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Table of Contents
2Introduction....................................................................................................................................3
Asset Allocation...........................................................................................................................3
Fund Management.......................................................................................................................3
Fund Manager..............................................................................................................................4
Size of the global fund management industry.............................................................................4
Performance measurement...........................................................................................................5
Risk-adjusted performance measurement....................................................................................6
Theoretical Back Ground.................................................................................................................8
ULIPs...........................................................................................................................................8
Meaning...................................................................................................................................8
How ULIPs work.....................................................................................................................8
Types of ULIPs........................................................................................................................8
Recent modification in ULIPs by IRDA.................................................................................9
The Role of a fund Manager......................................................................................................10
Major Problems For fund Management Companies..................................................................11
INDUSTRY PROFILE..................................................................................................................12
THE INSURANCE INDUSTRY IN INDIA.............................................................................12
AN OVERVIEW...................................................................................................................12
HISTORICAL PERSPECTIVE.............................................................................................12
KEY MILESTONES.............................................................................................................13
INDUSTRY REFORMS.......................................................................................................14
PRESENT SCENARIO - LIFE INSURANCE INDUSTRY IN INDIA...............................14
LIFE INSURANCE CORPORATION OF INDIA (LIC).....................................................15
SOME AREAS OF FUTURE GROWTH.............................................................................16
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA.............18
DUTIES, POWERS AND FUNCTIONS OF IRDA.............................................................18
Protection of the interest of policy holders:..........................................................................19
2
Insurance Ombudsman..........................................................................................................20
Terms of office......................................................................................................................20
Territorial jurisdiction of Ombudsman..................................................................................20
Office Management...............................................................................................................21
Removal from office..............................................................................................................21
Power of Ombudsman...........................................................................................................21
Manner of lodging complaint................................................................................................22
Recommendations of the Ombudsman..................................................................................22
Award....................................................................................................................................22
APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR............23
COMPANY PROFILE..................................................................................................................25
ORIGIN OF THE ORGANIZATION.......................................................................................25
Introduction............................................................................................................................25
About HDFC..........................................................................................................................25
Features of HDFC..................................................................................................................26
Family companies:.................................................................................................................27
About Standard Life..............................................................................................................27
The partnership:.....................................................................................................................28
Incorporation of HDFC Standard Life Insurance Company Limited:...................................29
Key Strengths.........................................................................................................................30
Vision Statement....................................................................................................................30
Growth and Development of the Organization:.....................................................................30
Investment philosophy...........................................................................................................32
Need based selling approach.................................................................................................32
Risk control framework.........................................................................................................32
Transparent dealing...............................................................................................................32
Strict compliance with regulation..........................................................................................33
Accolades and Recognition...................................................................................................33
PRODUCT PROFILE:..............................................................................................................33
List of funds in HDFC Standard Life....................................................................................37
RESEARCH METHODOLOGY..................................................................................................40
3
Objectives of study:...................................................................................................................40
Research design.........................................................................................................................40
Sources of data...........................................................................................................................40
Model of Research:....................................................................................................................40
Analytical Research:..................................................................................................................41
Scope of study:..........................................................................................................................41
Limitation of the study:.............................................................................................................41
Analysis and Interpretation............................................................................................................42
Funds Considered for in depth Analysis........................................................................................60
Large cap Niche Life Fund details.............................................................................................60
Blue Chip Wealth Builder Fund details.....................................................................................61
Details of stocks that entered or moved out of the Fund...........................................................62
Large Cap Niche Life Fund...................................................................................................62
Blue Chip Wealth Builder Fund............................................................................................63
Current price of the stock that entered or moved out of the funds:...........................................65
Sector wise return as on May 31st 2011....................................................................................66
Better performers in the considered sectors:.............................................................................67
Graphical comparative analysis of Large Cap Niche Life Fund vs. the Bench Mark Indices (3 months)......................................................................................................................................68
Graphical comparative analysis of Blue Chip Wealth Builder Fund vs. the Bench Mark Indices (3 months)..................................................................................................................................69
FINDINGS.....................................................................................................................................70
Large Cap Niche Life Fund.......................................................................................................70
Blue Chip Wealth Builder Fund................................................................................................71
MARKET ANALYSIS OF THE STOCKS WHICH MOVED OUT OF THE FUNDS..............73
Punjab National Bank................................................................................................................73
Siemens Ltd...............................................................................................................................73
Oil India Ltd..............................................................................................................................74
Kotak Mahindra Bank Ltd.........................................................................................................74
United Phosphorous Ltd............................................................................................................74
Mundra Port & Special Economic Zone Ltd.............................................................................75
4
Blue Star Ltd..............................................................................................................................75
National Thermal Power Corporation.......................................................................................76
Inference:...................................................................................................................................76
CONCLUSION:............................................................................................................................77
5
Executive Summary
Asset Allocation and Fund Performance is based on the professional management of
various securities and assets in order to meet specified investment goals for the benefit of the
investors. Asset Allocation and Fund Management is performed by Fund managers and they are
the people responsible for the better Fund Performance. Fund managers are those who predict the
market trends and invest the money in various portfolios which is the asset allocation. The study
will be conducted to assist the fund managers about the fund in which the fund manager have to
invest in and bring out a better performance in the Funds. A literature survey will be made on the
asset allocation and fund performance. The asset allocation and fund performance in a renowned
insurance company will be studied. Details of 10 different fund investments of the firm will be
studied. Out of the 10 funds, two funds will be studied in detail, compared and the best fund to
invest in will be found out based on various criterions like index return, fund return for the
investor in long run and short term. Calculations will be made for the returns to identify the
percentage growth of stock price. A study on growth rate in insurance premium receipts will be
made and will be reported. Major problems faced by the fund management will be studied and
the risks will be found out. Also a study will be made on the sector wise growth or fall of the
stocks which are moving in and out of the selected funds. Suggestions will be given on the future
investments in selected sectors. Analysis of the decisions taken by the fund manager in the past
will be done and the analysis report will be utilized to judge the decision made by the fund
manager.
6
Introduction
Asset Allocation
Asset Allocation is an investment strategy that aims to balance risk and reward by
apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment
horizon.
The three main asset classes - equities, fixed-income, and cash and equivalents - have
different levels of risk and return, so each will behave differently over time.
There is no simple formula that can find the right asset allocation for every fund.
However, the consensus among most financial professionals is that asset allocation is one of the
most important decisions that fund managers make. In other words, the selection of individual
securities is secondary to the way fund managers allocate the fund assets in stocks, bonds, and
cash and equivalents, which will be the principal determinants of the fund’s performance.
Asset-allocation of funds, also known as life-cycle, or target-date, funds, are an attempt
to provide customers with portfolio structures based on the variety of funds that address a
customer’s age, risk appetite and investment objectives with an appropriate apportionment of
asset classes. However, critics of this approach point out that arriving at a standardized solution
for allocating portfolio assets is problematic because every fund managers invests differently.
Fund Management
Fund Management is the professional management of various securities and assets (e.g.,
real estate) in order to meet specified investment goals for the benefit of the investors. Investors
may be institutions (insurance companies, pension funds, corporations etc.) or private investors
(both directly via investment contracts and more commonly via collective investment schemes
e.g. mutual funds or Insurance).
The term Fund management is often used to refer to the investment management of
collective investments, while the more generic fund management may refer to all forms of
institutional investment as well as investment management for private investors. Investment
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managers who specialize in advisory or discretionary management on behalf of private investors
may often refer to their services as wealth management or portfolio management often within the
context of so-called "private banking".
The provision of 'investment management services' includes elements of financial
statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring
of investments. Investment management is a large and important global industry in its own right
responsible for caretaking of trillions of yen, dollars, euro, pounds and yen. Coming under the
remit of financial services many of the world's largest companies are at least in part investment
managers and employ millions of staff and create billions in revenue.
Fund manager refers to both a firm that provides investment management services and an
individual who directs fund management decisions.
Fund Manager
The person(s) responsible for implementing a fund's investing strategy and managing its
portfolio trading activities. A fund can be managed by one person, by two people as co-managers
and by a team of three or more people. Fund managers are paid a fee for their work, which is a
percentage of the fund's average assets under management.
Size of the global fund management industry
Conventional assets under management of the global fund management industry
increased by 14% in 2009, to $71.3 trillion. Pension assets accounted for $28.0 trillion of the
total, with $22.9 trillion invested in mutual funds and $20.4 trillion in insurance funds. Together
with alternative assets (sovereign wealth funds, hedge funds, private equity funds and exchange
traded funds) and funds of wealthy individuals, assets of the global fund management industry
totaled over $105 trillion, an increase of 15% on the previous year. The increase in 2009
followed a 18% decline in the previous year and was largely a result of the recovery in equity
markets during the year. Part of the reason for the increase in dollar terms was the depreciation in
the value of the US dollar against a number of currencies in 2009.
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The US remained by far the biggest source of funds, accounting for around a half of
conventional assets under management or some $36 trillion. The UK was the second largest
centre in the world and by far the largest in Europe with around 9% of the global total.
Performance measurement
Fund performance is often thought to be the acid test of fund management, and in the
institutional context, accurate measurement is a necessity. For that purpose, institutions measure
the performance of each fund (and usually for internal purposes components of each fund) under
their management, and performance is also measured by external firms that specialize in
performance measurement. The leading performance measurement firms compile aggregate
industry data, e.g., showing how funds in general performed against given indices and peer
groups over various time periods.
In a typical case (let us say an equity fund), then the calculation would be made (as far as
the client is concerned) every quarter and would show a percentage change compared with the
prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other
similar funds managed within the institution (for purposes of monitoring internal controls), with
performance data for peer group funds, and with relevant indices (where available) or tailor-
made performance benchmarks where appropriate. The specialist performance measurement
firms calculate quartile and decile data and close attention would be paid to the ranking of any
fund.
Generally speaking, it is probably appropriate for an investment firm to persuade its
clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short
term fluctuations in performance and the influence of the business cycle. This can be difficult
however and, industry wide, there is a serious preoccupation with short-term numbers and the
effect on the relationship with clients (and resultant business risks for the institutions).
An enduring problem is whether to measure before-tax or after-tax performance. After-
tax measurement represents the benefit to the investor, but investors' tax positions may vary.
Before-tax measurement can be misleading, especially in regimens that tax realized capital gains
(and not unrealized). It is thus possible that successful active managers may produce miserable
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after-tax results. One possible solution is to report the after-tax position of some standard
taxpayer.
Risk-adjusted performance measurement
Performance measurement should not be reduced to the evaluation of fund returns alone,
but must also integrate other fund elements that would be of interest to investors, such as the
measure of risk taken. Several other aspects are also part of performance measurement:
evaluating if managers have succeeded in reaching their objective, i.e. if their return was
sufficiently high to reward the risks taken; how they compare to their peers; and finally whether
the portfolio management results were due to luck or the manager’s skill. The need to answer all
these questions has led to the development of more sophisticated performance measures, many of
which originate in modern portfolio theory. Modern portfolio theory established the quantitative
link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM)
developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first
performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or
differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best
known performance measure. It measures the return of a portfolio in excess of the risk-free rate,
compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer
to any benchmark, avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it
does not allow the separation of the performance of the market in which the portfolio is invested
from that of the manager. The information ratio is a more general form of the Sharpe ratio in
which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it
evaluates portfolio performance in reference to a benchmark, making the result strongly
dependent on this benchmark choice.
Portfolio alpha is obtained by measuring the difference between the return of the
portfolio and that of a benchmark portfolio. This measure appears to be the only reliable
performance measure to evaluate active management. In fact, we have to distinguish between
normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained
through passive management, from abnormal performance (or outperformance) due to the
manager’s skill (or luck), whether through market timing, stock picking, or good fortune. The
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first component is related to allocation and style investment choices, which may not be under the
sole control of the manager, and depends on the economic context, while the second component
is an evaluation of the success of the manager’s decisions. Only the latter, measured by alpha,
allows the evaluation of the manager’s true performance (but then, only if you assume that any
outperformance is due to skill and not luck).
Portfolio return may be evaluated using factor models. The first model, proposed by
Jensen (1968), relies on the CAPM and explains portfolio returns with the market index as the
only factor. It quickly becomes clear, however, that one factor is not enough to explain the
returns very well and that other factors have to be considered. Multi-factor models were
developed as an alternative to the CAPM, allowing a better description of portfolio risks and a
more accurate evaluation of a portfolio's performance. For example, Fama and French (1993)
have highlighted two important factors that characterize a company's risk in addition to market
risk. These factors are the book-to-market ratio and the company's size as measured by its market
capitalization. Fama and French therefore proposed three-factor model to describe portfolio
normal returns (Fama-French three-factor model). Carhart (1997) proposed to add momentum as
a fourth factor to allow the short-term persistence of returns to be taken into account. Also of
interest for performance measurement is Sharpe’s (1992) style analysis model, in which factors
are style indices. This model allows a custom benchmark for each portfolio to be developed,
using the linear combination of style indices that best replicate portfolio style allocation, and
leads to an accurate evaluation of portfolio alpha.
In life insurance the funds collected for traditional policies go to life fund. Those funds
are managed by the insurance company based on the IRDA regulations. The new form of
investment in insurance is through ULIPs (Unit Linked Insurance Policies). These are also
regulated by IRDA but here the collected fund is invested in various assets to generate high
return compared to normal policies which provide risk cover and a small return. Here the role of
fund manager is to make such a portfolio, which will generate a continuous return to the
investors. Fund manager has to have a close look on the portfolio growth and structure. Because
the investors invest in ULIPs only when they need both risk cover and return. Most of them don’t
have the needed knowledge to invest in equity market efficiently. Here the fund manager comes
in to help. He will be a knowledgeable person who should be aware of the market behavior.
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Theoretical Back Ground
ULIPs
MeaningA unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a
policy varies according to the current net asset value of the underlying investment assets. It
allows protection and flexibility in investment, which are not present in other types of life
insurance such as whole life policies. The premium paid is used to purchase units in investment
assets chosen by the policyholder
How ULIPs work
ULIPs work on the lines of mutual funds. The premium paid by the client (less any
charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the
insurance companies. Units are bought according to the plan chosen by the policyholder. On
every additional premium, more units are allotted to his fund. The policyholder can also switch
among the funds as and when he desires. While some companies allow any number of free
switches to the policyholder, some restrict the number to just three or four. If the number is
exceeded, a certain charge is levied.
Individuals can also make additional investments (besides premium) from time to time to
increase the savings component in their plan. This facility is termed "top-up". The money parked
in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy.
In case of the insured person's untimely death, the amount that the beneficiary is paid is the
higher of the sum assured (insurance cover) or the value of the units (investments). However,
some schemes pay the sum assured plus the prevailing value of the investments.
Types of ULIPs
ULIPs for retirement planning
ULIPs for long term wealth creation
ULIPs for child education
ULIPs for health solutions
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Recent modification in ULIPs by IRDA
Initial charges: Premium paid by investors in ULIPs is partly used for insurance and
partly for making investments. However, for the first 2 -3 years of the term of the policy,
insurance companies charged heavily. Sometimes insurance companies diverted as much as 80
percent of the premium payments towards these charges.
Initial charges are basically used for administration charges, processing fees etc.
Therefore the charges should be extremely low.
Facility to surrender policy: Sometimes policyholders need immediate funds, and then
they opt to surrender their policy. But the problem is, the long term consequences of
surrendering the policy early had an adverse impact on the policyholder's investments.
The surrender charges on policy were high. Some companies confiscated up to 60 per
cent of the policy value in case the policyholder surrendered his policy.
ULIPs give back most when it’s invested as long term basis. Hence early withdrawal
should be discouraged.
Advantages
1. The accretion to the fund invested can be checked on daily basis unlike the traditional
policies.
2. There is lot more flexibility like partial withdrawal, switching, redirection, early
withdrawal, Sum Assured reduction, top up contribution, etc....
3. Charges are transparent in nature, with the latest AML guidelines insisting on common
nomenclature of charges for all insurance companies.
4. The customer can time the market by exercising switch options and make the most when
markets are zooming or choose to be conservative when markets are falling. It’s thus
win-win situation
5. He gets a life cover at a nominal cost unlike mutual funds,
6. Stages in one life like education of children, marriage, and retirement needs can be
soundly planned by the help of ULIPs.
13
7. Tax advantages are also offered by the ULIPs.
Disadvantages
1. Investors find it difficult to understand capital market and how ulips works
2. ULIPS are attractive for risk taking people and less attractive for risk adverse people
3. Some consider taking term insurance and a mutual fund as a combination to beat the
ULIP.
4. Some consider charges levied exorbitant and not commensurate to the returns offered.
5. The complicated design of the policies makes them less aware of the product features and
chances of misuse by agents are very high.
The Role of a fund Manager
The Prime Goal of a Fund Manager is to monitor and manage the securities (in the form
of stocks, bonds amongst others) to meet the investment goals and objectives of the customers
(investors). The services include financial analysis on the investments, the assets that are
invested upon and the stocks selected. The plan and strategy that is implemented is also to be
closely monitored so that in the longer run, risks on loosing out on major dividends can be
avoided. A certified company investment advisor should conduct an assessment of each client's
individual needs and risk profile. The advisor then recommends appropriate investments. The art
of managing investments is an important aspect in its own right and involves a lot of money at a
single moment taking care of trillions of dollars, euro, pounds and yen and other major Global
economies.
The budget of an investment management firm directly depends on the Asset Allocation
that is made by the Fund Manager for the investors. Asset Allocation involves a lot of money at
stake at a go, because at one time you are investing one more than one commodity. Moreover
Asset Allocation has more predictive power than the choice of individual holdings in
determining portfolio/investment return. The real test and skill proof of a Fund Manager truly
lies in handling asset allocations and individual investments separately so that the competition
that the investment faces from other competing funds is handled with care. Another important
factor that a Fund Manager has got to take care of is the diversification in assets once an
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investment is being made. It is always advisable to investors to invest in more then one
commodities at a time. A fund does fluctuate and varies with market conditions, so if an investor
looses out on the dividend from one investment he has the other to gain from. As it is people
investing in Mutual Funds do gain from long term returns.
There are numerous ways to invest in a Fund. It depends upon the risk you are willing to
undertake and your expected dividends from your investments. Fund performance is the main
test of fund management and for the investment management firm as well. In order to be sure
that fund they are monitoring, the firm measures the performance of each fund they are
managing. The performance of a Fund shouldn't be decided on the returns provided alone, as
there are several other factors associated with it. Whether the return was worth the risk taken,
Performance of the fund compared to their competitors and finally whether the portfolio
management results were due to luck or the manager's skill. A Fund Manager is hence compared
to God when it comes to Fund Investments.
ULIPs is almost similar to Mutual funds. Only difference in ULIPs is it covers the risk also.
Source: http://EzineArticles.com
Major Problems For fund Management Companies
revenue is directly linked to market valuations, so a major fall in asset prices causes a
precipitous decline in revenues relative to costs;
above-average fund performance is difficult to sustain, and clients may not be patient
during times of poor performance;
successful fund managers are expensive and may be headhunted by competitors;
above-average fund performance appears to be dependent on the unique skills of the fund
manager; however, clients are loath to stake their investments on the ability of a few
individuals- they would rather see firm-wide success, attributable to a single philosophy
and internal discipline;
Analysts who generate above-average returns often become sufficiently wealthy that they
avoid corporate employment in favor of managing their personal portfolios.
15
INDUSTRY PROFILE
THE INSURANCE INDUSTRY IN INDIA
AN OVERVIEW
With the largest number of life insurance policies in force in the world, Insurance
happens to be a mega opportunity in India. It’s a business growing at the rate of 15-20 per cent
annually and presently is of the order of Rs 1560.41 billion .Together with banking services, it
adds about 7% to the country’s Gross Domestic Product (GDP). The gross premium collection is
nearly 2% of GDP and funds available with LIC for investments are 8% of the GDP.
Even so nearly 65% of the Indian population is without life insurance cover while health
insurance and non-life insurance continues to be below international standards. A large part of
our population is also subject to weak social security and pension systems with hardly any old
age income security. This in itself is an indicator that growth potential for the insurance sector in
India is immense.
A well-developed and evolved insurance sector is needed for economic development as it
provides long term funds for infrastructure development and strengthens the risk taking ability of
individuals. It is estimated that over the next ten years India would require investments of the
order of one trillion US dollars. The Insurance sector, to some extent, can enable investments in
infrastructure development to sustain the economic growth of the country.
(Source: www.indiacore.com)
HISTORICAL PERSPECTIVEThe history of life insurance in India dates back to 1818 when it was conceived as a
means to provide for English Widows. Interestingly in those days a higher premium was charged
for Indian lives than the non - Indian lives, as Indian lives were considered more risky to cover.
The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company
to charge the same premium for both Indian and non-Indian lives.
The Oriental Assurance Company was established in 1880. The General insurance
business in India, on the other hand, can trace its roots to Triton Insurance Company Limited, the
16
first general insurance company established in the year 1850 in Calcutta by the British. Till the
end of the nineteenth century insurance business was almost entirely in the hands of overseas
companies.
Insurance regulation formally began in India with the passing of the Life Insurance
Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during the 1920's
and 1930's sullied insurance business in India. By 1938 there were 176 insurance companies.
The first comprehensive legislation was introduced with the Insurance Act of 1938 that
provided strict State Control over the insurance business. The insurance business grew at a faster
pace after independence. Indian companies strengthened their hold on this business but despite
the growth that was witnessed, insurance remained an urban phenomenon.
The Government of India in 1956, brought together over 240 private life insurers and
provident societies under one nationalized monopoly corporation and Life Insurance Corporation
(LIC) was born. Nationalization was justified on the grounds that it would create the much
needed funds for rapid industrialization. This was in conformity with the Government's chosen
path of State led planning and development.
The non-life insurance business continued to thrive with the private sector till 1972. Their
operations were restricted to organized trade and industry in large cities. The general insurance
industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped
into four companies- National Insurance Company, New India Assurance Company, Oriental
Insurance Company and United India Insurance Company. These were subsidiaries of the
General Insurance Company (GIC).
KEY MILESTONESa) 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.
b) 1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
c) 1938: Earlier legislation consolidated and amended by the Insurance Act with the
objective of protecting the interests of the insuring public.
17
d) 1956: 245 Indian and foreign insurers along with provident societies were taken over by
the central government and nationalized. LIC was formed by an Act of Parliament- LIC
Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.
INDUSTRY REFORMSReforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body in April
2000 has fastidiously stuck to its schedule of framing regulations and registering the private
sector insurance companies. Since being set up as an independent statutory body the IRDA has
put in a framework of globally compatible regulations.
The other decision taken simultaneously to provide the supporting systems to the
insurance sector and in particular the life insurance companies was the launch of the IRDA
online service for issue and renewal of licenses to agents. The approval of institutions for
imparting training to agents has also ensured that the insurance companies would have a trained
workforce of insurance agents in place to sell their products.
PRESENT SCENARIO - LIFE INSURANCE INDUSTRY IN INDIA
The life insurance industry in India grew by an impressive 47.38%, with premium
income at Rs. 1560.41 billion during the fiscal year 2006-2007.
The 17 private insurers increased their market share from about 15% to about 19% in a year's
time. The figures for the first two months of the fiscal year 2007-08 also speak of the growing
share of the private insurers. The share of LIC for this period has further come down to 75
percent, while the private players have grabbed over 24 percent.
With the opening up of the insurance industry in India many foreign players have entered the
market. The restriction on these companies is that they are not allowed to have more than a 26%
stake in a company’s ownership. Since the opening up of the insurance sector in 1999, foreign
investments of Rs. 8.7 billion have poured into the Indian market and 19 private life insurance
companies have been granted licenses.
18
Innovative products, smart marketing, and aggressive distribution have enabled fledgling
private insurance companies to sign up Indian customers faster than anyone expected. Indians,
who had always seen life insurance as a tax saving device, are now suddenly turning to the
private sector and snapping up the new innovative products on offer. Some of these products
include investment plans with insurance and good returns (unit linked plans), multi – purpose
insurance plans, pension plans, child plans and money back plans. (www.wikipedia.com)
LIFE INSURANCE CORPORATION OF INDIA (LIC)Life Insurance Corporation of India (LIC) was formed in September, 1956 by an Act of
Parliament, viz., Life Insurance Corporation Act, 1956, with capital contribution from the
Government of India. The then Finance Minister, Shri C.D. Deshmukh, while piloting the bill,
outlined the objectives of LIC thus: to conduct the business with the utmost economy, in a spirit
of trusteeship; to charge premium no higher than warranted by strict actuarial considerations; to
invest the funds for obtaining maximum yield for the policy holders consistent with safety of the
capital; to render prompt and efficient service to policy holders, thereby making insurance
widely popular.
Since nationalisation, LIC has built up a vast network of 2,048 branches, 100 divisions
and 7 zonal offices spread over the country. The Life Insurance Corporation of India also
transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. LIC is
associated with joint ventures abroad in the field of insurance, namely, Ken-India Assurance
Company Limited, Nairobi; United Oriental Assurance Company Limited, Kuala Lumpur and
Life Insurance Corporation (International) E.C. Bahrain. The Corporation has registered a joint
venture company in 26th December, 2000 in Kathmandu, Nepal by the name of Life Insurance
Corporation (Nepal) Limited in collaboration with Vishal Group Limited, a local industrial
Group. An off-shore company L.I.C. (Mauritius) Off-shore Limited has also been set up in 2001
to tap the African insurance market.
19
SOME AREAS OF FUTURE GROWTH
Life Insurance
The traditional life insurance business for the LIC has been a little more than a savings
policy. Term life (where the insurance company pays a predetermined amount if the policyholder
dies within a given time but it pays nothing if the policyholder does not die) has accounted for
less than 2% of the insurance premium of the LIC (Mitra and Nayak, 2001). For the new life
insurance companies, term life policies would be the main line of business.
Health Insurance
Health insurance expenditure in India is roughly 6% of GDP, much higher than most
other countries with the same level of economic development. Of that, 4.7% is private and the
rest is public. What is even more striking is that 4.5% are out of pocket expenditure (Berman,
1996). There has been an almost total failure of the public health care system in India. This
creates an opportunity for the new insurance companies.
Thus, private insurance companies will be able to sell health insurance to a vast number of
families who would like to have health care cover but do not have it.
Pension
The pension system in India is in its infancy. There are generally three forms of plans:
provident funds, gratuities and pension funds. Most of the pension schemes are confined to
government employees (and some large companies). The vast majority of workers are in the
informal sector. As a result, most workers do not have any retirement benefits to fall back on
after retirement. Total assets of all the pension plans in India amount to less than USD 40 billion.
Therefore, there is a huge scope for the development of pension funds in India. The finance
minister of India has repeatedly asserted that a Latin American style reform of the privatized
pension system in India would be welcome (Roy, 1997). Given all the pros and cons, it is not
clear whether such a wholesale privatization would really benefit India or not (Sinha, 2000).
20
List of insurance companies in India
Life Insurer in Public Sector
1. SBI Life Insurance
2. Metlife India Life Insurance
3. ICICI Prudential Life Insurance
4. Bajaj Allianz Life
5. Max New York Life Insurance
6. Sahara Life Insurance
7. Tata AIG Life
8. HDFC Standard Life
9. Birla Sun life
10. Kotak Life Insurance
11. Aviva Life Insurance
12. Reliance Life Insurance Company Limited - Formerly known as AMP Sanmar LIC
13. ING Vysya Life Insurance
14. Shriram Life Insurance
15. Bharti AXA Life Insurance Co Ltd
16. Future Generali Life Insurance Co Ltd
17. IDBI Fortis Life Insurance
18. AEGON Religare Life Insurance
19. DLF Pramerica Life Insurance
20. CANARA HSBC Oriental Bank of Commerce LIFE INSURANCE
21. India First Life insurance company limited
22. Star Union Dia-ichi Life Insurance Co. Ltd
21
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
The Insurance Regulatory and Development Authority (IRDA) is a national agency of
the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament
known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging
requirements. Mission of IRDA as stated in the act is "to protect the interests of the
policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental thereto."In 2010, the Government of India ruled that
the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the market
regulator Securities and Exchange Board of India
DUTIES, POWERS AND FUNCTIONS OF IRDA
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA
1. Subject to the provisions of this Act and any other law for the time being in force, the
Authority shall have the duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business.
2. Without prejudice to the generality of the provisions contained in sub-section (1), the
powers and functions of the Authority shall include,
1. issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration;
2. protection of the interests of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest, settlement of insurance
claim, surrender value of policy and other terms and conditions of contracts of
insurance;
3. specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents;
4. specifying the code of conduct for surveyors and loss assessors;
5. promoting efficiency in the conduct of insurance business;
6. promoting and regulating professional organizations connected with the insurance
and re-insurance business;
22
7. levying fees and other charges for carrying out the purposes of this Act;
8. calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance business;
9. control and regulation of the rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business not so controlled and
regulated by the Tariff Advisory Committee under section 64U of the Insurance
Act, 1938 (4 of 1938);
10. specifying the form and manner in which books of account shall be maintained
and statement of accounts shall be rendered by insurers and other insurance
intermediaries;
11. regulating investment of funds by insurance companies;
12. regulating maintenance of margin of solvency;
13. adjudication of disputes between insurers and intermediaries or insurance
intermediaries;
14. supervising the functioning of the Tariff Advisory Committee;
15. specifying the percentage of premium income of the insurer to finance schemes
for promoting and regulating professional organizations referred to in clause (f);
16. specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector; and
17. Exercising such other powers as may be prescribed from time to time.
Protection of the interest of policy holders:
IRDA has the responsibility of protecting the interest of insurance policyholders.
Towards achieving this objective, the Authority has taken the following steps:
IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy
proposal documents in easily understandable language; claims procedure in both life and non-
life; setting up of grievance redressal machinery; speedy settlement of claims; and
policyholders' servicing. The Regulation also provides for payment of interest by insurers for
the delay in settlement of claim.
23
The insurers are required to maintain solvency margins so that they are in a position to meet
their obligations towards policyholders with regard to payment of claims.
It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and
conditions under the policy. The advertisements issued by the insurers should not mislead the
insuring public.
All insurers are required to set up proper grievance redress machinery in their head office and at
their other offices.
The Authority takes up with the insurers any complaint received from the policyholders in
connection with services provided by them under the insurance contract.
The institution of Insurance Ombudsman was created by a Government of India Notification
dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured
customers and to mitigate their problems involved in redressal of those grievances. This
institution is of great importance and relevance for the protection of interests of policy holders
and also in building their confidence in the system.The institution has helped to generate and
sustain the faith and confidence amongst the consumers and insurers.
Insurance Ombudsman
The governing body of insurance council issues orders of appointment of the insurance
Ombudsman on the recommendations of the committee comprising of Chairman, IRDA,
Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance
council comprises of members of the Life Insurance council and general insurance council
formed under Section 40 C of the Insurance Act, 1938. The governing body of insurance council
consists of representatives of insurance companies.
Terms of office
An insurance Ombudsman is appointed for a term of three years or till the incumbent attains
the age of sixty five years, whichever is earlier. Re-appointment is not permitted..
Territorial jurisdiction of Ombudsman
The governing body has appointed twelve Ombudsmen across the country allotting them
different geographical areas as their areas of jurisdiction. The Ombudsman may hold sitting at
24
various places within their area of jurisdiction in order to expedite disposal of complaints. The
offices of the twelve insurance Ombudsmen are located at (1) Bhopal, (2) Bhubaneswar, (3)
Cochin, (4) Guwahati, (5) Chandigarh, (6) New Delhi, (7) Chennai, (8) Kolkata, (9) Ahmedabad,
(10) Lucknow, (11) Mumbai, (12) Hyderabad. The area of jurisdiction of each Ombudsman has
been mentioned in the list of Ombudsman.
Office Management
The Ombudsman has a secretarial staff provided to him by the insurance council to assist
him in discharging his duties. The total expenses on Ombudsman and his staff are incurred by
the insurance companies who are members of the insurance council in such proportion as may be
decided by the governing body.
Removal from office
An Ombudsman may be removed from service for gross misconduct committed by him
during his term of office. The governing body may appoint such person as it thinks fit to conduct
enquiry in relation to misconduct of the Ombudsman. All enquiries on misconduct will be sent to
Insurance Regulatory and Development Authority which may take a decision as to the proposed
action to be taken against the Ombudsman. On recommendations of the IRDA, the Governing
Body may terminate his services, in case he is found guilty.
Power of Ombudsman
Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award
making. The insurance Ombudsman is empowered to receive and consider complaints in respect
of personal lines of insurance from any person who has any grievance against an insurer. The
complaint may relate to any grievance against the insurer i.e. (a) any partial or total repudiation
of claims by the insurance companies, (b) dispute with regard to premium paid or payable in
terms of the policy, (c) dispute on the legal construction of the policy wordings in case such
dispute relates to claims; (d) delay in settlement of claims and (e) non-issuance of any insurance
document to customers after receipt of premium. Ombudsman's powers are restricted to
insurance contracts of value not exceeding Rs. 20 lakhs. The insurance companies are required to
honour the awards passed by an Insurance Ombudsman within three months
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Manner of lodging complaint
The complaint by an aggrieved person has to be in writing, and addressed to the insurance
Ombudsman of the jurisdiction under which the office of the insurer falls. The complaint can
also be lodged through the legal heirs of the insured. Before lodging a complaint:
i) the complainant should have made a representation to the insurer named in the
complaint and the insurer either should have rejected the complaint or the complainant have not
received any reply within a period of one month after the concerned insurer has received his
complaint or he is not satisfied with the reply of the insurer
ii) The complaint is not made later than one year after the insurer had replied.
iii) The same complaint on the subject should not be pending with before any court,
consumer forum or arbitrator.
Recommendations of the Ombudsman
When a complaint is settled through the mediation of the Ombudsman, he shall make the
recommendations which he thinks fair in the circumstances of the case. Such a recommendation
shall be made not later than one month and copies of the same sent to complainant and the
insurance company concerned. If the complainant accepts recommendations, he will send a
communication in writing within 15 days of the date of receipt accepting the settlement.
Award
The ombudsman shall pass an award within a period of three months from the receipt of
the complaint. The awards are binding upon the insurance companies. If the policy holder is not
satisfied with the award of the Ombudsman he can approach other venues like Consumer Forums
and Courts of law for redressal of his grievances.
As per the policy-holder's protection regulations, every insurer shall inform the policy
holder along with the policy document in respect of the insurance Ombudsman in whose
jurisdiction his office falls for the purpose of grievances redressal arising if any subsequently.
Steady increase in number of complaints received by various Ombudsman shows that the policy-
holders are reposing their confidence in the institution of Insurance Ombudsman.
26
APPLICATION OF INFORMATION TECHNOLOGY IN INSURANCE SECTOR
There is a evolutionary change in the technology that has revolutionized the entire
insurance sector. Insurance industry is a data-rich industry, and thus, there is a need to use the
data for trend analysis and personalization.
With increased competition among insurers, service has become a key issue. Moreover,
customers are getting increasingly sophisticated and tech-savvy. People today don’t want to
accept the current value propositions, they want personalized interactions and they look for more
and more features and add ones and better service
The insurance companies today must meet the need of the hour for more and more
personalized approach for handling the customer. Today managing the customer intelligently is
very critical for the insurer especially in the very competitive environment. Companies need to
apply different set of rules and treatment strategies to different customer segments. However, to
personalize interactions, insurers are required to capture customer information in an integrated
system.
With the explosion of Website and greater access to direct product or policy information,
there is a need to developing better techniques to give customers a truly personalized experience.
Personalization helps organizations to reach their customers with more impact and to generate
new revenue through cross selling and up selling activities. To ensure that the customers are
receiving personalized information, many organizations are incorporating knowledge database-
repositories of content that typically include a search engine and lets the customers locate the all
document and information related to their queries of request for services. Customers can hereby
use the knowledge database to manage their products or the company information and invoices,
claim records, and histories of the service inquiry. These products also may be able to learn from
the customer’s previous knowledge database and to use their information when determining the
relevance to the customers search request.
There is a probability of a spurt in employment opportunities. A number of web-sites are
coming up on insurance, a few financial magazines exclusively devoted to insurance and also a
few training institutes being set up hurriedly. Many of the universities and management institutes
have already started or are contemplating new courses in insurance. Life insurance has today
become a mainstay of any market economy since it offers plenty of scope for garnering large
27
sums of money for long periods of time. A well-regulated life insurance industry which moves
with the times by offering its customers tailor-made products to satisfy their financial needs is,
therefore, essential if we desire to progress towards a worry-free future.
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COMPANY PROFILE
ORIGIN OF THE ORGANIZATION
Introduction HDFC is a professionally managed organization with a board of directors consisting of
eminent persons who represent various fields including finance, taxation, construction and
urban policy & development. The board primarily focuses on strategy formulation, policy
and control, designed to increasing value to shareholders.
About HDFC HDFC is India’s leading housing finance institution and has helped build more than
23, 00,000 houses since its incorporation in 1977.
In Financial Year 2003-04 its assets under management crossed Rs. 36,000 Cr.
As at March 31, 2004, outstanding deposits stood at Rs. 7,840 crores. The depositor
base now stands at around 1 million depositors.
Rated ‘AAA’ by CRISIL and ICRA for the 10th consecutive year
Stable and experienced management
High service standards
Awarded The Economic Times Corporate Citizen of the year Award for its long-
standing commitment to community development.
Presented the ‘Dream Home’ award for the best housing finance provider in 2004 at
the third Annual Outlook Money Awards.
It entered into various sectors and offering services like banking, mutual funds etc, and
with the privatization in insurance sector, it also entered into insurance market.
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Features of HDFC
1. Investment returns:
Investment returns and business growth provided by HDFC is validated by Bajaj
Capital report. HDFC pacify the need of investors up to healthy level and make the strong
relationship with them.
2. Financial Background and Experience:
HDFC is a key market player since 1977. It has a very handsome experience in the
field of finance because it completely involved in finance Sector only where as the others
are running in many other field also like Reliance (Petroleum, Textile, Telecom etc.)
3. Ethics and Values:
HDFC is an ethical and cultural organization, which prevents the false selling and
prohibits the false commitment to the customer.
4. Sales Force:
Properly trained, licensed and educated people are the strength of the company.
Such personnel can provide the best customer service.
5. Branch:
Huge branch network HDFC is having 450 branches in all over the country.
6. Online accessibility:
It makes the process faster and adds to customer delight.
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Family companies: HDFC Limited
HDFC Bank Ltd
HDFC Asset Management Co. Ltd
HDFC Securities Ltd
HDFC Chubb General Insurance Co Ltd
About Standard Life
· The Standard Life group has been looking after the financial needs of customers for
over 180 years. Standard life currently has a customer base of around 7 million people who
rely on the company for their insurance, pension, investment, banking and health-care
needs. Its investment manager currently administers £125 billion in assets It is a leading
pensions provider in the UK, and is rated by Standard & Poor's as 'strong' with a rating of
A+ and as 'good' with a rating of A1 by Moody's. Standard Life was awarded the 'Best
Pension Provider' in 2004, 2005 and 2006 at the Money Marketing Awards, and it was
voted a 5 star life and pension’s provider at the Financial Adviser Service Awards for the
last 10 years running. The '5 Star' accolade has also been awarded to Standard Life
Investments for the last 10 years, and to Standard Life Bank since its inception in 1998.
Standard Life Bank was awarded the 'Best Flexible Mortgage Lender' at the Mortgage
Magazine Awards in 2006. Its business operates within six areas: UK Life & pensions,
Bank, Healthcare, Investments, Canada and International.
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The partnership:HDFC and standard life insurance first came together for a possible joint venture,
to enter life insurance market, in January 1995. It was clear from the outset both companies
shared values and beliefs and a strong relationship quickly formed. In October 1995 the
companies signed a 3-year joint venture agreement.
Around this time standard life purchased a 5% stake in HDFC, further
strengthening the relationship.
The next three years were filled with uncertainty, due to changes in government
and ongoing delays in getting the IRDA (Insurance Regulatory and Development
Authority) Act passed in parliament. Despite this both companies remained firmly
committed to the venture.
In October 1998, the joint venture agreement was renewed and additional resource
made available. Around this time standard life purchased 2% of Infrastructure
Development Finance Company Ltd. (IDFC) standard Life also started to use the services
of the HDFC Treasury department to advise them upon their investment in India.
Towards the end of 1999, the opening of the market looked very promising and
both companies agreed the time was right to moves the operation to the next level.
Therefore in January 2000 an export team from the UK joined pocked team from HDFC to
r\from the core project team, based in Mumbai. Around this time standard life purchased a
further 5% stake in HDFC and 5% stake in HDFC Bank.
In a further development standard life agreed to participates in the Asset
Management Company promoted by HDFC to enter the mutual fund market. The mutual
fund was launched on 20th July 2000.
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Incorporation of HDFC Standard Life Insurance Company Limited:
The company was incorporated on 14th August 2000 under the name of HDFC
Standard Life Insurance Company Limited. Company’s ambition from as far back as
October 1995, was to be first private company to re-enter the life insurance market in
India. On the 23rd of October 2000, this ambition was realized when HDFC Standard Life
Insurance was the only life company to be granted a certificate of registration.
HDFC and Standard Life are the main shareholders of HDFC Standard Life,
HDFC with 81.4%while standard Life owns 18.6% Given Standard Life’s existing
investment in the HDFC Group, this is the maximum investment under current regulations.
HDFC and standard life have a long and relationship built upon shared values and
trust. The ambition of HDFC Standard Life is to mirror the success of the parent
companies and be the yardstick by which all other insurance companies in India are
measured.
HDFC Standard Life Insurance Company Limited. is one of India's leading private
insurance companies, which offers a range of individual and group insurance solutions. It
is a joint venture between Housing Development Finance Corporation Limited (HDFC
Limited), India's leading housing finance institution and a Group Company of the Standard
Life Plc, UK. As on February 28, 2009 HDFC Ltd. Holds 72.43% and Standard Life
(Mauritius Holding) 2006, Ltd. holds 26.00% of equity in the joint venture, while the rest
is held by others.
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Key Strengths
Financial Expertise
As a joint venture of leading financial services groups, HDFC Standard Life has the
financial expertise required to manage your long-term investments safely and efficiently.
Range of Solutions
HDFC has a range of individual and group solutions, which can be easily
customized to specific needs. It’s group solutions have been designed to offer you
complete flexibility combined with a low charging structure.
Vision Statement“The most successful and admired life insurance company, which means that we
are the most trusted company, the easiest to deal with, offer the vest values for money, and
easiest the standards in the industry, In short, “ The most obvious choice for all. ”
Growth and Development of the Organization:
Current position:
Our gross premium income, for the year ending March 31, 2009 stood at Rs.
5,564.69 Crores.
As on March 31, 2009, the company has more than 27 lakh policies in force.
Vision & Values
Our Vision
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'The most successful and admired life insurance company, which means that we
are the most trusted company, the easiest to deal with, offer the best value for money, and
set the standards in the industry'. 'The most obvious choice for all'.
Values observed at work:
Integrity
Innovation
Customer centric
People Care “One for all and all for one”
Team –work
Joy and Simplicity
Associate Companies
HDFC Limited
HDFC Bank
HDFC Mutual Fund
HDFC Sales
HDFC ERGO General Insurance
Strong promoter
HDFC Standard Life is a strong, financially secure business supported by two
strong and secure promoters – HDFC Ltd and Standard Life. HDFC Ltd’s excellent brand
strength emerges from its unrelenting focus on corporate governance, high standards of
ethics and clarity of vision. Standard Life is a strong, financially secure business and a
market leader in the UK Life & Pensions sector.
Preferred and trusted brand
Our brand has managed to set a new standard in the Indian life insurance
communication space. We were the first private life insurer to break the ice using the idea
of self-respect instead of ‘death’ to convey our brand proposition (Sar Utha Ke Jiyo).
Today, we are one of the few brands that customers recognize, like and prefer to do
35
business. Moreover, our brand thought, Sar Utha Ke Jiyo, is the most recalled campaign in
its category.
Investment philosophyWe follow a conservative investment management philosophy to ensure that our
customer’s money is looked after well. The investment policies and actions are regularly
monitored by a formal Investment Committee comprising non-executive directors and the
Principal Officer & Executive Director.
As a life insurance company, we understand that customers have invested their
savings with us for the long term, with specific objectives in mind. Thus, our investment
focus is based on the primary objective of protecting and generating good, consistent, and
stable investment returns to match the investor’s long-term objective and return
expectations, irrespective of the market condition.
Need based selling approachDespite the criticality of life insurance, sales in the industry have been
characterized by over reliance on tax benefits and limited advice-based selling. Our eight-
step structured sales process ‘Disha’ however, helps customers understand their latent
needs at the first instance itself without focusing on product features or tax benefits. Need-
based selling process, 'Disha', the first of its kinds in the industry, looks at the whole
financial picture. Customers see a plan not piecemeal product selling.
Risk control frameworkHDFC Standard Life has fully implemented a risk control framework to ensure that
all types of risks (not just financial) are identified and measured. These are regularly
reported to the board and this ensures that the company management and board members
are fully aware of any risks and the actions taken to ensure they are mitigated
Transparent dealingOne of the few companies whose product details, pricing, clauses are clearly
communicated to help customers take the right decision.
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Strict compliance with regulationWe have initiated and implemented many new processes, some of which were
found useful by the IRDA and later made mandatory for the entire industry. The agents
who successfully completed this training only, were authorized by the company to sell
ULIPs. This has now been made compulsory by IRDA for all insurance companies under
the new Unit Linked Guidelines.
Accolades and RecognitionRated by 'Business world' as 'India's Most Respected Private Life Insurance
Company' in 2004.
Rated as the "Best New Insurer - 2003" by Outlook Money magazine, India’s
number 1 personal finance magazine.
PRODUCT PROFILE:
HDFC offers products as per the life stages of the customers and their respective
needs.
Your insurance need will change as your life does, from starting to work to enjoying your
golden years and all the stages in between. Each one of these stages may pose a different
37
insurance need/cover for you. In this section, we have drawn up the basic life stages and help
you analyze various insurance needs accordingly.
Products
Financial Year Name of the Product
In operation
Remarks, if any, by IRDA
From (opening
date*)
To (closing date)
2000-01 HDFC Endowment Assurance 12-Dec-00 13-Mar-02
2001-02 HDFC Endowment Assurance 13-Mar-02
2000-01HDFC Money BachHDFC Money Back 12-Dec-00
2000-01 HDFC Development Insurance Plan 30-Mar-01 16-Feb-06
2005-06 HDFC Development Insurance Plan 16-Feb-06
2000-01HDFC Single premium Whole of Life Insurance
30-Mar-01
2001-02 HDFC Group Term Insurance 7-Jun-01 6-Dec-06
2006-07 HDFC Group Term Insurance 6-Dec-06
2001-02 HDFC Protection Series 13-Sep-01 15-Mar-02
2001-02 HDFC Protection Series 15-Mar-02
2008-09 HDFC Protection Series 3-Mar-09
2001-02 HDFC Immediate Annuity 31-Jan-02 21-Feb-07
2004-05 HDFC Immediate Annuity 21-Feb-07
2001-02 HDFC Personal Pension Plan 8-Feb-02
2002-03 HDFC Bima Bachat Yojana 27-Nov-02
2007-08 HDFC Bima Bachat Yojana
2002-03 HDFC Children's Plan 14-Feb-03
2003-04 HDFC Group Unit Linked Plan 31-May-03 28-Mar-06
38
2005-06HDFC Group Unit Linked Plan Option A
28-Mar-06 31-Aug-10 Withdrawn
2003-04 HDFC Deposit Insurance Plan 19-Sep-03 28-Mar-05 Withdrawn
2003-04 HDFC Home Loan Protection Plan 6-Oct-03 5-Aug-04
2004-05 HDFC Home Loan Protection Plan 5-Aug-04
2003-04 HDFC Savings Assurance Plan 23-Dec-03
2003-04 HDFC Unit Linked Endowment Plan 30-Dec-03 23-Jun-06
Financial Year Name of the Product In operation Remarks
From (opening
date*)
To (closing date)
2006-07 HDFC Unit Linked Endowment 23-Jun-06 1-Mar-08 withdrawn
2003-04 HDFC Unit Linked Pension Plan 30-Dec-03 26-Jun-06
2003-04 HDFC Leave Encashment Plan 29-Jan-04 1-Jul-06 Withdrawn
2004-05 HDFC Assurance Plan 7-May-04
2004-05 HDFC Unit Linked Young Star Plan 21-Jun-04 22-Jun-06
2006-07 HDFC Unit Linked Young Star 22-Jun-06 1-Mar-08 withdrawn
2005-06HDFC Group Flexible Term Insurance
23-Jun-05
2005-06HDFC Group Variable Term Insurance
26-Dec-05
2005-06HDFC Group Unit Linked Plan Option B
28-Mar-06 31-Aug-10 Withdrawn
2005-07HDFC Group Unit Linked Plan Option B
1-Feb-11
2006-07 HDFC Unit Linked Young Star Plus 22-Jun-06 1-Mar-08 withdrawn
2006-07 HDFC Unit Linked Endowment Plus 23-Jun-06 1-Mar-08 withdrawn
2006-07HDFC Unit Linked Young Star Suvidha
23-Jun-06 15-Dec-08 withdrawn
2006-07HDFC Unit Linked Young Star Suvidha Plus
23-Jun-06 15-Dec-08 withdrawn
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2006-07HDFC Unit Linked Endowment Suvidha
26-Jun-06 15-Dec-08 withdrawn
2006-07HDFC Unit Linked Endowment Suvidha Plus
26-Jun-06 15-Dec-08 withdrawn
2006-07 HDFC Unit Linked Pension Plus 26-Jun-06 8-Oct-08 Withdrawn
2007-08HDFC Unit Linked Enhanced Life Protection II
4-Feb-08 1-Jan-10 Withdrawn
2007-08HDFC Unit Linked Endowment Plus II
4-Feb-08 1-Jan-10 Withdrawn
2007-08HDFC Unit Linked YoungStar Plus II
5-Feb-08 1-Jan-10 Withdrawn
2008-09 HDFC SimpliLife 14-Jul-08 16-Dec-09
2008-09 HDFC SimpliLife 16-Dec-08 30-Dec-09
2009-10 HDFC SimpliLife 30-Dec-09 31-Aug-10 Withdrawn
2008-09HDFC Unit Linked Wealth Maximiser Plus
14-Jul-08 1-Jan-10 Withdrawn
2008-09 HDFC Critical Care Plan 14-Jul-08
Financial Year Name of the Product In operationRemarks
2008-09 HDFC Young Star II 31-Jul-08 1-Jan-10 Withdrawn
From (opening
date*)
To (closing date)
2008-09 HDFC Unit Linked Endowment II 31-Jul-08 1-Jan-10 Withdrawn
2008-09 HDFC Unit Linked Pension II 17-Sep-08 1-Jan-10 Withdrawn
2008-09HDFC Unit Linked Pension Maximiser II
17-Sep-08 1-Jan-10 Withdrawn
2008-09HDFC Unit Linked Endowment Winner
17-Nov-08 1-Jan-10 Withdrawn
2008-09HDFC Unit Linked Young Star Champion
17-Nov-08 1-Jan-10 Withdrawn
2008-09 HDFC Standard Life Surgicare Plan 10-Feb-09
2009-10HDFC Unit Linked Wealth Multiplier
27-May-09 1-Jan-10 Withdrawn
2009-10 HDFC Gramin Bima Kalyan Yojana 7-Oct-09
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2009-11 HDFC Gramin Bima Kalyan Yojana
2009-10 HDFC Premium Guarantee Plan 7-Oct-09
2009-10 HDFC Pension Super 3-Nov-09 31-Aug-10 Withdrawn
2009-10 HDFC Young Star Super 4-Nov-09 31-Aug-10 Withdrawn
2009-10 HDFC Endowment Super 8-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Young Star Super Suvidha 8-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Endowment Super Suvidha 15-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Young Star Supreme Suvidha 15-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Endowment Supreme Suvidha 15-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Wealth Builder 24-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Pension Supreme 31-Dec-09 31-Aug-10 Withdrawn
2009-10 HDFC Pension Maximiser II 18-Jan-10 31-Aug-10 Withdrawn
2009-10 HDFC Pension Champion 18-Jan-10 31-Aug-10 Withdrawn
2009-10 HDFC Endowment Supreme 28-Jan-10 31-Aug-10 Withdrawn
2009-10HDFC Young Star Champion Suvidha
11-Feb-10 31-Aug-10 Withdrawn
2009-10 HDFC YoungStar Supreme 26-Feb-10 31-Aug-10 Withdrawn
2009-10HDFC Endowment Champion Suvidha
8-Mar-10 31-Aug-10 Withdrawn
2010-11 HDFC SL Group Savings Plan 14-Jun-10
Financial Year Name of the Product
In operation
RemarksFrom (opening
date*)
To (closing date)
2010-11 HDFC SL New Money Back Plan 20-Aug-10
2010-11 HDFC SL Group Conventional Plan 22-Nov-10
2010-11 HDFC SL Endowment Gain 9-Dec-10
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2010-11 HDFC SL Group Traditional Plan 10-Feb-11
2010-11HDFC SL Classic Assure Insurance Plan
10-Feb-11
New ULIPs to be offered for sale w.e.f. 01.09.2010
2010-11 HDFC SL Crest 27-Aug-10
2010-11 HDFC SL Youngstar Super II 30-Aug-10
2010-11 HDFC SL ProGrowth Super II 13-Sep-10
2010-11 HDFC SL ProGrowth Maximiser 21-Oct-10
2010-11HDFC SL Young Star Super Premium
1-Nov-10
2010-11 HDFC SL ProGrowth Flexi 21-Dec-10
2010-11HDFC SL Group Unit Linked Option I
3-Jan-11
2010-11 HDFC SL pension Maximus 14-Jan-11
Table 1 Products available in HDFC SL
List of funds in HDFC Standard Life1. Blue chip wealth builder fund.
2. Income wealth builder fund.
3. Opportunities wealth builder fund.
4. Vantage wealth builder fund.
5. Bond opportunities Fund
6. Large Cap Niche Life Fund
7. Mid Cap Niche Life Fund
8. Managers Fund
9. Money Plus Fund
1. Blue chip wealth builder fund:
The fund aims to provide medium to long term capital appreciation by investing in a
portfolio of pre-dominantly large cap companies which can perform through economic and
42
market cycles. The fund will invest at least 80% in companies which have a market capitalization
greater than the company with the least weight in BSE100 index. The fund may also invest up to
20% in money market instruments/cash.
2. Income wealth builder fund:
The fund aims to provide superior returns through investments in high credit quality debt
instruments while maintaining an optimal level of interest rate risk. The fund may also invest up
to 20% in money market instruments/cash.
3. Opportunities wealth builder fund:
The fund aims to generate long term capital appreciation by investing pre-dominantly in
mid cap stocks which are likely to be the blue chips of tomorrow. The fund will invest in stocks
which have a market capitalization equal to or lower than the market capitalization of the highest
weighted stock in the NSE CNX Midcap Index. The fund may also invest up to 20% in money
market instruments/cash.
4. Vantage wealth builder fund:
This is a fund of funds which will invest in the Income Wealth Builder Fund, Blue chip
Wealth Builder Fund and Opportunities Wealth Builder Fund. The allocation to each fund will
depend on the fund manager's market view and will be within the limits.
5. Bond opportunities Fund:
To provide reasonable returns through investments in high credit quality debt instruments
while maintaining an optimal level of interest rate risk.
6. Large Cap Niche Life Fund:
To generate long term capital appreciation from a diversified portfolio of pre-dominantly
in large cap equity and equity related securities.
43
7. Mid Cap Niche Life Fund:
To generate long term capital appreciation from a diversified portfolio of pre-dominantly
in mid cap equity and equity related securities
8. Managers Fund:
This is a fund of funds which will invest in Money Plus Niche Life Fund, Bond
Opportunities Niche Life Fund, Large Cap Niche Life Fund and Mid Cap Niche Life Fund. The
allocation to each fund will depend on the fund manager's market view and will be within the
limits.
9. Money Plus Fund:
To generate optimal returns from investments biased to the highest credit quality at the
short end of the yield curve, such that interest rate risks and credit risks are low.
44
RESEARCH METHODOLOGY
Objectives of study: To study the funds available for investment in HDFC Standard Life.
To suggest better investment policy for the funds collected through insurance policies in
insurance products in order to get maximum returns.
To help in optimum portfolio construction.
Research design
Research design is the plan, structure and strategy of investigation conceived so as to
obtain answer to research questions and to control variance. Research design is in fact the
conceptual structure with in which the research is conducted. Bernard Phillips has described the
research design as “blue print for the collection, measurement and analysis of data”.
Sources of data
Primary sources:
Interactions with the employees of the organization.
Secondary sources:
When an investigator uses the data which has already been collected by others, such data
is called secondary data. This data is primary data for the agency that collects it and it becomes
secondary data for someone else who uses this data for his own purpose.
Secondary data for the study is collected from Internet, Government publication,
publication of professionals and research organizations. Following are few sources for secondary
data.
Model of Research:
The present research is conducted for analyzing a quantitative data. Hence, the research
model selected is Analytical Research.
45
Analytical Research:
Analytical research tests a pre-planned hypotheses basing on existing knowledge. It is a
procedure or technique of analysis applied to quantitative data. It may consist of a system of
mathematical models or statistical techniques applicable to numerical data. It concentrates on
analyzing data in depth and examining relationship for various angels by bringing in as many
relevant variables as possible in the analysis plan. This method is extensively used in business
and other fields in which quantitative numerical data are generated.
Scope of study:
This study will help to understand portfolio construction, Evaluation, Revision of
insurance funds of HDFC standard life insurance, at the same time gives an idea whether
company is gaining maximum returns.
Limitation of the study:
Secondary data can be general and vague and may not really help companies with
decision making.
The information and data may not be accurate. The source of the data must always be
checked.
The data maybe old and out of date.
The sample used to generate the secondary data maybe small.
The company publishing the data may not be reputable.
The analysis is mainly done for two quarters(i.e for a short period of time)
46
Analysis and Interpretation
1. Formula for calculating Stock return for specified period of time
Return =
2. Formula for calculating Portfolio Return
Portfolio Return = w1*R1+w2*R2+w3*R3……..
Where,w1= Weight of stock 1 in portfolio.
w2= Weight of stock 2 in portfolio.
R1= Return of stock 1.
R2 = Return of stock 2
47
(Current price – Base price) *100
Base price
1. Variation in premium collection for 3 years.
Year Premium (in cr.)
2008 4858.56
2009 5564.69
2010 7005.10
Table 2 Variation in premium collection for 3 years
2008 2009 20100
1000
2000
3000
4000
5000
6000
7000
8000
4858.565564.69
7005.1
Figure 1 Premium collection for 3 years.
Analysis:
The above graph clearly shows that there is a growth in premium collection of the HDFC
SL over the past 3 years.
48
2. Net investment for 3 years.
Year Premium (in cr.)
2008 36020822
2009 39057231
2010 48767468
Table 3 Net investment for 3 years
2008 2009 20100
10000000
20000000
30000000
40000000
50000000
60000000
36020822 39057231
48767468
Figure 2 Net investment for 3 years
Analysis:
The graph shows that there is a continuous increase in the net investment made by the
HDFC SL over the past 3 years.
49
3. Blue chip wealth builder fund
3.1 Sector wise Investment in Equity of Blue Chip Wealth Builder Fund
SECTOR INVESTMENT%
Finance14.60
oil and Gas 13.70
Capital Goods 10.44
FMCG 10.00
Information Technology 8.95
Health care 6.31
Transport Equipments 5.65
Banks 4.12
Metal and Mining 3.67
Power 3.33
Cement 2.93
Marine port and services 2.49
Media and publishing 2.40
Telecom 2.25
IT Consulting and Software 1.93
Pharmaceuticals 1.85
Automobiles – 2,3 Wheelers 1.48
Consumer Durables 1.36
SECTOR INVESTMENT%
50
Agrochemical 1.10
Electric Utilities 1.05
Others 0.39
Table 4 Sector wise Investment Blue Chip Wealth Builder Fund
Finance
oil and gas
Capital goods
Fast moving consumer goods
information Technology
Health care
Transport Equipments
Banks
Metal and Mining
Power
Cement
Marine port and services
Media and publishing
Telecom
IT Consulting and Software
Pharmaceuticals
Automobiles – 2,3 Wheelers
Consumer Durables
Agrochemical
Electric Utilities
Others
0 2 4 6 8 10 12 14 16
Percentage of investment in various sectors
INVESTMENT%
Figure 3 Blue Chip Wealth Builder Fund Investments
Analysis:
51
From the graph it is evident that the company has invested a large portion of its
pooled money in the finance sector and least of 1.05% in Electric Utilities when blue chip wealth
builder fund is considered.
3.2 Portfolio Structure of Blue chip wealth builder fund
Portfolio Component %investment
Equity 92.71
Debt 7.29
Table 5 Portfolio Structure
92.71%
7.29%
EquityDebt
Figure 4 Portfolio Structure of Blue chip wealth builder fund
Analysis:
In blue chip wealth builder fund the company has invested up to 92.71% in equity
market and just 7.29% in debt market.
4. Income Wealth Builder Funds
52
Portfolio component %investment
Debentures/Bonds 60.43
Government securities 12.39
Deposits and money market instruments 18.18
Table 6 Portfolio Structure of Income wealth Builder Fund
60.43%12.39%
18.18%
Debentures/BondsGovernment securitiesDeposits and money market instruments
Figure 5 Income Wealth Builder Funds
Expected portfolio Yield: 9.32%
Analysis:
From the graph we can say that in Income wealth builder fund portfolio the
company has invested majorly in debentures and bonds and least of 12.39% in government
securities.
5. Opportunities Wealth Builder Fund
53
Portfolio Component Investment in percentage
Equity 89.56
Money Market Instruments 10.16
Table 7 Portfolio Structure of Opportunities wealth Builder Fund
89.46%
10.16%
EquityMoney Market In-struments
Figure 6 Opportunities Wealth Builder Fund
Analysis:
In opportunities wealth builder fund portfolio 89.46% investment is made in equity
market and 10.16% of investment is made in money market and other investment avenues.
5.1 Sector wise Investment in Equity of Opportunities Wealth Builder Fund
54
Sector %investment
Finance 29.95
Oil and Gas 16.99
Health care 14.11
Cement 9.73
Consumer Durables 7.37
Pharmaceuticals 4.87
Media and Publishing 4.51
Bank 3.62
Electric utilities 2.98
Fertilizers 2.22
Diversified 2.05
Others 1.58
Table 8 Sector wise Investment in Equity of Opportunities Wealth Builder Fund
55
Finance
Oil and Gas
Health care
Cement
Consumer Durables
Pharmaceuticals
Media and Publishing
Bank
Electric utilities
Fertilizers
Diversified
Others
0 5 10 15 20 25 30 35
Figure 7 Opportunities Wealth Builder Fund Investments
Analysis:
Out of 89.84% of opportunities wealth builder fund, 29.95% is in finance sector and a
least of 2.22% in Fertilizer sector is allocated.
56
6. Vantage Wealth Builder Fund
Portfolio component %Investment
Income Wealth Builder fund 49.35
Bluechip Wealth Builder Fund 25.90
Opportunities Wealth Builder Fund 24.75
Table 9 Portfolio Structure of Vantage wealth Builder Fund
49.35%
25.9%
24.75%Income Wealth Builder fundBluechip Wealth Builder FundOpportunities Wealth Builder Fund
Analysis:
Vantage wealth builder fund is a fund of funds in which 49.35% of investment is made
in Income wealth builder Fund and 25.9% each in blue chip wealth builder fund and 24.75% in
Opportunities Wealth Builder fund.
57
7. Bond opportunities Fund
Portfolio Component %investment
Debentures/Bonds 25.18
Government securities 56.31
Deposits and money market instruments 18.51
Table 10 Portfolios Structure of Bond opportunities Fund
25.18%
56.31%
18.51%
Debentures/BondsGovernment securitiesDeposits and money market instruments
Figure 8 Portfolio structure of Bond opportunities Fund
Analysis:
In bond opportunities fund 56.31% investment is in government securities, 25.18% in
debentures and bonds and 18.51% in Deposits and money market instruments is made. Expected
Portfolio Yield is 8.34%.
58
8. Large Cap Niche Life Fund
Portfolio component %investment
Equity 95.81
Deposit and Money market Instruments 4.19
Table 11 Portfolio Structure of Large Cap Niche Life Fund
95.81%
4.19%
EquityDeposit and Money market Instruments
Figure 9 Portfolio Structure Large Cap Niche Life Fund
Analysis:
In large cap niche life fund 95.81% of investment is made in equity and only 4.19% in
money market instruments.
59
8.1 Sector wise allocation of funds in equity in Large Cap Niche Life fund
Sector Investment in percentage
Finance 18.17
Oil and Gas 15.56
Capital Goods 11.63
Information Technology 10.55
Fast moving consumer goods 8.99
Healthcare 6.82
Metal, Metal products & Mining
5.48
Power 4.04
Transport Equipment 3.65
Banks 3.37
Telecom 2.64
Automobiles 2.07
Media and publishing 1.95
Chemical & Petrochemical 1.43
IT Consulting and Software 1.30
Others2.34
Table 12 Sector wise allocation of funds in equity in Large Cap Niche Life fund
60
Finan
ce
Oil and Gas
Capita
l Goods
Informati
on Tech
nology
Fast
moving c
onsumer
goods
Health
care
Metal, M
etal p
roducts
& M
iningPower
Transp
ort Eq
uipment
Banks
Telec
om
Automobiles
Media
and publish
ing
Chemica
l & Petr
ochem
ical
IT Consu
lting and So
ftware
Others0
2
4
6
8
10
12
14
16
18
20
Figure 10 Investment in different sectors Large Cap Niche Life fund
Analysis:
Out of 95.81% of Large Cap Niche Life fund, 18.17% is in finance sector and a least of
1.30% in IT consulting and Software.
61
9. Mid Cap Niche Life Fund
Portfolio Component % investment
Equity 97.14
Money market and others 2.86
Table 13 Portfolio Structure of Mid Cap Niche Life Fund
97.14%
2.86%
EquityMoney market and others
Figure 11 Portfolio Structure of Mid Cap Niche Life Fund
Analysis:
In mid cap niche life fund 97.14% of investment is made in equities and only 2.86 % in
money market instruments.
62
10. Managers Fund
Component of Portfolio % investment
Bond Opportunities Niche Life Fund 44.81
Large cap Niche Life Fund 25.64
Mid Cap Niche Life Fund 24.88
Money Plus Niche Life Fund 4.67
Table 14 Managers Fund
44.81%
25.64%
24.88%
4.67%
Bond Opportunities Niche Life FundLarge cap Niche Life FundMid Cap Niche Life FundMoney Plus Niche Life Fund
Figure 12 Portfolio structure of Managers Fund
Analysis:
It is also a fund of funds where maximum investment is made in Bond opportunities
niche life fund and minimum investment is made in Money Plus niche life fund.
63
11. Money Plus Fund:
Component of Portfolio % investment
Debentures/Bonds 3.72
Government Securities 73.12
Deposits and money market Securities 23.16
Table 15 Portfolio structure of Money plus Fund
3.72%
73.12%
23.16%
Debentures/BondsGovernment SecuritiesDeposits and money market Securities
Figure 13 Portfolio structure of Money plus Fund
Analysis:
From the chart it is clear that in money plus fund major portion of investment is made in
government securities i.e. 73.12%. 23.16% and 3.72% in money market and debentures
respectively
64
Funds Considered for in depth Analysis
1. Large cap Niche Life Fund
2. Blue chip Wealth Builder Fund
Large cap Niche Life Fund details
Particulars March 2011 April 2011 May 2011
Entry of new security to
Portfolio
Base portfolio* 1. Cairn India
Limited
2. Mphasis Ltd
1. Mundra Port
& Special
Economic
Zone ltd.
Exit of the security from
the portfolio
Base portfolio* 1. Punjab
National Bank
2. Siemens Ltd
1. Oil India
Ltd.
Table 16 Large cap Niche Life Fund details
*Base portfolio is taken as portfolio on March 31ST 2011
Base index: NIFTY
Bench mark return as on March 31 2011(3 months) : -4.90%
Fund Return as on March 31 2011(3 months) : -6.25%
Bench mark return as on May 31 2011(3 months) : 4.25%
Fund Return as on May 31 2011(3 months) : 4.80%
Bench mark return from past 2 years as on May 31 2011 : 11.79%
Fund Return from past 2 years as on May 31 2011 : 17.25%
NAV (June 20th 2011) : 13.47
65
Blue Chip Wealth Builder Fund details
Particulars March 2011 April 2011 May 2011
Entry of new
security to Portfolio
Base portfolio* 1. Indian
Overseas Bank
2. Cairn India
Ltd.
1. Bank of
Baroda
Exit of the security
from the portfolio
Base portfolio* 1. Siemens Ltd
2. Kotak
Mahindra
Bank Ltd
3. Bank of
Baroda
4. United
Phosphorous
Ltd.
1. Mundra Port
& Special
Economic
Zone Ltd.
2. Blue Star Ltd.
3. National
Thermal
Power
Corporation
Ltd.
Table 17 Blue chip Wealth Builder Fund
*Base portfolio is taken as portfolio on March 31ST 2011
Base index: BSE 100
Bench mark return as on March 31 2011(3 months) : -5.43%
Fund Return as on March 31 2011(3 months) : -5.91%
Bench mark return as on May 31 2011(3 months) : 4.98%
Fund Return as on May 31 2011(3 months) : 6.39%
Bench mark return from past 1 years as on May 31 2011 : 7.52%
Fund Return from past 1 years as on May 31 2011 : 9.68%
66
NAV (June 20th 2011) : 9.98
(Source: Fund sheet of HDFC SL)
Details of stocks that entered or moved out of the Fund
Large Cap Niche Life Fund
Stock NameEntry
Month
Exit
Month
28-02-
2011
closing
31-03-
2011
closing
29-04-
2011
closing
31-05-
2011
closing
%
growth
Cairn India Ltd. APR 2011 - 339.1 351.25 349.25 339.35 -3.39
Mphasis Ltd. APR 2011 - 431.25 415.55 469.15 467.6 12.53
Mundra Port & Special
Economic Zone Ltd.
MAY
2011- 138.4 136.45 144.35 160.85 11.43
Punjab National Bank -APR
20111054.75 1220.15 1185.85 1099.7 15.68
Siemens Ltd. -APR
2011846 881.35 864.3 871.05 4.18
Oil India Ltd. -MAY
20111233.75 1312.85 1385.45 1286.35 12.3
Table 18 Details of stocks that entered or moved out of the Fund
Cairn India Ltd.
Mphasis Ltd.
Mundra Port & Special
Economic Zone Ltd.
Punjab National
Bank
Siemens Ltd.
Oil India Ltd.
-5
0
5
10
15
20
% growth
Figure 14 Graphical representation of stocks that entered or moved out of the Fund
67
Blue Chip Wealth Builder Fund
Stock NameEntry
Month
Exit
Month
28-02-
2011
closing
31-03-
2011
closing
29-04-
2011
closing
31-05-
2011
closing
%
growth
Indian Overseas BankAPR 2011
- 132.75 143.6 152.65 142.25 -0.94
Cairn India Ltd.APR
2011- 339.1 351.25 349.25 339.35 -3.39
Bank of BarodaMAY 2011
- 870.85 963.15 912.15 863.4 -5.34
Siemens Ltd. - APR 2011 846 881.35 864.3 871.05 4.18
Kotak Mahindra Bank Ltd.
- APR 2011 405.35 456.85 430.2 440.55 4.16
Bank of Baroda - APR 2011 870.85 963.15 912.15 863.4 10.56
United Phosphorous Ltd.
- APR 2011 135.65 150.4 151.9 162.1 10.87
Mundra Port &
Special Economic Zone
Ltd.
-MAY
2011138.4 136.45 144.35 160.85 4.3
Blue Star Ltd. -MAY 2011
322.9 371.85 367 317 13.66
National Thermal
Power Corporation-
MAY 2011
170.05 193 181.95 168.95 7.0
Table 19 Details of stocks that entered or moved out of the Fund
68
Indian O
verse
as Ban
k
Cairn In
dia Ltd
.
Bank o
f Baro
da
Siemen
s Ltd.
Kotak M
ahindra
Bank L
td.
United Phosp
horous L
td.
Mundra Port
&
Speci
al Eco
nomic Zone L
td.
Blue Star
Ltd.
National
Therm
al
Power Corp
oration
-5
0
5
10
15
% growth
Figure 15 Graphical representation of stocks that entered or moved out of the Fund
Analysis:
The analysis is done keeping in mind the base portfolio as March 31st 2011. So any
portfolio changes in the manner of stocks entering or leaving in April and May is considered.
The performance and growth of the stock is calculated as follows. If the stock has entered the
fund portfolio then the growth is calculated from the month in which it enters till the month in
which it leaves or till the end period of study i.e. May 31st 2011 as the case may be. If the stock
has exited from the fund portfolio then the growth is calculated from the month in which it enters
or from the previous close of the start of the base portfolio i.e. 28 th February 2011 as the case
may be. This is done because if the stock is not present in the fund portfolio then the
performance of it is irrelevant to the fund’s performance. Hence only the period in which the
stock performance bears a significant impact on the fund’s performance is taken into
consideration. Hence from the graph it is inferred that the stock performance of Punjab National
Bank in case of Large Cap Niche Fund and Blue Star for Blue Chip Wealth Builder Fund was
beneficial for the fund’s growth and Cairn India Ltd. had a negative impact on the growth of both
the funds.
69
Current price of the stock that entered or moved out of the funds:
Stock Name Fund Name SectorPrice on Jun
20th 2011
Cairn India Ltd.Large Cap Niche Life Fund/ Blue Chip
Wealth Builder FundOIL & GAS 307.7
Mphasis LtdLarge Cap Niche Life Fund
IT 426.2
Mundra Port &Special Economic Zone
Ltd.
Large Cap Niche Life Fund/ Blue Chip Wealth Builder Fund
Marine Port & Services
146.85
Punjab National Bank Large Cap Niche Life Fund Bank 1050.05
Siemens Ltd.Large Cap Niche Life Fund/ Blue Chip
Wealth Builder Fund CG 846.65
Oil India Ltd. Large Cap Niche Life Fund OIL & GAS 1251.95
Indian Overseas Bank Blue Chip Wealth Builder Fund Bank 144.55
Bank of Baroda Blue Chip Wealth Builder Fund Bank 858.65
Kotak Mahindra Bank Ltd. Blue Chip Wealth Builder Fund Bank 433.6
United Phosphorous Ltd. Blue Chip Wealth Builder Fund Agrochemical 146
Blue Star Ltd. Blue Chip Wealth Builder Fund CD 307.85
National Thermal Power Corporation Ltd.
Blue Chip Wealth Builder Fund Power 174.45
Table 19 Current price of the stock that entered or moved out of the funds
Analysis:
It can be seen that Cairn India Ltd. is performing badly as its stock price has reduced
even further and from the earlier table it can be seen that there is a decreasing trend altogether.
Hence it is best that it be removed from both the fund’s portfolio for better fund performance. Its
assets can be allocated in another stock of the same sector which is analyzed in the later stage.
70
Mundra Port & Special Economic Zone has fallen rapidly and its performance must be
monitored and exited at the right time.
Sector wise return as on May 31st 2011
Name of the stock Return
AUTO 0.97%
POWER 1.58%
OIL & GAS 1.18%
HEALTH CARE 1.87%
IT 0.5%
FMCG 2.25%
BANK 2.13%
CG 1.3%
CD 1.33%
Table 20 Sector wise return as on May31st 2011
AUTO POWER OIL & GAS
HEALTH CARE
IT FMCG BANK CG CD0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
Bullish Performance of Sectors
Percentage Increase
Figure 15 Sector wise return as on May 31st 2011
71
Analysis:
In the bullish sectors, FMCG sector saw a considerable increase of 2.25% and moderate
increase was in the IT Sector of 0.5%. Good time to buy stocks of good return value from top
performing sectors in the month of June 2011 to increase the fund value.
Better performers in the considered sectors:
Sector Name Stock Name Percentage growth
Auto Mahindra & Mahindra 9.5%
Power Power Grid Corporation 2.08%
Oil & Gas Petronet LNG Ltd. 23.16%
Health Care Fortis Healthcare Ltd. 11.08%
IT HCL Technologies Ltd. 16.43%
FMCG ITC 14.41%
Bank YES Bank 17.12%
CG Suzlon Energy 15.54%
Table 21 Better performers in the considered sectors
Mahindra & Mahindra
Power Grid Corp.
Petronet LNG Ltd.
Fortis HC Ltd.
HCL Tech. Ltd.
ITC YES Bank Suzlon En-ergy
Percentage growth
0.095 0.0208 0.2316 0.1108 0.1643 0.1441 0.1712 0.155400000000001
2.50%
7.50%
12.50%
17.50%
22.50%
Figure 16 Performance of Good Stocks in the various sectors
72
Analysis:
The graph is showing the return of stocks which performed well in the Bullish market
trend. Petronet LNG Ltd. showed the highest growth and also the forecast is positive. Hence
Cairn India Ltd. can be replaced by this stock for better fund performance. Also YES Bank had
outperformed the other banks like Punjab National Bank, Kotak Mahindra Bank, Indian
Overseas Bank and Bank of Baroda and hence sufficient assets should be allocated for better
fund performance as this Bank does not feature in any of the fund’s asset allocation.
Graphical comparative analysis of Large Cap Niche Life Fund vs. the Bench Mark Indices (3 months)
Figure 17 S&P CNX Nifty vs. Large Cap Niche Life Fund Performance
For the considered 3 months study
73
Analysis:
It is seen that the fund performance of the HDFC Large Cap Niche Life Fund is much better than its bench mark index which is the NIFTY and has closely followed its ups and downs. It has done much better when NIFTY was down and has held up moderately when NIFTY was up. The fund’s performance especially in the month of May 2011 is outstanding when compared to its Bench Mark Index and is showing a high positive trend in the month of June. Hence customers who have invested in this fund have and will benefit to a large extent.
Graphical comparative analysis of Blue Chip Wealth Builder Fund vs. the Bench Mark Indices (3 months)
Figure 18 BSE 100 vs. Blue Chip Wealth Builder Fund Performance
For the considered 3 months study
74
Analysis:
The performance of the HDFC Blue Chip Wealth Builder Fund is a little lower than its bench mark index which is the BSE 100 thought it has closely followed its ups and downs. But towards the end of the study month i.e. in the month of May 2011 and June 2011 it can be seen that the fund is outperforming its bench mark index and is showing a favorable trend.
FINDINGSPremium collection over the past 3 years has continuously increased.
Large Cap Niche Life Fund
For the past 2 years the bench mark index return is 11.79%.
For the past 2 years the fund return is 17.25%.
In the last quarter the bench mark return is 4.25%.
For the same quarter fund return is 4.80%.
This shows that the fund has been performing well compared to its bench mark index
return.
The stocks which moved out of this fund showed the following returns after they moved
out. This is calculated from the month of exit till the date of study i.e. 20th June 2011:
STOCK NAME RETURN PERCENTAGEPunjab National
Bank-13.94%
Siemens Ltd. -3.94%Oil India Ltd. -9.64%
75
While PNB and Siemens exited out of the fund in the month of April 2011, Oil India exited in
the month of May 2011. The growth percentage shows negative which in fact is a good sign and
reflects on the Fund Manager’s intelligence in de-allocating the stock from the portfolio.
NAV (Net Asset Value) of this fund is 13.47 (on June 20th 2011)
Blue Chip Wealth Builder Fund For the past 1 year the benchmark index return is 7.52%.
For the past 1 year the fund return is 9.68%.
In the last quarter the bench mark index return is 4.98%.
For the same quarter fund return is 6.39%.
This shows that the fund has been performing well compared to its bench mark index
returns.
The stocks moved out of this fund showed the following returns after they are moved out.
This is calculated from the month of exit till the date of study i.e. 20th June 2011:
76
STOCK NAME RETURN PERCENTAGE
Siemens Ltd -3.94%Kotak Mahindra Bank Ltd. 5.10%United Phosphorous Ltd. 2.93%
Mundra Port & Special economic Zone ltd
1.73%
Blue Star Ltd. -16.12%National Thermal Power Corporation -4.12%
(Bank of Baroda is not considered as it moved out of the fund portfolio on April 2011 but again
re-entered the portfolio on May 2011)
Though Kotak Mahindra Bank, United Phosphorous and Mundra Port have positive growth it is
a slight marginal increase. The Fund Manager’s ability is brought out in the exit of Blue Star Ltd.
as there is a steep fall in the stock performance and hence the fund manager is right in moving
out of the stock thus protecting the fund.
NAV (Net Asset Value) of this fund is 9.98(on June 20th 2011).
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MARKET ANALYSIS OF THE STOCKS WHICH MOVED OUT OF THE FUNDS
Various market triggers might have made the fund manager to exit from the stock to keep the
fund performance good. Some of the market updates during the period of study and their analysis
have been given below.
Punjab National Bank
The exit of Punjab National Bank in the month of April is more on an intuitive level by the fund manager than a market triggered cause. Though the bank had been performing very well during the month of March, it was more of a make the best when it is doing well and exit out fast approach which would explain as to why the fund manager choose to exit out of the stock even when most market analyst predicted the better for bank. However whatever the reasons had been it proved for the better because Punjab National Bank went downhill after that.
Some of the market updates were:o The company is going to issue 15.10 lakh shares to government at Rs 1218.82 per
share, reports CNBC-TV18 on 24th March 2011o Top loser on the Nifty on April 1st 2011
o CBI has filed a case alleging Venkoba Gujjal, deputy general manager of Punjab
National Bank for giving bribes to get loans on April 20th 2011
Siemens Ltd.
The market went bullish on Siemens Ltd. No particular reason as to why the fund manager chose to exit out of this but there was some volatile performance. On some days Siemens would be among the top market gainers and other days it would be in the top market losers.
Some of the market updates were:o Siemens closed at Rs 857.85 on March 14th 2011 with an intraday high of Rs
860.35. There were pending buy orders of 29,456 shares, with no sellers available. (52-week high Rs 884.95).
o Top loser in Nifty on April 11th.
o Siemens moves up smartly on April 13th with an intraday high of Rs 879.
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o Siemens among major losers on April 15th.
Oil India Ltd.
Various factors led to the decline in stock prices of Oil India during the close of April 2011 and the beginning of May 2011 which may have resulted in the Fund Manager to pull out of the stock.
Some of the market updates during those months were:o Uncertainty due to petrol hike on May 17th 2011.
o Share prices of upstream companies, led by ONGC, took a hit on the BSE on 20th
May 2011 after the government increased the burden of fuel subsidy payable by the oil firms from one-third to 38.8 per cent.
o Morgan Stanley’s views on Oil India estimated a fall of 31% on 20th May 2011.
Kotak Mahindra Bank Ltd.
Few factors may have provoked the fund manager to move out of Kotak Mahindra Bank. Some of the market updates during those months triggering the exit might have been:
o Kotak Mahindra Bank tripped on selling pressure on 26th April 2011.
o RBI penalized the bank for violating rules on derivatives and imposed a fine of 15
lacs.o Kotak Mahindra Bank was among major losers on the Nifty on 2nd May 2011.
The exact reason as to why the fund manager chose to exit from the stock is still confusing because the above reasons hardly make any impact on the stock price at a major level.
Kotak Mahindra Bank continued to do well and it would have been better if the fund manager had kept the stock invested to gain good returns. It looks more like an exit before facing a downslide as a precaution without any strong bases.
United Phosphorous Ltd
Here also there is no strong reason as to why the fund manager chose United Phosphorous to exit out of the fund even though it had been performing very well in the period of study.
Some of the market updates during those months that showed favorable reasons to stay invested in the stock are:
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o One of India’s largest agrochemical makers United Phosphorous has struck its
third overseas acquisition this financial year by acquiring 50% in Sipcam Isagro Brazil (SIB) for an undisclosed value on 7th March 2011.
o United Phosphorus Limited had informed the Exchange that "United Phosphorous
enters into an agreement to acquire strategic stake in Brazilian Company." The Company has now informed the Exchange that on 4th April 2011 the UPL, through its subsidiary has purchased 50 percent stake in Sipcam Isagro Brasil SA.
o United Phosphorus declares dividend at Rs 2 per share on 29th April 2011.
Mundra Port & Special Economic Zone Ltd
Highly conflicting decisions here. When one fund manager includes Mundra Port into the portfolio of Large Cap Niche Life Fund, another fund manager exits from Mundra Port in Blue Chip Wealth Builder Fund at the same period i.e. May 2011.
The fact is that the stock actually performed very well during May 2011 and there is no strong clue as to why the fund managers decided to exit out of Mundra Port.
Some of the market updates during those months that showed favorable reasons to stay invested in the stock are:
o The Adani Group-promoted Mundra Port & Special Economic Zone (MPSEZ)
has said it will be developing a coal import terminal on the Visakhapatnam Port on 26th March 2011.
o Shares of Mundra Port and Special Economic Zone (MPSEZ) rose over 3% and
analysts say it could have to do with the company’s foray in the eastern coast of the country on 25th March 2011.
o Mundra Port crosses a record 50 MT cargo handling on 4th April 2011.
o Mundra Port to consider second interim dividend on 25th April 2011.
o Mundra Port earmarks Rs 3200cr to grow across India on 10th May 2011.
Blue Star Ltd
According to market analysts during the period of study, investing in Blue Star was meant for short term. So it was more of a get in, take the benefits and get out thing.
It was a good decision as the share prices of Blue Star show a downward slope from mid of April 2011 all the way till May and June 2011 with slight variations but it never performed as well as in the month of March 2011.
Some of the market updates during the period of study are:o To counter the escalating raw material prices, Blue Star hiked prices of its air-
conditioning and refrigeration products on 28th March 2011.o Blue Star to consider dividend on 11th May 2011.
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o Blue Star announced its fourth quarter results. The company's Q4 standalone net
profit was down 28% on 24th May 2011.o Blue Star declared dividend at Rs. 7 per share on 24th May 2011.
National Thermal Power Corporation
The stock prices of NTPC had picked up remarkably well during the end of March and beginning of April 2011. But somewhere in the mid of April 2011 the share prices started falling. It only peaked once during 10th May 2011.
It was time to exit out of the stock as market experts were also of the view that it would not perform as good as this for some time to come.
Some of the market updates during the period of study are:o India's top power utility NTPC plans joint ventures in three months to build USD
3.5-billion power plants in Bangladesh and Sri Lanka, marking the firm's first overseas venture on 11th March 2011.
o NTPC top loser on Nifty on 7th April 2011.
o NTPC among the major gainers on the sensex on 10th May 2011.
o NTPC declares final dividend at Rs. 0.80 per share on 10th May 2011.
o NTPC top loser on sensex on 11th May 2011.
Though market experts had advised to exit out of NTPC predicting it would never do as well for nearly a year because there was negative perception on the Power Sector, NTPC again pulled up and did remarkable well in June 2011.
Hence exiting out of NTPC was purely based on the fund manager’s choice rather than on any market triggers.
Inference:
From the above market analysis we can infer that though certain parameters might have led the
fund manager to exit out of the above stocks to keep the fund performing well, the decision
ultimately always rests with the fund manager himself and many times there would be no
particular reason to exit out of the stock but rather to just reap the benefits when the stock is
performing well and exit out before any downslide begins.
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CONCLUSION:
From the study it is revealed that the funds considered for analysis has performed well in
the past. Here the important thing to be considered is when the market was in a bullish trend both
the funds outperformed the benchmark index in the long run.
The analysis also shows that the two funds are risky investments compared to the selected
benchmark index. It also reveals the efficiency of fund manager who did not allow the fund to
suffer loss in the long run by exiting out of the fund much earlier. But careful analysis could be
done in order to reap maximum benefits from the portfolio rather than exiting out of the stocks
early.
Both the insurance investment Blue Chip Wealth Builder Fund and Large Cap Niche Life
fund both can be considered as a good avenue. Because both the funds are well diversified hence
risk will be less as we have seen in the past two year’s performance of the fund as compared to
their bench mark index were good and worthy of customers buying the funds.
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