains a mix of all kinds of investment option, raging from low-risk options to high-risk options. These investments are not completely security driven; they are an addition to investments and help you meet your time-bound goals. Investments for debt, balanced mutual funds, public provident fund, longer-duration bonds and corporate deposits are all based on risk appetite.

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The pyramids summit is made up of high-risk investments like equities and equity mutual funds that are earmarked for distance goals like retirement which needs a sizeable accumulation. It is best that you start young to get higher returns. These investments require you to stay invested for a long time, but the returns could be well worth it. The pyramid approach is the most prudent one in financial planning it is important to remember not to overburden the pyramid by taking very high risks and making the summit heavy. A top-heavy pyramid is bound to crumble and your goals would remain unfulfilled.

Wealth Creation Tools

Wealth creation is simple and straight forward. It is this wealth that will help achieve your financial goals. Wealth creating assets are those that increase in value over time and provide a reasonable return. It is important to understand that all your investments whether in real estate, jewellery, fixed deposits, provident funds and shares, are wealth tools. However, a car or a consumer durable like a washing machine or refrigerator do not count as wealth tools. They do not create wealth but depreciate in value over time.

Wealth Toolkit
Bank deposits help regular savings are low-risk investments. Insurance is an option that offers protection along with growth.

Mutual funds offer collective investing, professional management and We deal with banks for most of our financial requirements. Banks facilitate diversification Savings and investment. There are various kinds of accounts and deposits in a bank that help you manage your money. Salaried people usually opt for a recurring deposits, which is not always high on return but is safe and a disciplined saving habit.

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A fixed deposit account is money parked with the bank for a fixed tenure, ranging from 7 days to 3 years or sometimes even more. This amount earns an interest that can be withdrawn if needed on a quarterly, half-yearly or annual basis. Interest increases as the tenure of deposit increases. At present the interest rates range from 4.5 to 6.5 percent per annum. Most banks have introduced twin or flexi-accounts which can be used as a combination of normal savings bank account and fixed deposit.

Mutual Funds
A mutual fund is pool of money collected from various investors. This money is invested with a common specified investment objective. You own the investments collectively, while a team of professionals hired specially for the propose, manage your money. These managers try to deploy your money collectively into assets like equities and bonds that will ensure optimum returns. A mutual fund makes money from its securities in two ways: a security can pay dividends or interest to the fund or a security can rise in value. A fund can also lose money and drop in value. Your share in mutual fund is denominated by units. The value of these units changes every day. The value of these units changes every day. The value of one unit is called the net asset value, NAV for short.

Systematic Investment Plans (SIP)

A SIP involves setting aside a portion of your monthly disposable income for a particular investment option. This is the best suited for retail investor with respect to investing in stock markets or mutual funds. Even the savviest of investors find it hard to get timing of their investments right for maximum investment gains. SIP helps spread your risk as you buy regularly over a period of time. Investing a fixed amount in market over a long period of time will ensure that the investors cost of purchase average out and gets lowered. This way, a passive investor can also benefit form a diligent investments.

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Shares
When you buy shares, you own equity in that company, or you become a partowner of the business depending on the number of shares bought. In a stock market, returns largely accrue to the investor through price appreciation. For example, you buy X Companys shares at Rs. 100 per shares and the price increases to Rs. 150, you have earned a profit of 50% on your investment, in case you choose to sell. Equities have historically proved to be a great tool for wealth creation.

Bonds
There has always been a misconception that bonds are only for the very old, very rich or very conservative. Bonds are an important component of a strategically balanced portfolio at every stage of any investors life. In fact, a bond is like an IOU (I Owe You) - in buying a bond you have lent money on loan to a company, a municipality, state or the central government.

Insurance Why Life Insurance?

Insurance is seen as a necessity to ensure a continuation of your family income, should the income provider pass away or become disable. You might think that insurance would be less important as the value of your investments and other assets grow. In fact, very often the opposite happens. You build an increasing tax liability as your wealth increases or as you build your assets. Insurance can become an important vehicle for reducing your income tax burden. Remember, in case of any eventuality, the bank gives you what you have saved the insurance company gives you what you were meant to save. The primary purpose of life insurance is to provide for dependents on death of a primary wage earner, but life insurance can also serve as an outstanding tool transferring wealth to the next generation.

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There are a variety of life insurance products specially structured to provide targeted benefits, including: Term endowment insurance. Whole life insurance. Childrens plan. Pension plan. Unit linked insurance plans. Insurance can also be used effectively as an investment vehicle. Proper planning can help the drain taxation can have on your business or estate. Planning means you choose how your assets get distributed. It involves a step-by-step approach and ensures that you receive only expert advice. The result could be a plan customized just for you. You can use tax-advantage life insurance strategy to build a fund that grows on tax-sheltered basis. You can select the investments and decide how much and when to invest. At a time like retirement, this tax-sheltered fund can be useful to provide a tax-free income. On death, the insurance proceeds and the investment funds are paid to your beneficiary, tax-free. Using insurance can be cost-effective way of creating a legacy. No wonder insurance is viewed as an important investment for retirees and those approaching retirement.

Making the Right Start

The words wealth creation strategy or even the though of having Rs. 1 crore as savings may set your blood pressure soaring! Figures may intimidate you so much that youd rather sit back and enjoy each day as it unfolds. Use a simple approach instead.

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Wealth creation is all about paying close attention to details. Spell out your goals. Define the time period by which you might want to achieve them. Know your monthly savings. Be realistic in setting your savings goal. A typical Indian is low on financial literacy. Therefore, start young, educate yourself and be aware of the ways of reaching your goals. Set out plan for systematic savings and investing. There will be fluctuations in the economy, interest rates, stock market performance and hence, in your returns. However, in the long term, these fluctuations smoothen out and you are rewarded with stable returns. Review your goals and the steps you take every quarter. See if you are on the right track both in term of time period and goal. Perhaps youve got a windfall gain or a massive salary hike. Use these bonanzas to supplement your progress towards your goals.

Start early
Do you think you are too young to plan for retirement? Are financial goals like your childrens education and marriage far away in your mind? Maybe you need to think again. You dont want to be short of money when your goals actually approach. The sooner you start saving, the faster you will reach your target. The power of compounding works best over a long tenure. If you start investing Rs. 5000 per month at the age of 25, given the rate of 8% you will reach your target of Rs. 1 crore when you are 60, unless you put in more money every month.

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Five Mantras to help you save

Set a savings goals. You can determine a percentage of your income that you will save every month. This could be 10 % of your take-home pay initially which can be raised as your income grows. Pay yourself. You could keep aside a pre-decided amount as your pay cheque arrives. That way you will ensures that you save diligently. Use enforcement tools. Use instruments like bank two-in-one accounts that invest amounts in excess of specified amount into fixed deposits. That way you set money aside easily. Avoid using your savings. You should learn to cut expenses rather than use savings for meeting needs other than emergencies. This will help your savings grow unhindered. Hold adequate cash. Idle cans lie at home and bank savings account often ends up getting spent. It is important to figure out your cash requirements. However, there should always be enough to meet emergencies.

Invest Regularly
Let your investment grow just that little bit faster. Save and invest Rs. 5000 every month rather than Rs. 60000 at the end of the year. Each monthly investment earns simple interest for the rest of the year. Smaller monthly outflows do not pinch as hard as a lump sum investment. Most of us lack the financial disciple to invest regularly and hence lose out on the benefit of compounding. However, technology is increasingly making our lives simpler. You can now give a standing instruction to your bank to debit Rs. 5000 to your account on a specific date, say on the third of every month when your salary is credited. This ensures that the payment is done in time and with less effort.

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Diversify to minimize risk

It is advisable not to put all eggs in one basket. Diversification is apportioning your money into a variety of investments that have different return potentials and risk levels. Market cycles vary, which is why diversification allows you to offset possible losses in one investment class, say debt with potential gains in another, like equity. This may help you reduce your overall exposure to risk. For instance, the UTI US 64 debacle left holes in the pockets of many who trusted a hitherto time-tested scheme. It is up to practice, else to lose out or have to juggle your portfolio between various avenues of investing. You can earn from anywhere between 6.5 % from bank deposits to a rather ambitious 20% through equities. At the rate 6.5%, you can reach a target of Rs. 1 crore in 39 years. For the ones who are adventurous enough, you could invest in highrisk instruments that give you a 20% return. That way, you could achieve your target in 19 years.

Timely Review
Worlds of financial products are available for the disciplined, financial-savvy investor to optimize his investments. You must be prepared to switch between investment products. You need to review your portfolio performance and risk-appetite every quarter. There could be circumstances like a job change, illness order financial commitments to dependent parents that might make you re-look at your assets allocation strategy. Review your goals at least once in three years. You can also do it when there are changes in family structure such as marriage and childbirth, increase in income or change in financial goals.

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Reduce your tax burden

Judicious tax planning improves your returns. For example, interest earned on bank deposits is now taxed. However, the proceeds from a public provident fund (PPF) are tax-exempt. The same works for dividends from equities. Under the present taxation structure (Union Budget 2005-06), tax rebates under Section 88 no longer exist. You are allowed to make your choice of investment basket up to Rs. 1 lakh, which fully qualifies for tax exemption. You pay no tax in equity mutual fund schemes, if you sell your investments after holding them for more than a year. The government offers an additional rate of interest on savings to senior citizens. It is important to note that paying tax annually on your savings reduces your net return at the end of the tenure. You should opt for deferred tax payment options to get the maximum effect of compounding on your investments. Lets assume, you invest Rs. 10,000 for 10 years at compound annual rate of 10 % and your income is taxed every year. You end up with an amount like 19,127. On the other hand, if you pay tax only on maturity, you get Rs. 20,678 at the end of 10 years.

Planning in your early years Getting started

A growing economy and an increasing consumption pattern means a 20 age old person can earn a salary as Rs. 10,000 just out of college! The major problems faced during these years are: 1. Spending is usually on the higher side, limiting the amount one can save. 2. With debt available quite freely, one goes into debt meeting lifestyle related expenses. The key in these young years is to ensure that you match your short-term goals with the long-term! Here are some pointers to help you walk the tight rope:

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Keep a watch on your expenses

Most of the young workforce today uses credit cards for their purchases. While a prudent use of credit cards can help you plan and manage your expenses; uncontrolled use of credit cards can result in you having to pay huge interest charges (in some cases as high as 2.99 % per month!) for revolving credit card dues. Keeping watch on your expenses will help reduce your dependence on credit cards and pay dues on time.

Start saving
While it is important to keep a watch on your expenses, it is equally important to start saving for your future. The power of compounding ensures that the younger you start saving, the more corpuses you will have when you need the money.

Insure your risks

As you get married and raise a family, it is important to start planning for those unforeseen circumstances that can put everything you planned in a tizzy! You need to get adequate life insurance that can protect your income earning capacity. There are numerous life insurance options available to suit your individual requirements.

Planning For Your Retirement

Wealth Challenges
Big-ticket expenses like childrens higher education and marriage. Increased medical expenses due to surfacing of chronic ailments. Investments and reinvestments for funding your retirement needs. Transition to retirement needs decade of careful attention and planning.

Bunch your goals

The decade preceding retirement usually coincides with bid-ticket expenses like childrens higher education and marriage. Since most Indians dont save separately for retirement savings. This adversely impacts their retired lives.

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Accumulation to preserve
You might have invested in high-risk instruments like equity mutual funds and equities for growth, early in life. However, as retirement approaches, you need to preserve your accumulations and gradually reduce your risk exposure. Your ability to handle sudden expenses decreases as you get on with age. Nonetheless, large expenses occur due to ailments that surface in this period. They could take a toll on your savings.

Crucial stage of retirement planning

In the past, experts thought it reasonable to project post-retirement living expenses as being about 75 to 80 % of pre-retirement expenses. That view, however is changing fast. In the absence of work, retired people are increasingly spending more.

Retirement income planning

The last decade of your working life is crucial to ensuring post-retirement cash flows. There are two broad categories of financial needs faced during retirement regular income to meet living expenses and lump sums to meet capital requirements like house repairs or family functions. While regular expenses can be met by annuities (essential, monthly or periodic payments), lump sum needs can be met through payouts from options like maturing life insurance endowment and mutual fund pension plans.

Wealth Solutions
Take a decision on when to retire. Make arrangements for possible relocation and post-retirement housing. Reduce investment risk; increase liquidity to meet big-ticket expenses and emergencies. Ensure tax-efficiency of investments. Prepare yourself for a second career (if you want one).

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Decide when to retire

It is important to decide your retirement age. If you think you wont have enough retirement funds to want to supplement your accumulation with a full or parttime post retirement job, you have to start planning now. Alternatively, you could aim to become a consultant or adviser after retirement.

De-risk your portfolio

You are advised to gradually reduce your exposure to growth investments like equities and equity mutual funds to safer, fixed-income options like debt funds. How much fund you should migrate depends on factors like needs of your dependants and the number of years left for retirement. Remember, even as you downscale your equity exposure, you must still have some exposure (say 20-25 % of your portfolio) in order to beat inflation.

Enhance liquidity for approaching goals

Savings specifically for goals like childrens higher education and marriage, take adequate funds from the corpus and park them in reasonably liquid options like bank FDs or liquid funds so that they are accessible. Do the same if you have a general investment portfolio. If you need regular funds, say every month, for making payments like tuition fees, you can also use a systematic withdrawal plan (SWP) from fund that gives you monthly payouts.

Make emergency provisions

At this stage, you might be increasingly vulnerable to lifestyle and other diseases like diabetes, asthma or heart problems. With medical treatment costs rising everyday and with expensive surgery necessary for some, you need to ensure a wide medical insurance cover. Health insurance premium gets higher as age advances; hence it is important to buy medical insurance early in life. You also need to cover yourself for disability since it can impact regular living expenses.

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Decide on housing
Housing requirements change with age. At this stage of life you would be looking at the kind of housing that would last you for the rest of your life. Dont make the common mistake of postponing this decision, since it will eat into you savings. If youve decided to relocate or buy a new house and need to take a home loan, ensure that it can be repaid before retirement.

Make an estate plan

After building significant and physical assets, it is important to have a succession plan to distribute the estate on your death. The estate plan will typically comprise a will, designating heirs to all your self-acquired assets. Once youve made a will, you can update as circumstances change.

Re-evaluate your insurance cover

You could consider reducing your life cover at this stage when you have a reasonably big asset base. You can also re-direct the premium amounts to retirement investment options. The downscaling will obviously depends on the kind of policies you have. For instance, you can stop paying premium for term policies since they dont have any surrender value. However for other policies with surrender cash value, you would lose money. In case you want to bequeath money to your children or your wife, you could hang on to your life insurance policies. Your life insurance will be one of the first sources that will help your beneficiaries.

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Preparing for regular retirement income

In case of annuities, you can buy them with investments made in a pension plan of a life insurance company, or from accumulations from other sources, like your stock investments. In the case of pension plans, the insurer will make one-time taxfree lump sum payout of 25 to 33 % of your accumulation at retirement, and convert the rest of your accumulation into annuities. You can choose from different kinds of annuities to match your requirement: a lifetime annuity or one for a specific period, say 15 years. You can also opt for an annuity scheme where the payouts continue (in full or part) to your spouse or heirs after your death. Alternatively, you could opt for deep discount bonds and small savings instruments like National Savings Certificates (NSC), which mature at regular intervals.

Ensure tax-efficiency
New retirees take a tax hit due to bunching up of the investments maturing around retirement. One of the ways to minimize tax outgo is to create an income ladder so that your investments mature over 4 to 5 years after retirement. The mature investments can be re-invested yet again in the same instruments and thereby you can create perpetual annuities.

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Chapter 5.3 Various Investments Avenues

Investment is the use of money to earn income or profit. The term also refers to the expenditure of funds for capital goods--such items as factories, farm equipment, livestock, and machinery. Capital goods are used to produce other goods or services. Many people invest part of their income for future financial gain. Others make investments to protect the purchasing power of their savings against rising prices. Investment promotes economic growth and contributes to a nation's wealth. When people deposit money in a savings account in a bank, for example, the bank may invest by lending the funds to various business companies. These firms, in turn, may invest the money in new factories and equipment to increase their production. In addition to borrowing from banks, most companies issue stocks and bonds that they sell to investors to raise capital needed for business expansion. Governments also issue bonds to obtain funds to invest in such projects as the construction of dams, roads, and schools. All such investments by individuals, businesses, and governments involve a present sacrifice of income to get an expected future benefit. As a result, investments raise a nation's standard of living.

Kinds of investments
Before making any kind of investment, a person should learn as much as possible about how the money will be used. The person also should find out what he or she can gain from an investment. Every investment involves some risk--that is, a chance of loss. An individual should carefully examine the expected income from an investment in relation to the degree of risk involved. A person also should know if he or she can easily turn an investment into cash that may be needed to take care of unexpected expenses.

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Savings accounts
Savings accounts are a common kind of investment. Money placed in a savings account at a bank, building society, or savings and loan association earns interest at a certain annual rate. Savings accounts and certificates yield small profits. They also may provide little protection against rapid inflation--that is, a sharp, general rise in prices. In spite of its disadvantages, a savings account is suitable for investors of moderate means because it involves little risk that the money will be lost.

Life insurance
Life insurance serves as a form of investment for many people. A person may buy life insurance to provide financial protection for family members in case the person dies or is disabled. In addition, with some policies, the insurance company sets aside part of each premium. This sum, called the cash value of the policy, accumulates and earns a specified rate of interest, as does a savings deposit.

Business Investments
The purchase of a small business may be the most demanding kind of investment. Investors may find that they must work full time to make a profit. They should be sure the business will provide both a satisfactory income and a reasonable return on their investment. Before buying a business, people should study the

industry; consider their operating costs, and whether they have the ability to operate the business.

Property
People invest in property when they buy a home, land, or rental property. Property may have considerable resale value. It also may produce income--directly, in the form of rent; or indirectly, in the form of crops, mineral resources, or timber. Property is considered an especially good investment during a period of inflation, when the value of property tends to rise. On the other hand, property values can fall sharply during a recession or a depression.

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Bonds
Bonds include government securities and corporate bonds.

Government securities
Government securities are normally issued by central government. They pay interest at a specified rate after a certain period of time.

Savings bonds
The savings bonds issued by central government are popular among small investors because of their low purchase price and great safety.

Treasury bonds
Treasury bonds are tradable on stock exchanges. Most treasury bonds pay a higher rate of interest than do savings bonds because their price may change considerably from time to time. Some governments sell securities called treasury bills. They yield high interest during periods of inflation and low interest during recessions.

Corporate bonds
Corporate bonds are loans made by investors to business firms. A corporation pays each bondholder interest every year until the bond matures. At that time, the corporation must redeem the bond by paying its face value, which is its stated value. The prices of bonds may change due to variations in market interest rates.

Ordinary shares or equities

Ordinary shares or equities represent shares of ownership in a company. The shareholders of a firm share in the profits and losses of the company. If the company has a year of high earnings, the shareholders receive cash dividends. A company may decide to use its profits to expand the business, rather than pay dividends. But some shareholders do not care much about annual dividends as long as the price of the shares rises. The increase of the value of shares permits a capital gain, the profit received from the sale of shares.

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Preference shares
Preference shares are a form of corporate security that has features of both bonds and ordinary shares. Like a corporate bond, preference shares have a fixed rate of return. This return must be paid before any ordinary share dividends can be distributed. Thus, preference shareholders can expect a more assured income than ordinary shareholders. Unlike bond owners, however, preference shareholders do not have the legal right to make a corporation pay them annual returns if the firm has not earned enough to do so. Ordinary shares and preference shares both can earn larger profits than bonds can. In fact, over long periods of time, the return on shares has consistently been much higher than the return on bonds or on other kinds of investments. But, shares also involve a greater risk of losing money. Share values change continually, and often by large amounts. As a result, investors have no assurance that they will get back the full purchase price of their shares. A business recession or poor company management may reduce a firm's earning power and lower the price that people are willing to pay for the firm's stock. Shareholders might then lose money if they sold their shares. In many cases, stocks also provide poor protection against inflation.

Mutual funds
Mutual funds are companies that invest in a variety of securities and sell shares of their own stock. They offer several advantages to small investors. For example, mutual funds employ specialists who select stocks or bonds that they consider most likely to yield profits.

Stock markets
Stock markets are organizations which enable investors to buy or sell government securities and company shares. Investors deal through brokers who are members of the exchange.

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Survey of Indian Investors

Ins tr um e nts UTI Schemes Other MFs Fixed Deposits Bonds P rovident Fund Lif e Insurance Chit Funds P ost of f ice Recurring Deposits Small Savings P ref erence Shares Others All India 8.45 5.45 76.23 6.21 20.92 39.21 5.94 44.73 27.46 2.63 8.75 Ur ban 19.52 12.02 83.89 11.56 40.24 57.31 9.51 40.77 35.98 6.59 11.85 (in %) Rur al 4.05 2.84 73.18 4.08 13.24 32.01 4.52 46.3 24.07 1.06 7.52

SOURCE: SEBI-NCAER Survey of Indian Investors

90 80 70 60 50 40 30 20 10 0

Investment in India

Analysis:This helps us to understand that People prefer safety, factor to be emphasized. Concentration in fixed return / safe schemes. Visible sources not the most popular - MFs etc.

U TI Sc he m O Fi the es xe r d MF D ep s os its Pr ov B id on Po Li ent ds st F fe of fic In und su e R ec C ran c ur hi rin t F e g un D d ep s Sm o. Pr al .. ef l S er en avi ce ng Sh s ar es O th er s

In %

All India Urban Rural

Instruments

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Chapter 5.4 Insurance Market in India

The end of the year 2000 marks a significant change and growth of 'India Insurance' industry scenario. Monopoly of Public Sector Insurance company marks an end and Private companies makes inroad. Foreign companies, both Life and General flocked, collaborated and helped astronomical growth of 'Insurance Industry in India'. 'India Insurance' growth was long overdue. Within 1st 12 months of liberation of 'Indian Insurance Industry' 10 licenses for selling life insurance products were issued to private companies. The Public sector giant LIC started losing its market share at the cost of stupendous growth of private players. Now 'India Insurance' industry has more than a dozen private life insurance players. Aggressive and penetrative marketing strategy coupled with wide product bandwidth was an instant success among the ignorant masses. Most of the private companies registered more than 100% growth till then and are still continuing with such monstrous growth figures. Although, 'Insurance in India' is not regarded as a basic need but it is getting popular among semi urban to rural masses. The India Insurance Market despite having a highly elaborate history spanning almost two centuries, has come of age only in the last 50 years after the formation of the Life Insurance Corporation (LIC) of India in 1956 and the entry of private companies into the market in 2000.

Performance of the Indian Insurance Market

This project gave me an insight into the insurance market of India and its fast expanding prospects. Taking into account the changing socio-economic

demographics, rate of GDP growth, behavior of consumers, and occurrences of natural calamities at regular intervals the market of Life Insurance in India is expected grow to the value of around US $ 41.44 billion by the year 2009. The Market is expected to grow at a compounded annual growth rate (CAGR) of more than 200 % year over year (YOY) from year 2006 onwards. Thus, the ever increasing population of the country will ensure constant boom in the India Insurance Market in the distant future.

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Chapter 5.5 Insurance Companies in India HDFC Standard Life Insurance

HDFC Standard Life Insurance Company Ltd. is one of Indias leading private life insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), Indias leading housing finance institution and The Standard Life Assurance Company, a leading provider of financial services from the United Kingdom. Key strengths As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage your long-term investments safely and efficiently. The company has a range of individual and group solutions, which can be easily customized to specific needs. The group solutions have been designed to offer complete flexibility combined with a low charging structure. Track Record so far The cumulative premium income, including the first year premiums and renewal premiums is Rs. 1532.21 Crores in FY 2005 - 06. The company has covered over 1.6 million individuals, out of which over 5, 00,000 lives have been covered through their group business tie-ups. The company also declared their 5th consecutive bonus in as many years for their policyholders.

Bajaj Allianz Life Insurance

Bajaj Allianz Life Insurance Company 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 2 and 3 wheeler manufacturers in the world. Bajaj Allianz Life Insurance Is the fastest growing private life insurance company in India Currently has over 4,40,000 satisfied customers

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Has a presence in more than 550 locations with 60,000 Insurance Consultant providing the finest customer service.

Is one of India's leading private life insurance companies

Birla Sun Life Insurance

Birla Sun Life Insurance is the coming together of the Aditya Birla group and Sun Life Financial of Canada to enter the Indian insurance sector. The Aditya Birla Group, a multinational conglomerate has over 75 business units in India and overseas with operations in Canada, USA, UK, Thailand, Indonesia, Philippines, Malaysia and Egypt to name a few. Foreign Partner: Sun Life Assurance, Sun Life Financial's primary insurance business, has excellent ratings with the world's top rating agencies. With assets under management as on September 30, 2000 totaling more than CDN billion, it ranks amongst the largest international financial service organizations in the world.

ICICI Prudential Life Insurance

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and Prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). For the year ended March 31, 2006, the company garnered Rs24.12 billion of weighted new business premium and wrote 837,963 policies. The sum assured in force stands at Rs 458.88 billion. The company has a network of over 72,000 advisors; as well as 9 banc assurance partners and over 200 corporate agent and broker tie-ups. It is also the only life insurer in India to be assigned AAA credit rating from Fitch Ratings. For the past five years, ICICI Prudential has retained its position as the No. 1 private life insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life.

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ING Vysya Life Insurance

ING Vysya Life Insurance Company Private Limited (the Company) entered the private life insurance industry in India in September 2001, and in a short span of 4 years has established itself as a distinctive life insurance brand with an innovative, attractive and customer friendly product portfolio and a professional advisor sales force. It has a dedicated and committed advisor sales force of over 11,000 people, working from 80 branches located in 70 major cities across the country and over 2,600 employees. It also distributes products in close cooperation with the ING Vysya Bank network. The Company has a customer base of over 3, 00,000 & is headquartered at Bangalore. In 2005, ING Vysya Life earned a total income in excess of Rs. 400 crore and also has a share capital of Rs. 440 crore. The Company aims to make customers look at life insurance afresh, not just as a tax saving device but as a means to add protection to life. The one thing the company holds in highest esteem is 'life' itself. They believe in enhancing the very quality of life, in addition to safeguarding an individual's security. Their core values are therefore defined as Professional, Entrepreneurial, Trustworthy, Approachable and Caring. The

Companys portfolio offers products that cater to every financial requirement, at any life stage. They believe in continuously developing customer-driven products and services and value being accessible and responsive to the needs of our customers.

Life Insurance Corporation of India

LIC was formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalized. Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the Corporate office. LICs Wide Area Network covers 100 divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities. LICs ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE

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SAMPARK offices. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance. LIC continues to be market leader in the life insurance field with a market share of more than 71 % having collected a total of more than Rs. 25645 crores in terms of new premiums underwritten under more than 31.59 million policies/schemes.

Max New York Life Insurance

Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global expert in life insurance. Max New York Life is highly customer-sensitized. The company believes in building relationships with the people they serve, so that their customers enjoy the highest quality of service in life insurance. This fact comes alive from their defining qualities, all of which are outlined below. New York Life has over 160 years of experience in the life insurance business. It is a Fortune 100 company that has been trusted by millions worldwide, across generations. Their existence is rooted in their commitment to financial strength, integrity and responsibility. The company has increased their capitalization requirement to Rs. 527 crore from the initial Rs.100 crore that has been stipulated by the Insurance Regulatory and Development Authority (IRDA). Their investments are confined only to debt instruments and they meet both Indian and US reporting norms. Max New York Life also deposits one per cent of the premium income with the RBI, towards Contingency Funds. They have the some of the best Agent Advisors in the business. Backed by the best training and infrastructure, their expert Agent Advisor will spend time evaluating the customers needs rather than just selling. They are professionals who will thoroughly understand the customers needs before recommending the policy tailored to meet them. They offer the best products with Flexibility as their cornerstone. With their various Products and Riders, they have more than 400 product combinations to choose from.

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Transparency is the bedrock of the way the company does business. This is why they customize a Personal Insurance Plan, which provides an overview of the details of the policies along with a year-on-year summary. And with the policy review period option, the customer even has the unconditional right to return the policy within 15 days of receiving it.

They offer multiple bonus options, which includes options such as annual bonus, bonus accumulated and paid on maturity, bonus used to offset premiums, bonus utilized to buy Paid up additions and bonus used to buy oneyear term insurance.

The company has a national presence with a network of 57 offices in 37 cities across India. Their Customer Helpline and branch office network will ensure that the customers can get in touch with them whenever they want.

MetLife Insurance
With over 137 years of experience, the MetLife companies serve millions of customers in the Americas and Asia with one goal in mind to build financial freedom for everyone. The MetLife companies are a leader in group benefits that serve 88 of the top one hundred FORTUNE 500* companies, and provide benefits to 37 million employees and family members through its plans sponsors in the U.S. The MetLife companies are also ranked #1 in group life and #1 in commercial dental in the U.S. The MetLife companies are the number one life insurers in the U.S. with approximately US $2.8 trillion of life insurance in force. In India, MetLife was incorporated in 2001, and aims to differentiate itself through customized need based selling, simple and innovative products, and technology-backed service experience, to tread its path to build financial freedom for everyone. As the vital channel for MetLifes products, the company has chosen some exemplary banks and financial institutions. These will serve as the interface between the customers and MetLife to help understand the unique needs and aspirations of every Indian and update their products with features that form the cornerstones of financial freedom.

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Kotak Mahindra Old Mutual Life Insurance

Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak Mahindra Bank Ltd. (KMBL), and Old Mutual PLC. Kotak Mahindra Bank Ltd. holds 74% of the stake, while the remaining 26% stands with Old Mutual PLC. Kotak Life Insurance aim to help customers take important financial decisions at every stage in life by offering them a wide range of innovative life insurance products, to make them financially independent.

SBI Life Insurance

SBI Life Insurance is a joint venture between the State Bank of India and Cardif SA of France. SBI Life Insurance is registered with an authorized capital of Rs 500 crore and a paid up capital of Rs 350 crores. SBI owns 74% of the total capital and Cardif, the remaining 26%. State Bank of India enjoys the largest banking franchise in India. Along with its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,000 branches across the country, the largest in the world. Cardif is a wholly owned subsidiary of BNP Paribas, which is The Euro Zones leading Bank. BNP is one of the oldest foreign banks with a presence in India dating back to 1860. It has 9 branches in the metros and other major towns in the country. Cardif is a vibrant insurance company specializing in personal lines such as long-term savings, protection products and creditor insurance. Cardif has also been a pioneer in the art of selling insurance products through commercial banks in France and 29 more countries. SBI Life Insurances mission is to emerge as the leading company offering a comprehensive range of Life Insurance and pension products at competitive prices, ensuring high standards of customer service and world class operating efficiency. The company plans to make the insurance buying process quick, simple and based on well-informed judgment. In 2004, SBI Life Insurance became the first company amongst private insurance players to cover 30 lakh lives. The company expects to carve a niche in the Indian insurance market through extensive product innovation and aims to provide the highest standards of customer service through a technological interface. To facilitate this, call centers have been already installed and help lines will

54

be installed and customers will have access to their accounts through the Internet or through SBI branches. The company proposes to make available ready liquidity to its Life Insurance policies by way of loans at SBI counters. This will make Life Insurance a liquid asset in the financial portfolio of households. SBI Life Insurance is uniquely placed as a pioneer to usher Bancassurance into India. The company hopes to extensively utilize the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans, personal loans and credit cards. SBIs access to over 100 million accounts provides a vibrant base to build insurance selling across every region and economic strata in the country.

Tata-AIG Life Insurance

Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of life insurance products to individuals, associations and businesses of all sizes, with a wide variety of additional coverage to ensure our customers can find an insurance product to meet their needs. Tata AIG is a joint venture of the Tata Group and American International Group, Inc. (AIG). The Tata Group (www.tata.com) is one of India's best-known industrial groups with an estimated turnover of around US $14.25 billion (approximately 2.6% of India's GDP). With more than 220,000 employees across 91 major companies, it is also India's largest employer in the private sector. American International Group, Inc. is the world's leading international insurance and financial services organization, with operations in more than 130 countries and jurisdictions. In the United States, AIG companies are the largest underwriters of commercial and industrial insurance and AIG American General is a top-ranked insurer. AIG's global businesses also include retirement services, financial services, and asset management.

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Reliance Life Insurance

Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the Reliance Anil Dhirubhai Ambani Group. Reliance Capital is one of Indias leading private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, stock broking, life and general insurance, proprietary investments, private equity and other activities in financial services. Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934. Reliance Capital sees immense potential in the rapidly growing financial services sector in India and aims to become a dominant player in this industry and offer fully integrated financial services. Reliance Life Insurance is another step forward for Reliance Capital Limited to offer need based Life Insurance solutions to individuals and Corporate.

Aviva Life Insurance

Aviva is UKs largest and the worlds sixth largest insurance Group. It is one of the leading providers of life and pensions products to Europe and has substantial businesses elsewhere around the world. With a history dating back to 1696, Aviva has a 30 million-customer base worldwide. It has more than 291 billion of assets under management. In India, Aviva has a long history dating back to 1834. At the time of nationalization it was the largest foreign insurer in India in terms of the compensation paid by the Government of India. Aviva was also the first foreign insurance company in India to set up its representative office in 1995. In India, Aviva has a joint venture with Dabur, one of India's oldest, and largest Group of companies. A professionally managed company, Dabur is the country's leading producer of traditional healthcare products. In accordance with the government regulations Aviva holds a 26 per cent stake in the joint venture and the Dabur group holds the balance 74 per cent share.

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With a strong sales force of over 10,000 Financial Planning Advisers (FPAs), Aviva has initiated an innovative and differentiated sales approach to the business. Through the Financial Health Check (FHC) Avivas sales force has been able to establish its credibility in the market. The FHC is a free service administered by the FPAs for a need-based analysis of the customers long-term savings and insurance needs. Depending on the life stage and earnings of the customer, the FHC assesses and recommends the right insurance product for them. Aviva pioneered the concept of Bancassurance in India, and has leveraged its global expertise in Bancassurance successfully in India. Currently, Aviva has Bancassurance tie-ups with ABN Amro Bank, American Express Bank, Canara Bank, Centurion Bank of Punjab, The Lakshmi Vilas Bank Ltd. and Punjab & Sind Bank, 15 Co-operative Banks in Gujarat, Rajasthan, Jammu & Kashmir, Bihar, West Bengal and Maharashtra and one regional Bank in Sikkim. When Aviva entered the market, most companies were offering traditional life products. Aviva started by offering the more modern Unit Linked and Unitized With Profit products to the customers, creating a unique differentiation. Avivas products have been designed in a manner to provide customers flexibility, transparency and value for money. It has been among the first companies to introduce the more modern Unit Linked products in the market. Its products include: whole life (LifeLong), endowment (LifeSaver, EasyLife Plus), child policy (Young Achiever) single premium (LifeBond and LifeBond Plus), Pension (PensionPlus), Term (LifeShield), fixed term protection plan (Freedom LifePlan) and a tax efficient investment plan with limited premium payment term (LifeBond5). Aviva products are modern and contemporary unitized products that offer unique customer benefits like flexibility to choose cover levels, indexation and partial withdrawals. Avivas Fund management operation is one of its key differentiators. Operating from Mumbai, Aviva has an experienced team of fund managers and the range of fund options includes Unitized With-Profits Fund and three Unit Linked funds: - Secure Fund, Balanced Fund and Growth Fund. Aviva has 106 Branches in India (including rural branches) supporting its distribution network. Through its Bancassurance partner locations, Aviva products are available in 378 towns and cities across India. Aviva is also keen to reach out to the underprivileged that have not had access to insurance so far. Through its association 57

with Basics (a micro financial institution) and other NGOs, it has been able to reach the weaker sections of the society and provide life insurance to them. For three consecutive years in 2003 2004 and 2005, Aviva has had relatively high scores on the parameters of Credibility, Respect, Fairness, Pride and Camaraderie in the survey administered by Grow Talent Company Ltd. along with Great Places to Work Institute, Inc. and Business World magazine.

Sahara Life Insurance

The Sahara Pariwars latest foray is in the field of Life Insurance. The Pariwars life insurance company Sahara India Life Insurance Company Ltd. - has been granted license by the insurance regulator the IRDA on 6th February 2004. With this approval Sahara India Life Insurance Company Ltd. becomes the first wholly and purely Indian company, without any foreign collaboration to enter the Indian Life insurance market. The launch is with an initial paid up capital of 157 crores.

Shriram Life Insurance

Shriram Life Insurance Company Ltd is a joint venture between the Chennaibased Shriram Group and the South African insurance major Sanlam. The company launched its operations in India in December 2005. Shriram Life has set a target of achieving a premium income of Rs 110 crore during the first year of operations. While focusing largely on the strong network of over 65,000 agents and distribution Network of more than 550 branches, Shriram Life is also contemplating Bancassurance alliances with couple of banks.

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APPP rankings of Private Life Insurers Companies in India

(Rs. in lakh) Company Name Premium Rank *Total Policies 70,237 34,928 34,128 79,673 59,213 81,635 48,022 29,521 16,225 65,505 10,489 7023186 Ranking on No of Policies 4 8 9 3 6 2 7 10 11 5 13 1 Av.Premium per policy (APPP) 20,495 7,461 37,412 11,484 16,333 22,009 37,796 19,048 22,351 9,703 14,518 8,322 Ranking on APPP 5 13 2 10 7 4 1 6 3 11 9 12

Bajaj Allianz ING Vysya SBI Life Tata AIG Life HDFC Standard Life ICICI Prudential Birla Sun Life Aviva Life Kotak Mahindra Max New York MetLife India LIC

14,395.73 2,606.27 12,768.21 9,150.07 9,671.52 39,977.55 18,150.60 5,623.20 3,626.48 6,356.25 1,522.84 584471.09

4 11 5 7 6 2 3 9 10 8 13 1

Ranking (APPP)
14 12 10 8 Ranking 6 4 2 0 Ranking on APPP Companies

Bajaj Allianz ING Vysya SBI Life Tata AIG Life HDFC Standard Life ICICI Prudential Birla Sun Life Aviva Life Kotak Mahindra Max New York MetLife India LIC

*Total policies includes: Individual Single Premium (ISP), Individual Non Single Premium (INSP) Group Single Premium (GSP) and Group Non Single Premium (GNSP).

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Ranking According to Average premium per policy

Company Name Average premium per policy ISP Rs. Bajaj Allianz Life ING Vysya SBI Life Tata AIG Life HDFC Standard ICICI Prudential Birla Sun Life Aviva Kotak Mahindra Max New York MetLife India LIC 89,008 679 178,145 0 45,786 158,852 5,637 82,661 150,482 102,933 41,967 41,448 Rank 5 12 1 13 8 2 11 6 3 4 9 10 INSP Rs. 14,345 8,071 6,302 9,009 12,065 16,698 36,125 18,320 14,700 9,463 11,115 5,196 Rank 5 11 12 9 6 3 1 2 4 8 7 13

ISPP: Individual Single Premium Policy- INSP: Individual Non Single Premium Policy
Ranking (ISP & INSP)
14

12

10

Ranking

Company Name Rank (ISP Rs.) Company Name Rank (INSP Rs.)

Ba ja jA lli an zL ife IN G V ys ya SB IL Ta ife ta A IG H Li D fe FC St an IC da IC rd IP ru de nt Bi ia rla l Su n Li fe

A vi va M ah in M dr ax a N ew Y or M k et Li fe In di a K ot ak

Life Insurance Companies

LI C

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Analysis:Rankings of domestic life insurers turn topsy- turvy when one looks at the average premium per policy (APPP). For instance, Life Insurance Corporation of India's (LIC) ranking as number one in terms of total premium income and the number of policies issued goes down to 12th place on the basis of its average premium per policy (APPP) of Rs.8, 322 So is the case with ICICI Prudential Life Insurance Company Limited, the private sector leader and next to LIC (new premium income is Rs399.77 crore. The company goes down to number four position with an APPP of Rs22, 009.) On the other hand the last and 13th ranked MetLife India Insurance Company Private Limited (new premium income Rs15.22 crore) with an APPP of Rs14, 518 jumps to 9th rank. Interestingly, the ranking order changes when one measures the APPP of the individual single premium policies (ISPP) and individual non-single premium policies (INSPP). While SBI Life Insurance Company Limited ranks first in the case of ISPP with an APPP of Rs1.78 lakh, Birla Sun Life Insurance Company Limited claims the top spot in the case of INSPP with an APPP of Rs36, 125. The private life insurers are happy selling the unit linked policies as the investment income risk is transferred to the policyholders unlike the traditional insurance polices where the insurer has to invest funds and generate income to pay bonus. The LIC with a humble APPP of Rs8, 322 selling 70.23 lakh policies seems to be doing that. The 12 private players have sold 6.41 policies this fiscal.

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Chapter 5.6 Underwriting in Insurance Industry Introduction

Underwriting is the process of selection and classification of risk. In insurance each insured person contributes to the common fund. At any point of time, an insurer should maintain equity amongst them. Any insurance company, which wants to do justice to all its policyholders, should ensure that all the members entering the common fund should contribute premium according to the risk, he brings into the common fund. In other words, premium should commensurate to the risk brought in by the individual.

Why Underwriting?
In any group of individuals of same age, some may be deathbed cases, others may suffer from varying degrees of physical disability and some others may be exposed to unusual environmental risks. A majority of them will be "normal lives" i.e. are free from any impairment that may apparently affect their longevity and few are free from even the slightest impairment. It becomes the primary objective of insurance underwriter to classify them in appropriate groups according to the varying degree of risk. An individuals decision with regard to insurance, in at least some cases, may be influenced by his own knowledge of health, prompting him to go in for risk cover to protect his interests in view of the knowledge of the condition of his health. In such cases it is natural that he will decide on the most favorable basis to himself thereby causing "Adverse Selection" against the insurer. The underwriting procedures are intended to screen out at such applications and classify them in appropriate groups and charge premiums accordingly. The underwriter is concerned with those risk factors, which are likely to affect the longevity of the person than the physical condition themselves.

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Risk Factors Age

Normally the mortality increases with age. And, hence we can say the risk increases as age increases. Does it mean age is the only factor responsible for risk? Certainly not. Age may be a major factor in influencing risk, but the risk depends, not only on age, but also on the following other factors.

Sex
In view of the risks relating to child birth and weak insurable interest female lives are treated differently from male lives. It is observed that in India mortality of female lives is more than that of male lives in the age group of 20 - 40.

Build
The build of an applicant is most significant in underwriting of life risks. Build includes the applicants height, weight and distribution of weight. Overweight particularly at middle and higher ages have significantly increased risks as compared to the normal lives. Also, at higher ages overweight can magnify the significance of other physical ailments such as cardiac condition and kidney related problems.

Occupation
Certain occupations involve hazards due to accidents. In others, there are adverse effects on the health of the employee, which are revealed over a long term. All workers handling heavy machinery are exposed to heavier than normal risk. Similarly construction workers working at considerable heights, workers in underground mines and workers in cement factories are exposed to greater risk. Abnormalities in air pressure cause risks to divers and tunnel workers. With the development of atomic energy for peace purposes, the hazards due to radiation is extended not only to workers with x-ray equipment but others working in nuclear power stations, atomic emery establishment etc. Normally, the practice of the insurance companies is to charge suitable extra premium for such hazardous occupations.

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Hobbies & Pastimes

Certain hobbies such as mountaineering, competitive racing, aviation etc., have underwriting significance in as much as they involve accident and health hazards.

Habits
Continued use of things in excess of what most people indulge, if formed as a regular habit, affects the longevity of the subject. Excess indulgence in food, smoking, drinking, exercise etc. is some instances. Health habits are indicative of better longevity. Habits, if otherwise, are bound to bring an adverse effect on the longevity of any individual.

Personal History
Personal history of an individual plays a vital role in risk assessment. Past serious illness requires investigation for probable effects that may continue. Diseases of brain, nervous system, heart, lungs or other important parts of the body require careful check to ascertain the probable effect of earlier illness on future life. There is a possibility that a person who had suffered from certain ailments may do so again in future. Even complaints, which may appear unimportant, might provide pointers to the presence or possibility of ailments. Indigestion might suggest gastric or duodenal ulcer; giddiness may indicate serious trouble in central nervous system.

Family History
There is convincing evidence that physical characteristics are inherited from parents, grandparents or remote ancestors and some of them may influence mortality. Build follows family traits and so do structural qualities of the heart and other organs to some extent. If the history of the members of the family - usually restricted to parents, brothers and sisters, wife and children - shows that most of them lived to old age and have been free from heart disease, insanity, diabetes etc., we may infer that the proponent may likewise enjoy favorable longevity. On the other hand, if family history reveals deaths particularly at young ages due to cardiovascular diseases and the proponent are also having overweight, blood pressure and kidney trouble there is a need for closer appraisal of risk.

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Other Factors
Travel and Residence, in isolated special cases, do attract any extra hazard and assumes underwriting significance. Having identified the factors those responsible for risk, the underwriter need to collect all the required information for the proper selection and classification of risks. Generally, the information is obtained from the following three main sources. a) The proposal form completed by the proposer and usually witnessed by the

consultant. The personal statement regarding health and habits, which contains information, furnished by the proposer. b) Confidential Report completed by the Medical examiner. This contains

answers to the questions regarding the life proposed's physical condition. Confidential Report of the financial consultant. Basic information relating to the proposer says. Age, occupation, previous insurance history, object of insurance, his habits, hobbies personal history of illness, information regarding family history etc. are available from the above documents. The underwriter if required may ask for additional information by calling for special reports and special questionnaire. On the basis of above information, the underwriter carefully analyses and assesses the risk and classifies lives accordingly. Majority of them poses no extra risk and is identified as standard lives. Standard lives are accepted at normal rates. But, some lives bring bigger risk than others do. These lives are treated as sub-standard lives. The risk brought in by sub-standard lives may be following types: Risks of constant nature Risks of decreasing nature Risks of increasing nature After taking into account, the exact nature of risk and its effect on the longevity of the individual the underwriter decides to accept the case in any of the following manner. Acceptance of proposal with extra premium - In the case of risks of constant nature

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Postponement - In the case of risks of decreasing nature Reduction in term or Decline - In the case of risks of increasing nature

Miscellaneous Underwriting Information Non-Medical Limits

Generally, underwriters will require medical investigations on large cases where the sum assured exceeds certain limits. For cases where the sum assured exceeds the non-medical limits, a medical report and pathological reports will be required. The customer service team in the branch office will make arrangements for examinations and tests. No medical is required for proposals submitted under SPWOLIP and Personal Pension Plan. The non-medical limits are given in the table below. However, underwriters can call for medical requirements, in other cases too, depending on family and personal medical history of the client.

Non-Medical Limits
(For endowment / money-back / rider benefits) AGE BAND Up to age 35 Ages 36 to 45 Ages 46 to 55 Ages 56 and over LIMIT Up to Rs.5,00,000 Up to Rs.3,00,000 Up to Rs.75,000 Medical evidence required

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Non-Medical Limits
(For endowment / money-back / rider benefits) AGE BAND Up to age 35 Ages 36 to 45 Ages 46 to 55 Ages 56 and over LIMIT Up to Rs.5,00,000 Up to Rs.3,00,000 Up to Rs.75,000 Medical evidence required

The amount to be compared to the above medical limits is the total of the basic sum assured on the endowment assurance or money back, plus any Double Sum Assured, plus twice the amount of any critical illness benefit, currently proposed, plus all existing insurance cover obtained over the previous 5 years. For example: The benefit is an Endowment Assurance with Double Sum Assured and critical illness benefits attached to the basic policy where the basic sum assured is Rs. 50000. Then the total to be compared with the limit would be 50000 (basic policy) + 50000 (DSA) + 2 x 50000 (C1) = 200000 As the proposed sum assured increases, the medical examination may increase in complexity and generally may take longer time to finalize. The medical examination can include Electrocardiogram, Treadmill, and X-ray, Urine, Blood, and HIV testing. The underwriter is the final authority to decide what examinations are to done and the client should comply with all the necessary formalities, as quickly as possible.

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Proof of Income
For male lives, the underwriters require the following proof of income as set out in the table below. In this table, the amount of total cover refers to the sum of all existing cover; and all insurers, plus all cover currently being proposed with and all insurers. AMOUNT OF TOTAL COVER Up to 10,00,000 REQUIRED INCOME PROOF Generally none. However where the cover sought is excessive in comparison with the income of the applicant some income proof may be required. (See maximum levels of cover below) Financial Questionnaire and Chartered Accountant's certificate indicating income for the immediately preceding three financial years and permanent account number, as allocated by the Income Tax Department, duly countersigned by the proposer. Financial Questionnaire with copies of Income Tax Return slips for the immediately proceeding three financial years duly attested by the proposer and consultant.

10,00,001 to 15,00,000

Above 15,00,000

Proof of income, including a Financial Questionnaire, should be obtained along with the proposal.

Maximum Permissible Cover

Maximum permissible cover for male lives is as under: AGE GROUP Maximum permissible cover as a multiple of annual average income Up to 35 36 to 40 41 to 45 46 to 50 Above 50 25 times 20 times 15 times 12 times 10 times

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No Term Assurance of Loan Cover Term Assurance can be allowed to those who do not have earned income. However the cover may be allowed to the extent of loan if any. For this purpose proof of loan availed or sanctioned from reputed lending institutions must be produced. Proof of income must be insisted on where the total term insurance sum assured exceeds five lacs. The underwriters may insist for proof of income for lesser sum assured at their discretion. DSA rider availed under endowment type plans need not be clubbed for this purpose.

Female Lives
I - Female lives with earned income For female lives employed in government or semi-government undertakings or reputable commercial companies, the maximum permissible cover for this group is the same as male lives. For females lives employed in other companies or firms, the underwriter must satisfy himself that the proposer is actually employed before allowing cover as applicable to male lives. II - Female lives with unearned income Maximum permissible cover for this group is ten times the average annual income as proved in ITR slip copies for the immediately proceeding three financial years subject to a maximum of Rs.20, 00,000. If the cover proposed is more than 20, 00,000 then seven times annual average income may be allowed after satisfying that the proposer is well educated and other members of the family are adequately insured. In cases where ITR slip copies are available for one or two years the permissible cover should be restricted to five times or seven times of annual average income respectively. III - Female lives not covered in (1) and (2) above (no income) - Maximum permissible covers for this group are equal to husbands insurance cover subject to maximum of Rs.500, 000. For self-employed women such as milkmaids, housemaids, tutor tailors or those

running a beauty parlous, the maximum permissible cover are Rs.100, 000 - On account peculiar social conditions in certain parts of our country there is an incidence of increased mortality in female lives in this category. This seems to be 69

particularly the case in the earlier years of marriage before any children are born. It is sometimes advisable not to allow any insurance to female lives falling in this group. Insurance in such cases will be at the underwriters' discretion. - Addendum to proposal form on housewives is to be submitted with the proposal form

Widows with No Income

Maximum Permissible cover Rs.1, 00,000 (only available to Those who have children under age 18).

Minor Lives
No Accidental Death Benefit, critical Illness covers, Double Sum Assured, Term Assurance or Loan Cover Term Assurance is allowed to minor lives. Up to Rs.1, 00,000 cover may be allowed without linkage to parent's insurance. Wherever the sum assured exceeds Rs.1 Lac cover, maximum permissible cover restricted to three times the parent's insurance subject to a maximum Rs.25, and 00,000. Where cover for a minor is in excess of Rs.10, 00,000 proof of parent's income is required as detailed under the head proof of income. DSA rider to persons who do not have income The purpose of life insurance mainly is to replace the pecuniary loss caused by early death of a breadwinner and to provide for old age (the dangers of living too long). These objectives are achieved by opting for any type of endowment plans. As compared to these the dual objectives the purpose of a DSA rider is to provide for the first objective only. The question therefore arises whether to allow the DSA rider to persons who do not have any income. It is likely that there is some moral hazard when a person without any income seeks to have DSA rider. Each case will have to be considered on its merit and the underwriter will use discretion after perusing the entire case file. Insurance to pregnant women We consider applications on pregnant women up to twenty weeks. This however is subject to some underwriting considerations, which will be decided after seeing the Attending Physician's Statement.

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Maximum limit on rider benefits The maximum sum assured per life taken across all policies with HDFC Standard Life on accidental death is Rs.1, 00, 00,000. The maximum sum assured per life taken across all policies with HDFC Standard life on critical illness and accelerated sum assured is Rs.50, 00,000.

CONCLUSION
The success of any insurance company lies in its selection process, which is nothing but underwriting. Hence, the financial consultants being the front line

underwriters should try to collect as much information as possible, which in turn will help the insurance company to do a good underwriting.

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Chapter 5.7 Inflation

Inflation is measured as the growth of the money supply in an economy, without a commensurate increase in the supply of goods and services. This results in a rise in the general price level, as measured against a standard level of purchasing power. There are a variety of measures of inflation in use, related to different price indices, because different prices affect different people. Two widely known indices for which inflation rates are commonly reported are the Consumer Price Index (CPI), which measures nominal consumer prices, and the GDP deflator, which measures the nominal prices of the goods and services produced by a given country or region. Inflation can be explained with the following statement I have been around for generations ,Did you know your grandfather used to buy 40 kg of Rice in 1paise, 50 yrs ago ,Now you need 40 Rupees to buy one kg of rice ,Thats my Power ha ha ha .. In short Inflation is Inflation, erodes the purchasing power of your money.

But why do prices rise?

Let us understand why this happens with the help of a simple example: Tomatoes are an integral part of any food preparation in our country. Let us assume the tomato crop fails in a particular year, for whatever reasons. What happens then? The supply of tomatoes in the market drops. However, people still need tomatoes. Then, the price of tomato shoots up as people want to buy the limited supply of tomatoes. But how does a simple thing like this cause prices to rise? How? Think again. It is not only tomatoes that we consume in the course of a day. There is a whole basket of products and services that we draw on, on a day-to-day basis. The local vegetable vendor senses this shift in consumption and hikes prices of all vegetables. He starts earning more money. Now his children demand that he should get them a new Computer.

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And with all vegetable vendors rushing to the nearest Computer shop, the sales for Computer picks up. The computer company makes more money. Noticing the growing profits, the employees of the company demand a hike in their salaries... And they always wanted to buy a car... I hope you must have got the idea by now. The price rise is here to stay. So when you make your investment decisions, dont forget to factor Mr. Mehangai Lal i.e. Inflation.

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Chapter 5.8 Why Mutual Funds are not that Safe Investment Option?
HDFC Standard Life Insurance with it outstanding performance in ULIP helps us to understand why they are safe investment option. This can be examined through the following comparison between HDFC SLIC ULIP and Mutual Funds

Introduction
The current unit-linked endowment and pension products available in the market today offer consumers unrivalled choice. With choice comes the need for knowledge the knowledge to help your client choose the product that is right for them. Making the right choice is difficult. Prospective policyholders have to weigh up investment options, risk benefits, tax status, premium flexibility and most importantly charges. The company product is state-of-the-art for all the benefit and investment features. However, company research has shown that few consumers understand the nature of some of the charges that can apply in a unit-linked policy. This is an area where HDFC SLIC is leading the market so it is important for prospective policyholders to be fully aware of how much value do the company add through our charge structure. The only real way to assess how all charges interact is to look at the company illustrations.

Unit Linked Funds What is the real price?

The charging structure for HDFC Standard Lifes Unit Linked Endowment Plan and a mutual fund product available in the market today are shown in the table below:

HDFC SLIC Fund Management Charges (%p.a.) Investment Content Rate (%) Year 1 Year 2 Year 3 Year 4 Service Charges (Rs.) Other Fees So how do these different charging structures compare? 0.8 73 73 99 99 15 0

Typical Mutual Funds 2.0 98 100 100 100 0 2

Lets look at a typical Unit-Linked Endowment Plan. Consider a man aged 30 for a 25-year term with Sum Assured Rs 1, 00,000 and premiums of Rs 20,000 per year. Below, we have shown our illustration and what we would illustrate IF we had chosen the charging structures A, B C for our product. These illustrations conform to the IRDAs requirements and allow you to compare the effect of each charging structure. Remember in each of these illustrations the investment return, the premiums and the term is the same. The only thing that is different is the charging structure and that the Mutual Fund does not provide any life cover. I have shown how these charges would look at 6% and 10% growth rates.

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The figures are:

The HDFC Standard Life charging structure results in HUGE SAVINGS to the policyholder. At maturity, after 25 years, the savings are:

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Analysis
This means potential policyholders could be over Rs 2, 00,000 worse off by choosing a Mutual Fund for their long-term equity investment. They also lose out on valuable insurance cover in the event of early death The company clearly has a market-leading savings product simply in terms of offering outstanding consumer value. The same conclusion is just as evident for our Unit Linked Personal Pension Plan, which benefits from the same investment potential and the same outstanding customer value.

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Chapter 5.9 Portfolio of Blue Chip Companies

Blue chip companies are those which have a good market share and yield good returns. HDFC Standard Life Insurance investment some amount in these companies these investment are made through the money, from the ULIP policies holders as these are based on high returns.

Individual Life Portfolio as on 30th June, 2007

Fund Name: HDFC SLIC Growth Fund Asset Allocation Equity Shares Gilt Treasury Bills Non-Government Securities Current Assets / (Liabilities) Total % of Fund 95.19 % 0.00 % 0.00 % 4.40 % 0.40 % 100 %

Growth Funds
A A ation sset lloc
Current Assets / (Liabilities) Non-Government Securities Treasury Bills Gilt Equity Shares 0.00% 20.00% 40.00% 60.00% 80.00% 100.00%

Series1

% of Funds

This states that if it consider Growth Funds in Individual Life Policy the company invest more in Equity Shares

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Industry & Equity Share Bharat Electronics Ltd. Bharat Heavy Electricals Ltd. Crompton Greaves Ltd. Larsen & Toubro Ltd. Siemens Ltd. Thermax Ltd. Capital Goods

% Of Funds 3.28 % 4.16 % 3.36 % 4.33 % 3.15 % 1.89 % 20.53 %

Capital Goods

Thermax Ltd. Siemens Ltd.

Bharat Electronics Ltd.

Bharat Electronics Ltd. Bharat Heavy Electricals Ltd. Crompton Greaves Ltd.

Bharat Heavy Electricals Ltd. Larsen & Toubro Ltd. Crompton Greaves Ltd.

Larsen & Toubro Ltd. Siemens Ltd. Thermax Ltd.

This graph indicates that in Equity Shares in Capital Goods industry is more in Bharat Heavy Electricals Ltd.

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Industry & Equity Share Glaxo SmithKline Cons. ITC Ltd. Nestle India Limited FMCG

% Of Funds 1.36 % 3.95 % 0.96 % 6.26 %

FMCG
Nestle India Limited Glaxo SmithKline Cons.

Glaxo SmithKline Cons. ITC Ltd. Nestle India Limited

ITC Ltd.

This graph indicates that in Equity Shares in FMCG industry is more in ITC Ltd.

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Industry & Equity Share Exide Industries Co. Ltd. Amtek Auto Ltd. Apollo Tyres Ltd. Maruti Udyog Ltd. Motor Industries Co. Ltd. Shanthi Gears Ltd. Sundaram Fasteners Ltd. Mahindra & Mahindra Ltd. Tata Engg. & Locomotive Co. Ltd. Transport Equipments

% Of Funds 1.96 % 1.77 % 1.47 % 2.80 % 1.79 % 0.88 % 0.79 % 0.90 % 1.49 % 13.85 %

Transport Equipments
Mahindra & Mahindra Ltd. Sundaram Fasteners Ltd. Tata Engg. & Locomotive Co. Ltd.

Exide Industries Co. Ltd. Amtek Auto Ltd.

Exide Industries Co. Ltd.

Apollo Tyres Ltd. Maruti Udyog Ltd.

Shanthi Gears Ltd. Motor Industries Co. Ltd.

Amtek Auto Ltd. Apollo Tyres Ltd. Maruti Udyog Ltd.

Motor Industries Co. Ltd. Shanthi Gears Ltd. Sundaram Fasteners Ltd. Mahindra & Mahindra Ltd.

This graph indicates that in Equity Shares in Transport Equipments industry is more in Maruti Udyog Ltd.

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Industry & Equity Share Hindustan Zinc Ltd. Sesa Goa Ltd. Metal, Metal Products & Mining

% Of Funds 1.23 % 1.73 % 2.96 %

Metal, Metal Products & Mining

Hindustan Zinc Ltd. Hindustan Zinc Ltd. Sesa Goa Ltd. Sesa Goa Ltd.

This graph indicates that in Equity Shares in Metal, Metal Products & Mining industry is more in Sesa Goa Ltd.

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Industry & Equity Share Containers Corporation of India Ltd. Media & Publishing Transport Services

% Of Funds 1.80 % 1.53 % 3.33 %

Transport Services

Containers Corporation of India Ltd. Media & Publishing Containers Corporation of India Ltd. Media & Publishing

This graph indicates that in Equity Shares in Transport Services industry is more in Container Corporation of India Ltd.

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Industry & Equity Share Zee Telefilms Ltd. HT Media Ltd. Deccan Chronicles Holdings Ltd.

% Of Funds 0.43 % 0.37 % 0.08 %

Deccan Chronicles Holdings Ltd.

HT Media Ltd.

Zee Telefilms Ltd.

Zee Telefilms Ltd. HT Media Ltd.

This graph indicates that in Equity Shares in Deccan Chronicles Holdings industry is more in Zee Telefilms Ltd. Industry & Equity Share United Phosphorus Ltd. Agriculture % Of Funds 2.00 % 2.00 %

This table indicates that in Equity Shares in Agriculture industry is only in United Phosphorus Ltd. Industry & Equity Share Vishal Retail Ltd. Retail % Of Funds 0.08 % 0.08%

This table indicates that in Equity Shares in Retail is only in Vishal Retail Ltd.

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Industry & Equity Share ONGC Chennai Petroleum Corporation Reliance Industries Ltd. Hindustan Petroleum Corp Ltd. Oil & Gas

% Of Funds 4.03 % 1.17 % 4.17 % 1.41 % 10.78 %

Oil & Gas

Hindustan Petroleum Corp Ltd.

ONGC ONGC Chennai Petroleum Corporation Reliance Industries Ltd. Hindustan Petroleum Corp Ltd.

Reliance Industries Ltd.

Chennai Petroleum Corporation

This graph indicates that in Equity Shares in Oil & Gas is more in Reliance Industries Ltd.

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Industry & Equity Share Divis laboratories Ltd. Aventis Pharma Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Sun Pharma Advanced Research & Dnt Sun Pharmaceuticals Industries Ltd. Ipca Laboratories P & G Hygiene & Health Care Ltd. Healthcare

% Of Funds 1.19 % 0.24 % 0.07 %

0.30 %

2.69 % 1.18 % 0.69 % 6.36 %

Healthcare
P & G Hygiene & Health Care Ltd. Divis laboratories Ltd.

Divis laboratories Ltd. Aventis Pharma Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Dishman Pharmaceuticals & Chemicals Ltd. Sun Pharma Advanced Research & Dnt Sun Pharmaceuticals Industries Ltd. Ipca Laboratories

Aventis Pharma Ltd. Ipca Laboratories

Sun Pharmaceuticals Industries Ltd.

Sun Pharma Advanced Research & Dnt

P & G Hygiene & Health Care Ltd.

This graph indicates that in Equity Shares in Healthcare is more in Sun Pharmaceuticals Industries Ltd.

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Industry & Equity Share Infosys Technologies Ltd. Satyam Computers Services Ltd. Tata Consultancy Services Ltd. Information Technology

% Of Funds 4.01 % 3.17 % 4.70 % 11.88 %

Information Technology

Tata Consultancy Services Ltd.

Infosys Technologies Ltd.

Infosys Technologies Ltd. Satyam Computers Services Ltd. Tata Consultancy Services Ltd.

Satyam Computers Services Ltd.

This graph indicates that in Equity Shares in Information Technology is more in Tata Consultancy Services Ltd.

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Industry & Equity Share Asian Paints (India) Ltd. Sintex Industries Ltd. Chemical & Petrochemical

% Of Funds 1.33 % 2.07 % 3.40 %

Chemical & Petrochemical

Asian Paints (India) Ltd. Asian Paints (India) Ltd. Sintex Industries Ltd. Sintex Industries Ltd.

This graph indicates that in Equity Shares in Chemical & Petrochemicals is more in Asian Paints Ltd. Industry & Equity Share Ansal Infrastructure Ltd. Housing Related % Of Funds 0.36 /5 0.36 %

This table indicates that in Equity Shares in Housing is only in Ansal Infrastructure Ltd. Industry & Equity Share Blue Star Ltd. Consumer Durables % Of Funds 1.74 % 1.74 %

This table indicates that in Equity Shares in Consumer Durables is only in Blue Star Ltd.

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Industry & Equity Share Grasim Industries Ltd. Diversified

% Of Funds 1.97 % 1.97 %

This table indicates that in Equity Shares in diversified industry is only in Grasim Industries Ltd. Industry & Equity Share State Bank of India Punjab National Bank Indian Bank Finance % Of Funds 6.31 % 2.19 % 0.11 % 8.61 %

Finance
Indian Bank Punjab National Bank State Bank of India Punjab National Bank Indian Bank

State Bank of India

This graph indicates that in Equity Shares in Finance is more in State Bank of India.

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Industry & Equity Share Dish TV India Ltd. Media Television

% Of Funds 1.08 % 1.08 %

This table indicates that in Equity Shares in Media Television is only in Dish TV India Ltd. Industry & Equity Share Capital Goods FMCG Transport Equipments Metal, Metal Products & Mining Transport Services Deccan Chronicles Holdings Ltd. Agriculture Retail Oil & Gas Healthcare Information Technology Housing Related Consumer Durables Diversified Finance Media Television Total % Of Funds 20.53 % 6.26 % 13.85 % 2.96 % 3.33 % 0.08 % 2.00 % 0.08% 10.78 % 6.36 % 11.88 % 0.36 % 1.74 % 1.97 % 8.61 % 1.08 % 100 %

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Capital Goods

Industry & Equity Shares

FMCG Transport Equipments Metal, Metal Products & Mining Transport Services Deccan Chronicles Holdings Ltd. Agriculture Retail Oil & Gas
10.00%

25.00%

20.00%

15.00% % of Funds

Healthcare Information Technology

5.00%

Housing Related Consumer Durables

0.00% % Of Funds Industry

Diversified Finance Media Television

This graph gives overall pictures about the various investments in Equity Share of different industries and these states that more amounts are invested in Capital Goods industry.

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Chapter 5.10 ULIP

For the generation of insurance seekers who thrived on insurance policies with assured returns issued by a single public sector enterprise, unit-linked insurance plans (ULIPs) are a revelation. Traditionally insurance products have been associated with attractive returns coupled with tax benefits. ULIPs, also know as investment plans are a perfect combination of insurance coverage and investment options, where you get the choice of investing in the stock markets. For those of us who want to get investment returns along with insurance protection, ULIPs come as a boon. Ever since their launch, ULIPs have been rage among investors tool; thanks to the soaring capital market, that makes it even more tempting. The returns part was often so compelling that insurance products competed with investment products for a place in the investor's portfolio. Perhaps insurance policies then were symbolic of the times when high interest rates and the absence of a rational risk-return trade-off were the norms. The subsequent softening of interest rates introduced a degree a much-needed rationality to insurance products like endowment plans; attractive returns at low risk became a thing of the past. The same period also coincided with an upturn in equity markets and the emergence of a new breed of market-linked insurance products like ULIPs. While in conventional insurance products the insurance component takes precedence over the savings component, the opposite holds true for ULIPs. More importantly ULIPs (powered by the presence of a large number of variants) offer investors the opportunity to select a product which matches their risk profile; for example an individual with a high risk appetite can shun traditional endowment plans (which invest about 85% of their funds in the debt instruments) in favour of a ULIP which invests its entire corpus in equities. Tax benefits under Section 80C and Section 10 (10D) are available for ULIPs. These are the same as those for regular life insurance plans.

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Traditional Endowment V/s ULIPs

Given that ULIPs are relatively new and remain a mystery for a large section of insurance-seekers this comparison between traditional endowments plans and ULIPs gives us a new perspective.

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. In our illustration your sum assured could vary from Rs 50,000 to Rs 200,000. Within this range, you have to decide how much insurance cover you need. Of course the multiple to calculate the sum assured varies across life insurance companies.

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

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instruments. Of course, within a ULIP there are options wherein equity investments are capped.

Expenses
ULIPs are considered to be very expensive when compared to traditional endowment plans. This notion is rooted more in perception than reality. Let us take agent commissions to understand this better. 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. 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.

Flexibility
As we mentioned at the very beginning of this article, 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

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feature works well when you have a surplus that you are looking to invest in a marketlinked 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. We however recommend that you do not skip your premium payments. Remember, ultimately its your investment surplus that is being eroded with every skipped premium. 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.

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

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endowment portfolio is in high quality (AAA/sovereign rating) debt paper, disclosure of portfolios is likely to evoke little investor interest.

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.

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

ULIPs v/s Mutual Funds

ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.

1. Mode of investment/ investment amounts

Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an

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annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity. This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

2. Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to predetermined upper limits as prescribed by the Securities and Exchange Board of India. For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors. Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".

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3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our interactions with leading insurers we came across divergent views on this issue. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio disclosures on the other hand can enable investors to make timely investment decisions.

ULIPs vs. Mutual Funds

ULIPs
Investment amounts Determined by the investor and can be modified as well No upper limits, expenses Expenses determined by the insurance company Portfolio disclosure Modifying asset allocation Not mandatory*

Mutual Funds
Minimum investment amounts are determined by the fund house Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory

Generally permitted for free or at a Entry/exit loads have to be borne by the nominal cost investor

Tax benefits

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

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4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load. On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. This can prove to be very useful for investors, for example in a bull market when the ULIP investor's equity component has appreciated, he can book profits by simply transferring the requisite amount to a debt-oriented plan.

5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds well, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%. Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor's marginal tax rate.

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Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in both offerings and make informed decisions.

Conclusion
ULIPs have been the preferred choice among investors, since they offer dual benefits, i.e. insurance cover and good returns. So, while investing in ULIPs following 5 steps should be considered while selecting ULIPs

1.

Understand

the

concept

of

ULIPs

Try to do as much homework as possible before investing in an ULIP. This way you will know what you are getting into and won't be faced with unpleasant surprises at a later stage. Our experience suggests that many a time people do not realize what they are getting into (in fact we have been approached by several people who wanted to cancel the ULIPs they had been coerced into taking by unscrupulous agents). Gather information on ULIPs, the various options available and understand their working. Read the literature available on ULIPs on the Web sites and brochures circulated by insurance companies.

2. Focus on your requirement and risk profile

Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). Your risk appetite should play an important role in the plan you choose. So if you have a high-risk appetite, go in for a more aggressive investment option and vice-a-versa. Opting for a plan that is lop-sided in favour of equities when you are a risk-averse individual might spell disaster for you (this is true in most cases currently).

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3. Compare ULIPs of different insurance companies

Compare products of the leading insurance companies. Enquire about the premium payments as ULIPs work on minimum premium basis as opposed to sum assured in the case of conventional insurance policies. Check the fund's performance over the past six months. Find out how the debt and equity schemes are performing and how steady the performance has been. Enquire about the charges you will have to pay. In ULIPs the costs involved are a big deciding factor. Ask about the top-up facility offered by ULIPs i.e. additional lump sum investments you can make to increase the savings portion of your policy. The companies give you the option to increase the premium amounts, thereby providing you with the opportunity to gainfully utilize surplus funds at your disposal. Enquire about the number of times you can make free switches (i.e. change the asset allocation of the money in your ULIP account) from one investment plan to another. Some insurance companies offer you free switch for a 2-year period while others do so only for 1 year.

4.

Go

for

an

experienced

insurance

advisor

Select an advisor who is not only professional and informed, but also independent and unbiased. Also enquire whether he has serviced clients like you. When your agent recommends a ULIP of X company ask him a few productrelated questions to test him and also ask him why the other products should not be considered. Insurance advice at all times must be unbiased and independent and your agent must be willing to inform you about the pros and cons of buying a particular plan. His job should not just begin by filling the form and end after he deposits the cheque and gives you the receipt. He should keep a track of your plan and inform you on a regular basis. The key is to go for an advisor who will offer you value-added products.

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5. Does your ULIP offer a minimum guarantee?

In market linked product if your investment's downside can be protected, it would be a huge advantage. Find out if the ULIP you are considering offers a minimum guarantee and what costs have to be borne for the same. This will enable you to make an informed choice.

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Chapter 5.11 Insurance Investment

HDFC SLIC offers a bouquet of insurance solutions to meet every need. It caters to both, individuals as well as to companies looking to provide benefits to their employees. For individuals, the product ranges from protection, investment, pension to savings plans that assist and nurture dreams apart from providing protection. The customer can choose from a range of products to suit his life-stage and needs. For organizations the company has a host of customized solutions that range from Group Term Insurance, Gratuity, Leave Encashment and Superannuating Products. These affordable plans apart from providing long term value to the employees help in enhancing goodwill of the company.

1. Individual Products
HDFC Standard Life realizes that not everyone has the same kind of needs. Keeping this in mind, the company has a varied range of Products that the customer can choose from to suit all his needs. These will help secure the customers future as well as the future of his family.

a) Protection Plan
The person can protect his family against the loss of income or the burden of a loan in the event of an unfortunate demise, disability or sickness. These plans offer valuable peace of mind at a small price. The Protection range includes Term Assurance Plan & Loan Cover Term Assurance Plan.

b) Investment Plan
The Single Premium Whole of Life plan is well suited to meet the long term investment needs. It with attractive long term returns through regular bonuses.

c) Pension Plans
Pension Plans help secure financial independence even after retirement. The pension range includes Personal Pension Plus.

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d) Savings Plans
Saving Plans offer flexible options to build savings for future needs such as, buying a dream home or fulfilling your childrens immediate and future needs. The saving range includes endowment assurance plans unit linked endowment, Unit linked endowment plus, Money Back plan, childrens plan, Unit linked young star, Unit Linked young star plus.

2. Group Products
One stop shop for employee benefit solutions. HDFC Standard Life has the most comprehensive list of products for progressive employers who wish to provide the best and most innovate employee benefit solutions to their employees, the company offers different products for different needs of employers ranging from term assurance plans for pure protection to voluntary plans such as superannuation and leave encashment. The company offers the following group products to corporate clients: Group Term Insurance Group Variable Term Insurance Group Unit Linked Plan

3. Social Products e) Development Insurance Plan

Development Insurance Plan is an insurance plan which provides life cover to members of development agents for the term of 1 year. On the death of any member of the group insured during year of cover, a lump sum is paid to that members beneficiaries to help meet some of its immediate financial needs.

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Chapter 5.12 Tax Exemption in Life Insurance

Deductions available under section 80C to 80U are of special nature and are allowable to certain specified categories of taxpayer. Deductions under 80C to 80GGc are in relation to various investment and payments, whereas section 80-IA to 80U covers deduction in respect of certain income. The purpose of these deductions is to encourage savings, industrialization, and to assist the taxpayers in meeting their essential expenditures. These deductions have to be made from the gross total income in order to arrive at net income.

Sec. 80C:Deduction under 80C is in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc. A new section 80C has been inserted from the assessment year 2006-07 onwards. Section 80C provides deduction in respect of specified qualifying amounts paid or deposited by the assessee in the previous year. Nature of payment for assessee of Life Insurance is as follows: 1. Life insurance premium (including payment made by government employees to the Central Government Employees Insurance Scheme and payment made by a person under childrens deferred endowment assurance policy) [subject to a maximum of 20% of sum assured (sum assured does not include any premium agreed to be returned or any benefit by way of bonus)]

Note:In case of an individual policy should be taken on his own life, life of the spouse or any child (child may be dependent / independent, male / female, minor / major or married / unmarried). In the case of Hindu undivided family, policy may be taken on the life of any member of the family. 2. Contribution for participation in Unit-Linked Insurance Plan (ULIP)

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Note:In case of an individual, ULIP should be taken on his own life, life of the spouse or any child (child may be dependent / independent, male / female, minor / major or married / unmarried). In the case of Hindu undivided family, ULIP may be taken on the life of any member of the family.

Exempt Income Section 10 (10D)

Any sum received under a life insurance policy, including any sum allocated by way on bonus on such a policy other than : any sum received under a Keyman policy any sum received under an insurance policy in respect of which the premium paid in any of the years during the term of the policy exceeds twenty per cent of the actual sum assured

Deductions from Gross Total Income Deduction u/s 80L

TO WHOM? Deduction u/s 80L is available to individual & HUF HOW MUCH? The maximum amount of deduction is as follows: General deduction (in respect of incomes from all sources Rs 12000 Special deduction on interest on any security of the Central Government / State Government Rs 3000 ON WHAT? Incomes considered u/s 80L Income from: Security of Central / State Government National Savings Certificates VI & VII issues National Savings Certificate VIII issue Debentures / bonds issued by a co-operative society or any other notified institutions or authority including a public sector company

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Deposits under the National Deposits Scheme

Deposits under National Savings Scheme, 1992 Deposits under the Post Office (Time Deposits) & Post Office (Recurring Deposit) Schemes

Dividend income from any Indian company from Assessment Year 2003-04 Income from units of UTI / Mutual Fund specified u/s 10 (23D) other than the transfer

Incomes considered u/s 80L

Income from Post office Monthly Income account Deposits with a bank / co-operative bank Deposits with any bank approved by Central Government (e.g.. IDBI) Deposit with State Housing Boards Deposits with co-operative society of which the assessee is a member Shares in a co-operative society Deposits with financial corporation, engaged in providing long term industrial finance in India & interest on deposit with a public company formed and registered in India with the main object of carrying on business of providing long term finance for construction / purchase of residential houses in India

Pension Fund ( Section 80CCC)

TO WHOM ? - the taxpayer is an individual (resident / non resident / Indian citizen / foreign citizen) CONDITION - Of the income CHARGEABLE to tax, he has paid / deposited a sum under an ANNUITY PLAN of the LIC / any other insurer as approved by the Controller of Insurance HOW MUCH ? - The lower of the amount deposited / Rs 10000

Pension Fund ( Section 80CCC) CONDITIONS

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Where this deduction has been allowed, rebate u/s 88 will not be allowed Where the assessee / his nominee SURRENDERS the annuity before maturity date the surrender value will be TAXED in the hands of the assessee / nominee in the year of receipt The amount of pension received by the assessee / nominee will be TAXABLE in the hands of the assessee / nominee in the year of receipt

Critical Illness Rider - Section 80D

TO WHOM ? - the taxpayer is an individual (resident / non resident / Indian citizen / foreign citizen) or HUF CONDITIONS the medical insurance policy is taken on the health of the taxpayer / spouse / dependent parents / children of the taxpayer or any member of the HUF the premium is paid by check out of the income chargeable to tax

Critical Illness Rider - Section 80D

AMOUNT OF DEDUCTION

the insurance premium paid Upto Rs 10000 / Rs 15000, in case the policy is on the health of a senior citizen

Section 80DD
Subject: Deduction in respect of maintenance including medical treatment of handicapped dependents TO WHOM ? - A taxpayer resident in India who is an individual (Indian / foreign citizen) of HUF in respect of a handicapped dependent HOW MUCH ? - A fixed deduction of Rs 50000 from Gross Total Income (Rs 75000, if the disability is severe) irrespective of amount incurred if the conditions are satisfied

Section 80DD
CONDITION - The taxpayer has opted for any / both of the following options

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incurred an expenditure for the medical treatment (including nursing), training and rehabilitation of a handicapped person paid / deposited an amount under a scheme framed by LIC / any other insurer / the Administrator (of the UTI) or the Specified Company subject to conditions specified & approved by the Central Board of Direct Taxes (CBDT) for the maintenance of a dependent, being a person with a disability

Section 80DD
Under this a lump sum / annuity would be paid to handicapped dependent / trust or person nominated in this regard, in the event of the death of individual / member of HUF in whose name, the scheme has been made If the handicapped dependent predeceases the assessee an amount equal to the amount paid / deposited under Section 80DD shall be deemed t6o be income of the assessee in the previous year and taxed accordingly.

REBATES Tax Rebate

TO WHOM ? - A salaried employee can claim tax rebate under sections 88, 88B & 88C Rebates are deductible under sections 88, 88B & 88C Rebate u/s 88 is not available in respect of from tax on long term capital gain The steps for computing rebate are: Computation of gross qualifying amount Net qualifying amount Amount of tax rebate

Gross Qualifying Amount

Life

insurance premium paid by an individual to keep in force insurance on own life,

life of spouse or any child (incl. Premium for childrens deferred endowment policy) even if policy is not taken by the assessee himself
Payment

in respect of non commutable deferred annuity

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Contribution Contribution Contribution Sum

to Statutory Provident Fund & Recognized Provident Fund to 15 year Public Provident Fund to approved superannuation fund

deposited in a 10 - year / 15 - year account under Post Office Savings Bank

Rules

Gross Qualifying Amount

Subscription Subscription Contribution Contribution Payment

to National Savings Scheme to National Savings Certificates VI, VII & VIII Issues to the ULIP of UTI & to the ULIP of LIC as notified u/s 10 (23D)

to keep in force notified annuity plan of LIC to notified pension fund set up by a mutual fund as notified u/s 10

Contribution

(23D) of UTI
Any

sum paid (incl. accrued interest) as subscription to Home Loan Account Scheme

of the NHB / contribution to any notified pension fund set up by NHB

Gross Qualifying Amount

Payment

made towards the cost of purchase / construction of a new house property in

respect of payments made Upto Rs 20000

Education

expenses Upto Rs 12000 per child for 2 children (CHK ON

EXEMPTION)
Amount

invested in debentures of, and equity shares in, a public company engaged in

infrastructure including power sector / units of mutual fund proceeds invested in development / maintenance of a new infrastructure facility ON WHAT ? Net Qualifying Amount (NQA) Total of all investments other than in shares / debentures / mutual fund units of infrastructure sector Rs 70000 Investment in shares / debentures / mutual fund units of infrastructure sector 100000. For e.g.. Rs

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Investment Others (Rs) - A 70000 70000 100000 80000 0 Infrastructure (Rs) - B Net Qualifying Amount (Rs) 0 70000 100000 70000 80000 100000 0 10000 100000

30000

Amount of Tax Rebate

30%

of net qualifying amount (NQA) if: chargeable under the head salaries (before S. 16 deduction) does not

income

exceed Rs 100000
income

chargeable under the head salaries is not less than 90% of the gross total

income (GTI)
GTI

< Rs 150000

Rebate 20% of NQA Rebate 15% of NQA

150000<GTI<500000 GTI

>500000

Rebate not available

* GTI Gross Total income

Rebate u/s 88B

TO WHOM ? - A Resident individual (who is at least 65 years of age at any time during the previous year) can claim rebate u/s 88B. HOW MUCH ? It is the lower of :tax liability (before giving any rebate under Sections 88, 88B and 88C) Rs 20000 (changed from 15000 in Budget 03)

Rebate u/s 88C

TO WHOM ?an assessee being a woman resident in India (who is below 65 years at any time during the previous year) can claim rebate u/s 88C. HOW MUCH ? It is the lower of :-

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tax liability (before giving any rebate under Sections 88, 88B and 88C) Rs 5000 GROSS INCOME TAX ANNUAL SECTION SALARY Sec. 80C HOW MUCH TAX CAN YOU SAVE? Upto Rs. 33,660 Across All saved on income Slabs. investment of Rs. 1, 00,000. Upto Rs. 33,660 Across all saved on income slabs. Investment of Rs.1, 00,000. Upto Rs. 3,366 Across all saved on income slabs. Investment of Rs. 10,000.
Rs.

HDFC STANDARD LIFE PLANS

All the life insurance plans.

Sec. 80 CCC

All the pension plans.

Sec. 80 D*

All the health insurance riders available with the conventional plans.
37,026

TOTAL SAVINGS POSSIBLE **

Rs. 33,660 under Sec. 80C and under Sec. 80 CCC, Rs.3, 366 under Sec. 80 D, calculated for a male with gross annual income not exceeding Rs. 10, 00,000. Under Sec. 10(10D), the benefits you receive are completely taxSec. 10 (10)D free, subject to the conditions laid down therein. * Applicable to premiums paid for Critical Illness Benefit, Accelerated Sum Assured and Waiver of Premium Benefit. ** These calculations are illustrative and based on our understanding of current tax legislations. Please contact your tax consultant for exact calculation of your tax liabilities.

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Chapter 5.13 Policy Undertaken Of HDFC Standard Life Insurance

Children's Plan Endowment Plan Growth Fund Money Back Pension Plan Term Plan Unit Link Endowment Unit Link Pension Unit Link Young Star Grand Total 4 6 1 1 4 11 47 8 58 140

Investment In HDFC Standard Life Insurance Policy

Count of Name of the Client

160 140 120 100 80 60 40 20 0

Policy Taken Unit Link Young Star Unit Link Pension Unit Link Endowment Term Plan Pension Plan Money Back Growth Fund Endowment Plan Children's Plan

Total

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Investment In HDFC Standard Life Insurance Policy

Count of Name of the Client

70 60 50 40

Total 30 20 10 0 Children's Plan Endowment Growth Fund Money Back Pension Plan Plan Policy Taken Term Plan Unit Link Endowment Unit Link Pension Unit Link Young Star

The above two graph indicates the various investments made by the clients in different insurance polices of HDFC Standard Life Insurance and the topper among these polices is Unit Linked Young Star.

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Chapter 6 Analysis & Interpretation of the data

The clients with whom appoint were fixed to known their choice of investment in insurance sector was found that they most of them wanted to earn higher returns form their investment and so they preferred to investment in Unit Linked Polices rather than Traditional insurance investment like children plan, endowment plan, growth plan etc. Unit linked Policies are preferred among insurance investor because these policies are directly linked with stock market and gives good returns and so they are becoming popular choice among insurance investors when it to come to investment in insurance. Low returns is the reasons why Traditional insurance plan are less popular among the masses. Among the ULIP the most preferred among the insurance investor is the Unit Linked Young Star because it provides double benefit then followed by Unit Linked Endowment and then Unit Linked Pension. Other benefits of Unit Linked Young Star are good returns, it is highly flexible, and commitment years are less i.e. 3 years. And other reason for its popularity is the relationship of Financial Consultant with the clients as they always provide timely advice to these clients regarding the ups and downs of the market. The insurance polices given to the investors are based on customer needs and not on what the company can make profit so HDFC Standard Life has brand name in insurance industry.

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Chapter 7 Recommendation Broaden the Customer Base:The company should also try to cater to rural masses and provide knowledge about the benefit of investment in insurance sector as they might not be able to invest a huge amount but small investment premium by them should be taken into consideration. These might add volume business for the company.

Critical Illness:In insurance sector critical illness includes only cover against diseases like cancer, diabetes, heart disorders etc. but the insurance companies ignores that insurance cover can be to person suffering from AIDS or who is HIV +ve. So the company cans this factor into consideration.

Disha Programming:The company for it Financial Consultant and Sales Development Manager has Develop a Module called Need Base Development Module under Disha Programming. But this module is rarely followed by the company SDM and Financial Consultant. So, if they follow the module the company can bring in good amount of business.

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Chapter 8 Conclusions
The end of the year 2000 marks a significant change and growth of 'India Insurance' industry scenario. Monopoly of Public Sector Insurance company marks an end and Private companies makes inroad. Foreign companies, in Life insurance flocked, collaborated and helped astronomical growth of 'Insurance Industry in India'. Life insurance products cover risk for the insurer against eventualities like death or disability. They are not as popular as life products in the ' Insurance India's' portfolio. Until very recently it had only corporate buyers, but with natural disasters like, earth quakes, tsunamis, storms and floods becoming more frequent and damaging there has been a sudden spurt in sales of general insurance amongst individuals. Consumerism of life style goods and modern amenities has also contributed to its growth. With more awareness and wide bandwidth of insurance product portfolio the growth for 'India Insurance' story will only get more competitive and more affordable to all sections of Indian society. So, if we look insurance sector is a booming industry with a good growth prospect, but the only thing that makes people scare to invest in insurance sector is lack of knowledge and trust on private insurance but with time this image is changing. This three months working in insurance sector gave a good insight about how an insurance sector works and what challenges the people working in insurance sector face. And this experience thought me that self motivation is an important factor to have driven to succeed in life and achieve goals.

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Chapter 9 Bibliography Books: Dr. Vinod k Singhania & Monica Singhania; Students Guide to Income Tax; Taxmann Publications (P.) Ltd.; New Delhi; Pg No. 592

Websites: Companys intranet. www.hdfcstandardlife.com www.hindubussinessline.com www.economictimes.com www.rediff.com www.hdfc.com www.businessmapsofindia.com www.domain-b.com www.outlookmoney.com

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Annexure Name of the Clients & Policy Taken Serial No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 P 34 35 36

Name of the Client

Shreyas Palsule Narayan Kulkarni Yogesh Kulkarni Maruti Jangam Sheetal Parihar Sudhakar More Santosh Asawa Ashok Avachetii Swapnesh Damkondwar Sudarshan Salape Maulali Amte Minal Jadhav Dilip Mulay Nagesh Sharma Yudhistir Sharma Ashok Kapadia Seema Rakeshkumar Singh Abhijit Patil Sandeep Phansalkar Kala Baviskar Suresh Chinta Ashok Kapadia Anil Daryani Sanjay Jadhav Jagnnath Konnar Navinchandra Menkar Ramkishan Pardeshi Natasha Mitkari Anita Mualay Anandi Patil Ragunath Dhamdhere Kiran Lahare Suresh Tolgekar Psk Chakravarti Mandar Kulkarni Kumar Mrinal Singh

Policy Taken
Unit Link Endowment Unit Link Endowment Unit Link Endowment Money Back Unit Link Endowment Unit Link Young Star Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Endowment Unit Link Endowment Unit Link Endowment Unit Link Endowment Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Endowment Pension Plan Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Endowment Endowment Plan Term Plan Pension Plan

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37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78

Rajesh Singh Amit Jadhav Kapil Arora Tarjeet Kaur Bhatia Shaiendra Kashikar Prahraj Joashi Sandeep Jagtap Mallesh Banny Aniket Deo Virendra Kulkarni Sandeep Kumbhar Avinash Pawar Rajesh Londhe Vandan Jadhav Dharmesh Bam Dattatray Suryawanshi Pawan Kumar Asirwad Mikari Venkat Banny Sachin Kudale Deepchand Rathod Vinod Chavan Yogesh Bhoasale Dhananjay Kalyanshetty Sanjay Dhoka Shasherao Mane Dinesh Dahu Sharma Raju Mitkare Alpana Chavam Vivek Phutane Rahul Shinde Milind Shinde Vinay Joshi Akhil Bhilaiya Kalyanrao Manthale Ajay Rajopadhye Ashok Pathak Chandarani Desai Snehal Bharuka Usha Bafna Dileep Despande Chandrashekhar Nagarkar

Unit Link Endowment Term Plan Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Term Plan Children's Plan Unit Link Endowment Term Plan Term Plan Growth Fund Endowment Plan Endowment Plan Term Plan Pension Plan Term Plan Term Plan Children's Plan Endowment Plan Unit Link Young Star Term Plan Children's Plan Endowment Plan Children's Plan Endowment Plan Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Endowment Pension Plan Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Pension Unit Link Pension Unit Link Endowment Unit Link Young Star Unit Link Pension Unit Link Young Star

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79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120

Atul Shelar Murugananath Sattaiyanantham Abhishek Farande Mandar Hawaldar Vikas Shitole Uday Muley Mayank Goyel Minaz Khan Mahendra Dimbale Ajit Waranashiwar Amit Waranashiwar Vijay Warnashiwar Radika Phadke Rashid Shaikh Surekha Sunilkumar Priya Deshkulkarni Sunil Katkar Punde Nagnath Bhagyashri Dhormale Narendra Kulkarni Jayashree Jambbhekar Pandurang Kashid Amit Nema Sarang Panchawadkak Harshad More Rajiv Bhatia Surendra Bangar Vijay Chavan Jitendra Vaze Ishwar Yadav Sameer Samarath Prasad Asolkar Amit Phadke Viswanadh Bandla Chintamani Muley Dinesh Thakur Avinash Singh Gunasekaran Subramanian Binodkumar Agrawal Milind Kuri Niranjan Namjoshi Virendra Bhusari

Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Endowment Term Plan Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Endowment Unit Link Pension Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Pension Unit Link Endowment Unit Link Young Star Unit Link Young Star Term Plan Unit Link Endowment Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Pension Unit Link Young Star Unit Link Pension Unit Link Young Star Unit Link Pension Unit Link Young Star

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121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140

Dhiraj Doiphode Pankaj Parulekar Rajesh Lonkar Somnath Ravelekar Prashant Gole Nagesh Sharma Vishal Mohite Amit Singh Anil Mahajan Ashish Nema Prashant Raut Ram Gole Renuka Godhumala Renuka Godhumala Sanjay Shivale Vijay Mukhekar Avinash Lahase Avinash Lahase Ajay Mukhekar Prasenjit Dhar

Unit Link Endowment Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Young Star Unit Link Young Star Unit Link Endowment Unit Link Young Star Unit Link Endowment Unit Link Young Star

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