A PROJECT REPORT

ON

AN OVERVIEW OF MUTUAL FUND AND INSURANCE SECTOR IN INDIA WITH AN EMPHASIS ON THEIR DISTRIBUTION THROUGH BANKING CHANNEL
WITH

STATE BANK OF INDIA

PREPARED BY:

BOPALIYA NITIN KHAMBHAITA SHREYA

MBA-I ACADEMIC YEAR: 2007-2008 INSTITUTE AES POST GRADUATE INSTITUTE OF BUSINESS MANAGEMENT

PREFACE
The impact of Indias initiatives in economic liberalization and globalization is well observed in Indian Investment sector and now a days Mutual Fund and Insurance sectors are growing in India as never before. And also the governments attitude is also favorable to this change. Reforms in these sectors open the economy to the worlds leading players and they have given intensified competition to this sector and that are probably the reason for the growth rate of this industry. Intensified competition has also played major role into converting sellers market [arose because of Indian governments protectionist policy] into buyers market. All these activities and transition in them affect many aspects of the economy and we as students of MBA need to be aware about it as we are going to enter in the same world of business. As a part of an M.B.A program, I had to under go with Summer Project in a professionally managed organization. And due to this reason I got privilege to work with the State Bank of India. for two months. In fact, this practical study works as a parameter which measures up to what extent we are able to practically apply the theories. The primary object of this project was to know in and outs of the mutual fund and insurance industry in India with an emphasis on their distribution through banking channel. It was a pleasure moment for me to take the training at State Bank of India. The management gave me a warm welcome and extended the hands of cooperation by arranging for me to give practical knowledge about the aforesaid topic, through their experts at different level.

ii

ACKNOWLEDGEMENT

While entering into the practical field of any area, one needs to be guided by experienced people so as to seek better knowledge. When students get into corporate world, students can explore the aspects of business management with the help of seniors of respective field. With great pleasure and deep sense if gratitude, we take this opportunity to thank all who have helped us for preparing this report for our industrial training. We are obliged to State Bank of India, Indias no. 1 bank, for providing us an opportunity to undergo training in their esteemed organization. We feel great pleasure to thank SBI executives who have supported us at each step of our training. We are thankful to Assistant General Manager (AGM-Region 3), Mr. Rajendra Khiani and Assistant General Manager (Rajkot Main Branch), Mr. S.A.P. Menon. We are also thankful to Mr. Hasmukh Limbasia (Manager PAD), Mr. Vijay Davda (Relationship Manager), Mr. Manish Jesani (Customer Relationship Executive), Mr. K. J. Mavani (Special Assistant) and Ms. Bharti Tekwani (C.R.A.) who all belong to SBI Main Branch, Rajkot. We are heartily thankful to all the faculty members without whose guidance and support this work would have been an impossible task to complete. Their inspiration and encouragement has led me to get through the task successfully. Finally, we would like to thank all the hidden personalities who have directly or indirectly have supported during our training session and in preparation of this report.

iii

DECLARATION

We, undersigned, Nitin Bopaliya and Shreya Khambhaita, a student of MBA I from AES Post Graduate Institute of Business Management, hereby declare that the project work presented here is our own work. We assure that the data and information presented in this report is true and factual.

This project work and report has not been submitted to any other university or institution before.

Date: Place: Rajkot

________________ (Nitin Bopaliya) ________________ (Shreya Khambhaita)

iv

CONTENTS

Sr. No. 1.

Particulars State Bank of India-An overview 1.1 Introduction 1.2 Mission 1.3 History and Growth 1.4 Awards and Achievements 1.5 Areas of Activity Cross Selling 2.1 Introduction 2.2 SBI Cross Selling 2.3 Why Cross Selling Overview of Mutual Fund Industry 3.1 Introduction and Role of Mutual Funds 3.2 History and stages of development in India 3.3 Definitions 3.4 Structure of Mutual Funds 3.5 Classification of Mutual Funds 3.5 Advantages and Disadvantages 3.6 Mutual Fund Industry in India 3.6.1 Current scenario 3.6.2 Future Aspects 3.7 SBI Mutual Fund Overview of Insurance Sector 4.1 Introduction 4.2 Historical Perspective 4.3 Insurance Sector Reforms 4.4 Present Scenario 4.5 Types of Insurance markets 4.6 SBI Insurance 4.7 SBI Life

Page No. 1 2 5 5 7 7 13 14 14 15 16 17 19 19 20 24 32 34 34 35 37 40 41 42 44 45 46 49 50

2.

3.

4.

5.

Research Methodology 5.1 Introduction 5.2 Research Objective 5.3 Research Plan 5.3.1 Types of Data 5.3.2 Research Approaches 5.3.3 Research Instruments 5.4 Data Collection 5.5 Sampling Design Data Analysis Suggestions and Conclusion Bibliography Annexure Questionnaire Performance Sheet

54 55 55 55 55 55 56 56 57 58 67 69 71 72 75

6. 7. 8. 9.

vi

STATE BANK OF INDIA AN OVERVIEW

INTRODUCTION

State Bank of India (SBI) is a Public Sector Banking Organisation (PSB), in which the Government of India is the biggest shareholder. It is the largest bank in India and is ranked at 495 in Forbes Fortune 500 list. Measured by the number of branch offices, SBI is the second largest bank in the world. SBI traces its ancestry back to the Bank of Calcutta, which was established in 1806; this makes SBI the oldest commercial bank in the Indian subcontinent. SBI provides various domestic, international and NRI products and services, through its vast network in India and overseas. With an asset base of $126 billion and its reach, it is a regional banking behemoth. In recent years the bank has focused on four priorities, first, reducing its huge staff through the Golden handshake scheme known as the Voluntary Retirement Scheme, second, computerizing its operations, third, implementation of Business Process Re-Engineering(BPR), and fourth, trying to change the rude attitude of its staff through a program aptly named 'Parivartan' or 'change'. On the whole, the Bank has been successful in the first three initiatives but has failed in Parivartan. Moreover, the State Bank of India, the countrys oldest Bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of Change and Transformation the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money. The bank is entering into many new businesses with strategic one of these initiatives having a huge potential for growth. The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years. It is also focusing at the top end of the market, on whole sale banking capabilities to provide Indias growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list. The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the 2

largest banking network to the Indian customer. The Bank is also in the process of providing complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit cards, mobile banking, etc. With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously engaged in skill enhancement of its employees. Some of the training programs are attended by bankers from banks in other countries. The bank is also looking at opportunities to grow in size in India as well as internationally. It presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for its growth and also consolidating its various holdings. Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take all employees together on this exciting road to Transformation. In a recently concluded mass internal communication program termed Parivartan the Bank rolled out over 3300 two day workshops across the country and covered over 130,000 employees in a period of 100 days using about 400 Trainers, to drive home the message of Change and inclusiveness. The workshops fired the imagination of the employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the program. The CNN IBN, Network 18 recognized this momentous transformation journey, the State Bank of India is undertaking, and has awarded the prestigious Indian of the Year Business, to its Chairman, Mr. O. P. Bhatt in January 2008.

SUBSIDIARIES AND JOINT VENTURES

State Bank of India is India's largest bank amongst all public and private sector banks operating in India. State Bank of India owns and operates the following subsidiaries and Joint Ventures State Bank of India Credit Card State Bank of India Online State Bank of India USA State Bank Of India Services State Bank of India Mutual Funds State Bank of India Branch State Bank of India NRI Account

Banking Subsidiaries:
State Bank of Bikaner and Jaipur (SBBJ) State Bank of Hyderabad (SBH) State Bank of Indore (SBIr) State Bank of Mysore (SBM) State Bank of Patiala (SBP) State Bank of Saurashtra (SBS) State Bank of Travancore (SBT)

Foreign Subsidiaries: State bank of India International (Mauritius) Ltd. State Bank of India (California). State Bank of India (Canada). INMB Bank Ltd, Lagos Non- banking Subsidiaries: SBI Capital Markets Ltd (SBICAP) SBI Funds Management Pvt Ltd (SBI FUNDS) SBI DFHI Ltd (SBI DFHI) SBI Factors and Commercial Services Pvt Ltd (SBI FACTORS) SBI Cards & Payments Services Pvt. Ltd. (SBICPSL) Joint ventures: SBI Life Insurance Company Ltd (SBI LIFE).

SBI PROFILE

Type: Public (BSE, NSE:SBI) & (LSE: SBID) Founded: Calcutta, 1806 (as Bank of Calcutta) Headquarters:Corporate Centre, Madame Cama Road, Mumbai 400 021 India Key people: Chairman Om Prakash Bhatt MD & CC&RO Shri S.K. Bhattacharyya Industry: Banking Insurance Capital Markets and allied industries Products: Loans, Credit Cards, Savings, Investment vehicles, SBI Life (Insurance) etc. 4

Revenue: USD 15.77 billion (2007) Performance: SBI Bank India had Total Income of Rs 68376.83 crore for the financial year 2006 -07. State Bank of India has posted Net Income to the tune of Rs 6364.38 crore or the financial year 2006 -07. Website: http://www.statebankofindia.com/

MISSION
The mission of State Bank of India is: To support the work of statisticians working in business and industry by monitoring their needs on an ongoing basis, promoting research and applications and best current practices, facilitating technology transfer, and fostering communication among members. The SBI Committee seeks to promote (both to statisticians and to industry) the value and importance of Statistics in Business and Industry, and to support suitable activities, particularly in lesser-developed countries. .

HISTORY AND GROWTH

The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later, the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernize India's economy. Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework. 5

Bank of Bengal H.O. . We can sum up the journey of SBI from its inception to the present time as following: 1861: The government passed the Paper Currency Act, limiting the right to issue paper currency to the three Presidency banks, . 1921: On January 27, the government amalgamated the three Presidency banks to form the Imperial Bank of India. The Imperial Bank of India continued as a joint stock company. Until the establishment of a central bank in India, the Imperial Bank and its early predecessors served as India's central bank, at least with respect to the issuing of currency. 1955: On 30 April, the Parliament of India enacted the State Bank of India Act authorizing the Reserve Bank of India (RBI), which is the central bank, to acquire a controlling interest in the Imperial Bank of India. The RBI then took a 60% ownership stake. On July 1, Imperial Bank of India became State Bank of India. 1959: the Government of India passed the State Bank of India (Subsidiary Banks) Act, which enabled SBI to take over eight former State-associated banks as its subsidiaries. 1980s When Bank of Cochin in Kerala faced a financial crisis, the government merged it with State Bank of India. 2007: On June 29, the Government of India acquired the entire Reserve Bank of India (RBI) shareholding in State Bank of India (SBI), consisting of over 314 million equity shares, with a market value of over 355 billion rupees. 2008: 9 March 2008 State Bank of India on Sunday became the second bank in the world to have 10,000 branches when Union Finance Minister P Chidambaram inaugurated its latest branch at his native place Puduvayal

AWARDS AND ACHIEVEMENTS

Shri O.P.Bhatt Declared CNN IBN'S Businessman of the year 2007 SBI Chairman Shri O.P.Bhatt awarded the transformational leader award 2007 Today, SBI/SBI CAP is the No.1 Syndicator of domestic debt in Asia Pacific REGION. SBI has bagged the awards for Most Preferred Bank and Most Preferred Brand or Home Loan in CNBC Awaaz Consumer Awards in August2007 6

 The only Indian Bank to find a place in the Fortune Global 500 List. SBI is placed at 70th in the Top 1000 Banks Survey by Banker Magazine, July 2007,(up from 107 last Year) SBI ranked 6th in the Economic Times Market Cap List, (up from 50 last Year) Today, SBI/SBI CAP is the No.1 Syndicator of domestic debt in Asia Pacific REGION. No.1 in Mergers & Acquisition Deals (31 Deals of US$19.8bn) SBI is No.1 provider of Agri. Finance and No.1 in Credit Linking of Rs 9.35 lacs SHGs SBI is market Leader in financing SSIs with a market share of 29%. Readers digest May07 Golden award for being among the two most trusted banks in India Up gradation of ratings by Citi group/Morgan Stanley Moodys/ S & P 3rd in the Economic Times Brand Equity Ranking Top 50 most trusted service rands in the service sector Business Standard has Awarded The Best Banker of the Year Award to Shri O.P.Bhatt for his initiative to reenergize the Bank. CNN IBN Network 18 has selected Shri O.P.Bhatt as Indian of the Year Business 2007 for showing how a public sector behemoth can flex its muscle in the ferociously competitive Banking Sector Asian Centre for Corporate Governance & Sustainability and Indian Merchants Chamber has awarded the Transformational Leader Award 2007 to Shri O.P.Bhatt for leadership, charisma, inspiration and intellectual stimulation for the entire SBI team.

AREAS OF ACTIVITIES

State Bank of India administrative structure is well equipped to oversee the large network of branches in India and abroad. The State Bank of India 14 Local Head Offices and 57 Zonal Offices are located at important cities spread throughout the country. State Bank of India has 52 foreign offices in 34 countries across the globe. The Corporate Accounts Group is a Strategic Business Unit of the Bank set up exclusively to fulfill the specialized banking needs of top corporates in the country.

The main activities

Personal Banking. NRI Services. Agriculture. International. Corporate. SME. 7

 Cross Selling

State Bank of India offers the following services to its customers

Domestic Treasury. SBI Vishwa Yatra Foreign Travel Card. Broking Services Revised Service Charge. ATM Services. Internet Banking. E-Pay. E-Rail. RBIEFT. Safe Deposit Lockers. Gift Cheques. MICR Codes. Foreign Inward Remittances.

Moreover, State Bank of India has Colleges/Institutes/Training Centers that are the seats of learning and research and development. It caters not only to the employees of State Bank of India but also other banks/establishments in India and abroad. The main activities of State Bank of India include the following products and services in it.

PERSONAL BANKING
State Bank of India offers a wide range of services in the Personal range of services in the Personal Banking Segment which are indexed here. SBI Term Deposits SBI Recurring Deposits SBI Housing Loan SBI Car Loan SBI Educational Loan SBI Personal LoanSBI Loan For Pensioners Loan Against Mortgage Of Property Loan Against Shares & Debentures Rent Plus Scheme Medi-Plus Scheme Rates Of Interest

 AGRICULTURE / RURAL
State Bank of India Caters the needs of agriculturists and landless agricultural laborers through a network of 6600 rural and semi-urban branches. There are 972 specialized branches which have been set up in different parts of the country exclusively for the development of agriculture through credit deployment. These branches include 427 Agricultural Development Branches (ADBs) and 547 branches with Development Banking Department (DBDs) which cater to agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad catering to the needs of hi-tech commercial agricultural projects. SBI branches have covered a whole gamut of agricultural activities like crop production, horticulture, plantation crops, farm mechanization, land development and reclamation, digging of wells, tube wells and irrigation projects, forestry, construction of cold storages and godowns, processing of agri-products, finance to agri-input dealers, allied activities like dairy , fisheries, poultry, sheep-goat, piggery and rearing of silk worms. The branch also has farmer's meet in villages to explain to farmers about various schemes offered by the bank. To give special focus to agriculture lending Bank has set up agri business unit. Bank has also agri specialists in various disciplines to handle projects/ guide farmers in their agri ventures. Advances are given for very small activity covering poorest of the poor to hitech activities involving large fund outlays. SBI is the leader in agri finance in the country with a portfolio of Rs. 18,000 crs in agri advances to around 50 lac farmers.

NRI SERVICES
Indians everywhere should become enlightened International citizens. Wherever you are, whichever country you live, enrich that nation, not only in financial terms, but also with your sweat knowledge and dignity since that is the tradition of the country from where you came. At the same time, SBI has a common umbilical connectivity to its motherland, India.

 INTERNATIONAL BANKING
International banking services of State Bank of India are delivered for the benefit of its Indian customers, non-resident Indians, foreign entities and banks through a network of 67 offices/branches in 29 countries, spread over all time zones. The network is augmented by a cluster of Overseas and NRI branches within India and correspondent links with over 522 banks, the world over. Bank's Joint Ventures and Subsidiaries abroad further underline the Bank's international presence. The services include corporate lending, loan syndications, merchant banking, handling Letters of Credit and Guarantees, short-term financing, collection of clean and documentary credits and remittances. The Bank has carved a niche for itself in the Euroland with branches located in Antwerp, Paris and Frankfurt. Indian banks and corporates are able to avail single-window Euro services from the Bank's Frankfurt branch.

CORPORATE BANKING
SBI is a one shop providing financial products / services of a wide range for large, medium and small customers both domestic and international. Working Capital Financing Assistance extended both as Fund based and Non-Fund based facilities to Corporate, Partnership firms, Proprietary concerns Working Capital finance extended to all segments of industries and services sector such as IT Term Loans To support capital expenditures for setting up new ventures as also for expansion, renovation etc Deferred Payment Guarantees To support purchase of capital equipments Corporate Loans For a variety of business related purposes to corporates Export Credit To Corporates / Non Corporates Strategic Business Units 10

(i) Corporate Accounts Group (CAG) (ii)Project Finance (iii) Lease Finance An exclusive unit providing one s shopping to Corporates A dedicated set up specialised in financing of infrastructure and other large projects Exclusive set up for handling large ticket leases

SERVICES
Listed on the left are Services, SBI offers to its customers. Domestic Treasury SBI Vishwa Yatra Foreign Travel Card Broking Services Revised Service Charges ATM Services Internet Banking E-Pay E-Rail RBIEFT Safe Deposit Locker Gift Cheques MICR Codes Foreign Inward Remittances

GOVERNMENT BUSINESS
State Bank of India's linkage with Government business is widespread. No wonder that out of 9315 branches in India, about 7000 branches are conducting Government Business. The large network of our branches provides easy access to the common man to deposit the following Government dues and pension payments.

SME
State Bank of India has been playing a vital role in the development of small scale industries since 1956.The Bank has financed over 8 lakhs SSI units in the country. It has 55 specialized SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisions. 11

The Bank finances for Small Business activities which are of special significance to a large number of people as many of these activities can be started with relatively lower investment and with no special skills on the part of the entrepreneurs.

12

CROSS SELLING

13

INTRODUCTION

The word cross selling here, refers to the activities done by the bank apart from its core banking. This facility makes the bank a diversified financial products provider which offers a wide range of insurance policies, ULIPs, mutual funds and SBI card facility.

SBI CROSS SELLING

The State Bank of India offers a bouquet of the best financial and insurance solutions in addition to its vast array of banking products. The bank has leveraged its pan India network as a Corporate Agent to offer products in life insurance, general insurance, mutual funds and credit cards of the following companies: Life Insurance SBI Life Insurance Co General Insurance New India Assurance Co. Mutual Funds SBI Mutual Funds UTI Mutual Funds Franklin Templeton Mutual Funds Tata Mutual Funds Fidelity Mutual Funds SBI Cards & Payment Services Ltd. SBI premium card SBI gold and more card SBI silver and more card Partnership cards Other cards SBI advantage card SBI card for doctors SBI employee card

Credit Cards

14

WHY CROSS SELLING

It is a debatable question that why a bank should go for diversification and offer the products like mutual fund and insurance. Following are the reasons for that which can clarify the objective behind inclusion of these activities in banking sector. Lower costs: The prime point for cross selling is the cost factor. It zeroes in on the cost of new customer acquisition for asset expansion and the cost of cross selling to an existing customer. Profit: Revenues are the key that decides whether to adopt the new business proposal or not. Cross selling an asset/additional asset product to an existing customer improves the profits, in general, and profits per customer, in particular. Here in SBI, it is marked that the core banking activities yield 3% returns while cross selling yields around 20% returns. Enhanced value to customers: The value to customers increases when they get a diversified bouquet of new products from existing banks. The customers can easily trust their existing bank and thus gets value addition in the bank offerings. Brand Loyalty: Cross selling fosters brand loyalty. A customer who has availed himself of more than one product from the bank is drawn closer to the bank than a customer who has taken only one product. If a customer having a savings account has taken a consumer/personal loan, the chances of switching to another bank is less than when he has only savings account. If, in addition, he takes a housing loan or any mortgage product, the chances of bank hopping reduces further. Better CRM: Cross selling helps banks to plan, implement and maintain better customer relationship management programs as it gives clarity to developing plans based on the customers' relationship profile.

15

OVERVIEW OF MUTUAL FUND INDUSTRY

16

INTRODUCTION AND ROLE OF MUTUAL FUND

Mutual Fund is a trust that pools the savings of number of investors who shares a common financial goal. The money thus collected is invested by the managers in different types of securities depending upon the objectives of the scheme; these could range from shares to debentures to money market instruments. The income earned through these investments and capital appreciation realized by the scheme is shared by the unit holders on proportion to the number of units held by them. Thus a mutual fund is the most suitable investment for a common man as it offers an opportunity to invest in diversified, professionally managed portfolio at a relatively low cost anybody with an inevitable surplus of as few thousand rupees can invest in mutual funds. Each mutual fund scheme has a defined investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estates, derivatives and other assets are driven by global events occulting in far away places, an individual is unlikely to have the knowledge, skill, information and the time to keep track of events, understand their implications and act speedily. An individual also finds difficult to keep track of ownership of assets, investments, brokerage dues and bank transaction etc, mutual fund is the answer to all these situations. It appoints professionally qualified experienced staff that manages each of these functions on a full basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor; in effect mutual fund vehicle exploits economies of scale in all these areas research, investment and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present from is a 20th century phenomenon. In fact mutual funds gained popularity only after the Second World War. Globally there are thousands of firms offering ten of thousand of mutual funds, with different investment objectives. Today mutual funds collectively manage almost as much as more money as compared to banks. Investers Passed back to Pool their money with

Returns

Fund Manager

Generates Security

Invests in

Mutual Fund Operation Flow Chart

17

CONCEPT OF MUTUAL FUND

Money investors with common financial objectives pool their money

Investors, on a proportionate basis, get mutual fund units for the sum contributed to the pool

The money collected from investors is invested into shares, debentures and other securities by the fund manager

Fund manager realizes gains or losses, and collects dividend or interest income

Any capital gains or losses from such investments are passed on the investors in proportion of the number of units held by them

So, in short we can say that, A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

18

HISTORY AND STAGES OF DEVELOPMENT IN INDIA

Phase 1 Growth of Unit Trust of India 1964 1987 In 1963 UTI was established as an Act of Parliament. US -64, the first open ended mf Largest investor base Phase 2 Entry of Public Sector Funds 1987- 1993 st 1 SBI MF in Nov. 1987 Phase 3 Emergence of private funds 1993-1996 1993-1994 five new players 1994-1995 six new players Phase 4 Growth & SEBI regulations 1996- 1999 SEBI Mutual Fund regulation s 1996 was adopted UTI adopted SEBI regulations. Budget of 1999 exempted income tax at the hands of the investors Phase 5 Emergence of a large & uniform industry 1999- 2004 In Feb 2003, the UTI Act was repealed, thus creating UTI MF, & it adopted the same structure as any other MF, that of a Trust & AMC. All new schemes were now SEBI approved. 1999 to 2005, the size of the industry doubled. 68000 crores to 1, 50,000 crores. Phase 6 Consolidation & Growth 2004 onwards

DEFINITIONS

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

19

 Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-end Load Is a charge collected by a scheme when it buys back the units from the unit holders.

STRUCTURE OF MUTUAL FUNDS

Structure in India Sponsor Trustees Asset Management Company Custodian / Depository Participant R & T Agent Distributors Bankers Mutual Fund Structure in USA Mutual Funds are set up as Investment companies. It can be a corporation, partnership or a unit investment trust. Only Open ended funds are called mutual funds. They are regulated by the Securities Exchange commission.

20

 Mutual Fund structure in UK Two alternative structures Open ended funds are in form of UNIT trusts regulated by Securities & Investment board. Close ended funds are in form of corporate entities although called Investment Trusts.

Unit Holders

Sponsor

Trustee Asset Management Company

Custodian

R & T Agents

Bankers

Distributors

SEBI

Sponsor
Any person acting alone or in combination with another corporate establishes a mutual fund. He is like a promoter of a company as he gets the fund registered with SEBI. A sponsor will form a trust & appoint a board of trustees. A sponsor will also generally appoint an Asset Management company as fund managers. The sponsor, directly or acting though the trustees will also appoint a Custodian to hold the fund assets. As per SEBI guidelines a Sponsor must Contribute 40% of the net worth of the AMC. Possess a sound financial track record over 5 years prior to the registration. 21

 Mutual funds as a Trust

Constituted as a public trust under the `Indian Trust Act of 1882 Mutual fund is a pass though vehicle. Under the Indian trust act the fund has no independent legal capacity. It is the trustees who have the legal capacity & therefore all acts in relation to the trust are taken on its behalf by the trustees. The trustees hold the unit holders money in fiduciary capacity i.e. The money belongs to the unit holders & is entrusted to the fund for investment purpose. Investors or unit holders are beneficial owners of the investments held by the trust.

Trustees
Board of trustees is governed by the `Indian Trust Act 1882` it must also comply with the `Companies Act of 1056` As an independent body acts as protector of unit holders money. Trustees do not manage the portfolio of securities; they appoint an ASSET management company. The trust is created though a trust deed that is executed by the fund sponsor in favour of the trustees. 3rd schedule of the SEBI MF regulations specify the contents of the trust deed The trust deed is to be stamped & registered with the Indian registration Act & registered with SEBI Minimum 2/3 of the trustees are independent directors, based on SEBI guidelines. Trustees must insure investors interests are safe guarded & the AMCs operations are along professional lines.

Rights of trustees
Trustees appoint the AMC with the prior approval of SEBI All schemes, floated by the AMC, must be approved by the trustees. Right to request any necessary information from the AMC. Right to remedial action if they believe the conduct of the AMC is not in accordance with SEBI regulations. Right to dismiss the AMC, with approval of SEBI. Any shortfall in the net worth of AMC is made up by the AMC.

Asset Management Company

22

Acts as an investment manager of the trust. In the name of the trust, float & manage different investment schemes. Net worth of Rs. 10 crores at all times. 50% of directors on the AMC board are independent. AMC cannot act as a trustee of any other mutual fund. AMC must always act in the interest of unit holders & report to the trustees with respect to its activities.

Obligations of the AMC & its directors

Investment of funds in accordance with SEBI regulations & trust deed. AMC takes responsibility for the acts of the employees & others whose services it has procured. They are answerable to the trustees & must submit quarterly reports to them on AMC activities & compliance with SEBI regulations. If it uses the services of Sponsor employee or associate, the AMC must make appropriate disclosure disclosures to unit holders with regard to amount of commission or brokerage paid. They cannot undertake any other activity conflicting with managing the fund. They can float schemes with the prior approval of Trustees & SEBI. They will make the required relevant disclosures to the investors in areas of AMC operations. Like calculating the NAV, portfolio details, half yearly accounts of the fund etc. File details of security transactions by AMC directors with the trustees on a quarterly basis. They would report only those transactions where the value is more than Rs. 1 lakh. NAV to be updated on AMFIs website by 8:00 pm everyday & the month end assets under st management figure on the 1 working day of the next month.

Custodian & Depositories

Custodian is appointed by the board of trustees for safe keeping of physical securities. Mutual funds are in a business of buying & selling securities. A custodian is appointed by the board of trustees for safe keeping of physical securities or participating in any clearing system though approved depository companies on behalf of the mutual fund in case of dematerialized securities. Mutual funds are dematerialized securities holdings are held in a depository though a depository participant. Chapter 4 of SEBI (MF) regulations 1996 Custodian should be an entity independent of the sponsor & is required to be registered with SEBI. 23

 Bankers
A funds banker plays an important role with respect to its financial dealings by holding its bank accounts & providing it with remittance services.

Registrar & Transfer Agents

Registrars & transfer agents are responsible for issuing & redeeming units of the mutual fund and providing other related services such as preparation of transfer documents and updating investor records. A fund may carry out this activity in house & charge the scheme for the same or appoint an outside transfer agent. Buying & selling of units, switching from one fund to another, systematic investment or withdrawals, recording nominations & bank details are all part of the registrars & transfer agents job role.

Distributors.
A fund to sell units across a wide retail base of individual investors an established network of distributors is essential. AMCs usually appoint distributors (agents, brokers intermediaries) Distributors need to have an AMFI registration number to distribute mutual funds. Distributors normally act on behalf several mutual funds simultaneously. Distributors can appoint several sub brokers under him.

TYPES OF MUTUAL FUNDS

The mutual fund schemes can be divided into following three broad categories:

BY STRUCTURE
Open-ended schemes: Open ended funds are ones that sell and repurchase at all times. The asset under management keeps fluctuating depends investors buying or selling units. An 24

AMC might stop selling units if the fund size becomes too big to manage. However repurchase of units is done at all times. Closed-ended schemes: Close ended fund are one that make a one time selling of units. After the offer chooses CEFs do not let the investors buy directly from the fund. To provide liquidity to the investors, these funds are traded in the stock markets. Sometimes the fund house also offer buy backs at regular intervals. SEBI regulations state that all fund houses should need to give one of the two exit options to the customers. Interval schemes

BY LOAD IMPOSED
Load Funds Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager's salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors: Entry Load - Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor's contribution amount to the fund. Exit Load - Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor. Deferred Load - Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge. No-load Funds All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

BY TAX EXEMPTION
Tax-exempt Funds Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free. Non-Tax-exempt Funds Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits 25

arising out of sale of units by an investor within 12 months of purchase are categorized as shortterm capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

BROAD MUTUAL FUND TYPES

Mutual Fund Types

Equity Funds

Money Market Funds

Hybrid Funds

Debt/ Income Funds

Gilt Funds

Others

Aggressive Growth Funds Growth Funds

Balanced Funds Growth and Income Funds Asset Allocation Funds

Diversifie d Debt Funds Focused Debt Funds High Yield Debt Funds Assured Return Funds

Commodity Funds

Real Estate Funds Exchange Traded Funds Fund of Funds

Equity income/ Dividend yield Diversified equity Funds (ELSS) Equity index Funds

Sector Funds

Fixed Term Plan Series

Value Funds

Foreign security Funds

Specialty Funds

Mid/small cap equity Funds

Option income Funds

26

1.

Equity Funds

Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds: a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. b.Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. c. Speciality Funds - Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds: i. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk. iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.

27

iv. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors. d. Diversified Equity Funds - Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past. e. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectorial indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky. f. Value Funds - Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or specialty funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term, to a large extent, is reduced. g. Equity Income or Dividend Yield Funds - The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds.

2. Debt / Income Funds

Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like 28

infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds: a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor. b. Focused Debt Funds* - Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt funds are more risky as compared to diversified debt funds. Although not yet available in India, these funds are conceivable and may be offered to investors very soon. c. High Yield Debt funds - As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below investment grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors. d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in 29

returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible. e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period. 3. Gilt Funds Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction. 4. Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks). 5. Hybrid Funds As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India: a. Balanced Funds - The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon. b. Growth-and-Income Funds - Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds.

30

c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at any time depending upon their outlook for specific markets. In other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends. 6. Commodity Funds Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds. 7. Real Estate Funds Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation. 8. Exchange Traded Funds (ETF) Exchange Traded Funds provide investors with combined benefits of a closed-end and an openend mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad. 9. Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of

31

risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes. * Funds not yet available in India

Risk Heirarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:

ADVANTAGES AND DISADVANTAGES

ADVANTAGES:
Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions 32

like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash. Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet. Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index Transparency: Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.

Flexibility: Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. Choice of schemes: Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options Tax benefits: Long term capital gains and dividend income in the hands of investors are taxfree in funds that invest in securities free from tax. The tax in such funds is exempted U/S 80 C of income tax act. Such funds are known as ELSS (Equity Linked Saving Scheme).

DISADVANTAGES:
No Customized Portfolios: The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. No Guarantees : No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

33

 Fees and commission: : All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund. Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. Management Risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

MUTUAL FUND INDUSTRY IN INDIA

CURRENT SCENARIO
Mutual fund industry has come a long way since the first stone was laid in 1964 with the establishment of Unit Trust of India. Forty-four years down the line, more than 34 players operate in the industry, and most of them belong to the private sector. Moreover, the number of players is increasing at a rapid pace with many new ones, both from India and abroad, seeking approval to join the bandwagon. It is not just in terms of the number of players, but the industry has also expanded in terms of assets that it manages as well as the type of products that it has to offer to the investors. As far as the size is concerned, the industry has grown rapidly, especially in the last couple of years and is currently managing over Rs 6 lakh crore of investor money. While this sum may appear huge, it is miniscule when compared to the sectors global peers. Dramatic changes have been witnessed in the type of products offered by the industry. Starting with plain vanilla equity schemes, the industry today has a variety of products that include thematic funds, arbitrage funds, quant based funds and even exchange traded funds. However, despite the large basket, the need to expand the reach to global markets has often been felt. Though India first saw the emergence of global products in 1986 in terms of allowing foreign players to invest in the country, it was only in 2003 that the Indian investors got a chance to invest overseas through mutual funds. 34

But it was not until last year that the country registered active participation from various asset management companies in encouraging investors to look beyond domestic shores. The policymakers have also supported their cause by increasing the limit to invest abroad from $4 billion to $7 billion in just about a year's time. So, today, the industry manages nearly 20 funds that have crossed the domestic boundaries and made an entry into the international arena either directly or through foreign funds. The opportunities forgone in the Indian markets are being captured at the international platform. If overseas investors can make the most of the opportunities in India, Indians have a right to get an equal opportunity to take advantage of their resources too. While a beginning in this direction has rightly been made, the scope for expansion is huge.

FUTURE OF MUTUAL FUND INDUSTRY IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore. The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN INDIA

100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian market Our saving rate is over 23%, highest in the world. Only canalizing these savings in mutual funds sector is required. We have approximately 34 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.

35

 Asset Under Management of Indian Mutual Fund as on 31 May , 2008

Company Name ABN AMRO Mutual Fund AIG Global Investment Group Mutual Fund Birla Mutual Fund BOB Mutual Fund Canara Robeco Mutual Fund DBS Chola Mutual Fund Deutsche Mutual Fund No. of Schemes 359 54 348 22 59 82 199 AUM In (crore) 6,066 4,138 41,426 64 4122 2304 12740 36

DSP Merrill Lynch Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Investments HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund IDFC Mutual Fund ING Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Morgan Stanley Mutual Fund Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund

222 38 39 241 397 194 436 263 297 191 16 193 91 226 3 339 43 183 233 310 16 307

19940 173 7898 25622 46292 17617 59573 12513 8606 11989 2660 21580 15103 9763 3416 93531 180 29492 14356 24478 260 48347

SBI MUTUAL FUND

SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an investor base of over 5.4 million. With over 20 years of rich experience in fund management, SBI MF brings forward its expertise in consistently delivering value to its investors. SBI MF draws its strength from India's Largest Bank State Bank of India and Socit Gnrale Asset Management, France. SBI Mutual Funds India has offered a direction to the investment of Indians by piloting it judiciously. SBI Mutual has been instrumental in offering various investment schemes and options to investors in India and thus multiplying their investments. Mutual Funds in India have been responsible to bring forth good development index in Investment Banking. The State Bank of India has pioneered Mutual Funds Investing in India by offering Asset Management Funds, IPO Mutual Funds, Principal Mutual Funds and other Growth Funds. 37

When an attempt is made to recognize the top 10 Mutual Funds in India, SBI Mutual Funds possess a commendable position. Experts claim that with the Indian economy growing at an unprecedented rate, it is a very opportune time to invest in Mutual Funds in India. SBI Mutual Fund is a way of collective or Mutual Investment in by collecting money from various Investors to invest money in the securities like, Bonds, Stock or other Sector Bonds. The reason why the SBI Mutual Funds India is considered the Best Mutual Funds in India is its NAVNet Asset Value. SBI Mutual Fund NAV- Net Asset Value implies the current value in market terms of the present invested Fund, that is calculates at the end of the transacting period. However, the concept of Turnover implies the percentage of net asset value of the SBI Mutual Funds at the end of the year. Financial analysts claim that the SBI Mutual Funds Index has been very encouraging and investors with ambitious Mutual Funds Portfolio have been highly benefited in the end. Indiahousing.com offers an exhaustive database on the State Bank of India Mutual Fund as it is one of the Best Mutual Funds Companies in India. However, it has to be noted that in Mutual Funds and Growth Funds, speculation plays a very vital role thus making it vulnerable to market risks. Moreover, it is always advisable to have a clear understanding about the Mutual Funds Definition, SBI Systematic Investment Plan (SIP) and performance at a given point of time. Below is the link of SBI Mutual Funds India that can be accessed to gain SBI Mutual Funds information.

Short Profile
Incorporated Ownership Ownership Pattern Sponsor Total Assets (Rs. Cr) Equity Funds (Open End)
Debt Funds (Open End) Short-term Debt (Open End) Hybrid Funds (Open End) Closed-end Funds Chief Executive Chief Investment Officer Investor Relations Officer

29/6/1987 Public Foreign - 37%, Domestic-63% State Bank of India, Societe Generale Asset Management 26,977.36 as on 5/31/2008

14 12 12 3 22
Syed Shahabuddin Sanjay Sinha G Kandasubramanian

38

URL

http://www.sbimf.com/

39

OVERVIEW OF INSURANCE SECTOR

40

INTRODUCTION

INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual. The risk, which can be insured against include fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved. Insurance is actually a contract between 2 parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party happening of a certain event. Insurance is a contract whereby, in return for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. With the help of Insurance, large number of people exposed to a similar risk makes contributions to a common fund out of which the losses suffered by the unfortunate few, due to accidental events, are made good.

INDIAN INSURANCE INDUSTRY

With 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 450 billion. Together with banking services, it adds about 7 per cent to the country's GDP. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. And this part of the population is also subject to weak social security and pension systems with hardly any old age income security. This it is an indicator that growth potential for the insurance sector is immense. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability. It is estimated that over the next ten years India would require investments of the order of one trillion US dollar. The Insurance sector, to some extent, can enable investments in infrastructure development to sustain economic growth of the country. Insurance is a federal 41

subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. In India, insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant.

HISTORICAL PERSPECIVE

The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more riskier for coverage. The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge 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 the Triton (Tital) Insurance Company Limited, the first general insurance company established in the year 1850 in Calcutta by the British. Till the end of 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 20's and 30'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 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 much needed funds for rapid industrialization. This was in conformity with the Government's chosen path of State lead planning and development. 42

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). Indian federal government considers insurance as one of major sources of funds for infrastructure development. The government has identified the following as major thrust areas: Timely and reliable statistical data and information about policies and markets to instill a degree of credibility; A code of good practices based on international best practices to raise the standard of Indian insurance sector; Strengthening of supervision and regulation; Market participation in decision-making; High solvency standard' and Developing alternative channels. Till end of 1999-2000 fiscal years, two state-run insurance companies, namely, Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) were the monopoly insurance (both life and non-life) providers in India. Under GIC there were four subsidiaries-- National Insurance Company Ltd, Oriental Insurance Company Ltd, New India Assurance Company Ltd, and United India Assurance Company Ltd. In fiscal 2000-01, the Indian federal government lifted all entry restrictions for private sector investors. Foreign investment insurance market was also allowed with 26 percent cap. GIC was converted into India's national reinsure from December, 2000 and all the subsidiaries working under the GIC umbrella were restructured as independent insurance companies. Indian Parliament has cleared a Bill on July 30, 2002 de-linking the four subsidiaries from GIC. A separate Bill has been approved by Parliament to allow brokers, cooperatives and intermediaries in the sector. Currently insurance companies- both private and public-- have to cede 20 percent of its reinsurance with GIC. GIC is planning to increase re-insurance premium by 20 percent which works out at Rs 3000 cr. GIC is actively considering entry into overseas markets including West Asia, South-east Asia and SAARC region.

43

INSURANCE SECTOR REFORMS

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N. Malhotra- was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. In 1994, the committee submitted the report and some of the key recommendations included:

Structure
Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.

Competition
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the sector. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only one State Level Life Insurance Company should be allowed to operate in each state.

Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance- a part of the Finance Ministry- should be made independent

Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (there current holdings to be brought down to this level over a period of time)

Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry 44

The committee emphasized that in order to improve the customer services and increase the coverage of insurance policies, industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body- The Insurance Regulatory and Development Authority. Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. 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

The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity cap for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent. The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector 12 life insurance and 8 general insurance companies have been registered. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001.

45

TYPES OF INSURANCE MARKETS

Non-Life Insurance Market

In December 2000, the GIC subsidiaries were restructured as independent insurance companies. At the same time, GIC was converted into a national re-insurer. In July 2002, Parliament passed a bill, de-linking the four subsidiaries from GIC. Presently there are 12 general insurance companies with 4 public sector companies and 8 private insurers. Although the public sector companies still dominate the general insurance business, the private players are slowly gaining a foothold. According to estimates, private insurance companies have a 10 percent share of the market, up from 4 percent in 2001. In the first half of 2002, the private companies booked premiums worth Rs 6.34 billion. Most of the new entrants reported losses in the first year of their operation in 2001. Insurance, like project finance, is extended by a consortium. Normally one insurer takes the lead, shouldering about 40-50 per cent of the risk and receiving a proportionate percentage of the premium. The other companies share the remaining risk and premium. The policies are renewed usually on an annual basis through the invitation of bids. Of late, with IPP projects fizzling out, the insurance companies are turning once again to old hands such as NTPC, NHPC and BSES for business.

Re-insurance business
The balance risk is re-insured with other insurers. In effect, therefore, re-insurance is insurer's insurance. It forms the backbone of the insurance business. It helps to provide a better spread of risk in the international market, allows primary insurers to accept risks beyond their capacity settle accumulated losses arising from catastrophic events and still maintain their financial stability.

Life Insurance Market

The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population. The state owned LIC sold insurance as a tax instrument, not as a product giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the private insurers the rules of the game have changed. 46

The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unitlinked insurance schemes they have a virtual monopoly, with over 90 percent of the customers. With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. Total value of the Indian insurance market (2004-05) is estimated at Rs. 450 billion (US$10 billion). According to government sources, the insurance and banking services' contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part. The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP. The year 1999 saw a revolution in the Indian insurance sector, as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. Though the focus of this market research report is on the potential growth on the Indian Insurance Sector, it also talks about the market size, market segmentation, and key developments in the market after 1999. The report gives an instant overview of the Indian non-life insurance market, and covers fire, marine, and other non-life insurance. The data is supplied in both graphical and tabular format for ease of interpretation and analysis. This report also provides company profiles of the major private insurance companies.

FUTURE OF INDIAN INSURANCE SECTOR

Indian insurance is a market said to be 'simply too big to ignore'. According to experts, non-life premiums will grow by 13% annually in local currency terms and by 16% in US dollar terms. Life premiums are expected to increase by 2% annually in local currency terms and by 5% in US dollar terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP from around US$831bn to US$1,404bn and an expected increase in non-life penetration from 0.81% of GDP to 1.00%. The driver of growth in the life segment is the envisaged small rise in life density from US$29.70 per capita in 2007 to US$35.00 per capita in 2012. India's population over the same period is expected to increase from 1,124mn to 1,203mn. 47

According to K N Bhandari, the Secretary General of General Insurance Council, India's general insurance sector is slated to grow at a 18% rate in 2008. The comparable figure for 2007 was 13%. As per Mr. Bhandari, the present market value of the Indian general insurance sector is Rs 30,000-crore. The current penetration level of the Indian insurance sector is 0.65 %. The Indian urban sector is a significant contributor to the general insurance market. In comparison, contribution from rural India is small. Efforts are afoot to capture the dormant rural market via strategies like awareness generation, institutional marketing and e-marketing.

PLAYERS IN INDIAN LIFE INSURANCE SECTOR

Indian insurance sector has rapidly started growing after 1991. Before that, there were only two players in the industry owned by government which were LIC (Life Insurance Corporation) and GIC (General Insurance Corporation). But after that the entry to private players was allowed. As a result, the industry grew rapidly as far as number of insurers is concerned. Now, at present, the following insurance companies exists in life insurance sector.

PREMIUM UNDERWRITTEN BY LIFE INSURERS IN INDIA 2007-08

(Rs.In Crores)

First Year Sl.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Insurer LIC ING Vysya HDFC Std.Lif Birla Sunlife ICICI Prulife Kotak Mahin Tata AIG SBI Life Bajaj Allianz Max Newyork Metlife Reliance Life Aviva Premium 29886.35 440.30 1316.44 832.31 4370.61 553.05 567.84 1717.57 3084.67 750.51 329.04 700.37 692.11

Renewal Premium 71599.28 239.54 1207.01 893.98 2750.86 356.58 722.36 364.64 1040.20 588.17 152.27 72.55 425.88 Single Premium 26337.22 27.36 332.41 50.42 791.52 61.89 76.98 846.27 1185.12 161.60 11.40 231.74 29.23 Total Premium 127822.84 707.20 2855.87 1776.71 7912.99 971.51 1367.18 2928.49 5310.00 1500.28 492.71 1004.66 1147.23

48

14 15 16

Sahara Shriram Life Bharti AXA Private Tota Total

20.47 89.53 7.77 15472.59 45358.93 -

8.01 3.00

22.53 92.62 0.01 3921.11 30258.32

51.00 185.15 7.78 28218.75 156041.59

8825.06 80424.34

Market Share of Private Insurers in India

1% 4% 2% 5% 0% 4% 0% 3% 10% 6%

ING Vysya HDFC Std.Life Birla Sunlife ICICI Prulife Kotak Mahindra Tata AIG SBI Life Bajaj Allianz Max Newyork Metlife

19% 28% 10% 5% 3%

Reliance Life Aviva Sahara Shriram Life

The above chart shows market share of Indian life insurance companies except LIC. The basis on which they are divided is the total premium received by the respective company in the year 200708.

SBI INSURANCE

SBI is providing both life and general insurance. Here, general insurance is facilitated by new India insurance while in the field of life insurance, it has a join venture. Life Insurance: SBI Life Insurance Co General Insurance: New India Assurance Co.

49

SBI LIFE

SBI Life Insurance is a joint venture between the State Bank of India and BNP Paribas Assurance. SBI Life Insurance is registered with an authorized capital of Rs 2000 crores. SBI owns 74% of the total capital and BNP Paribas Assurance the remaining 26%. State Bank of India enjoys the largest banking franchise in India. Along with its 7 Associate Banks, SBI Group has the unrivalled strength of over 14,500 branches across the country, arguably the largest in the world. BNP Paribas Assurance is the insurance arm of BNP Paribas Euro Zones leading Bank. BNP Paribas, part of the world's top 10 group of banks by market value and part of Europe top 3 banking companies, is one of the oldest foreign banks with a presence in India dating back to 1860. BNP Paribas Assurance is the forth largest life insurance company in France, and a worldwide leader in Creditor insurance products offering protection to over 50 million clients. BNP Paribas Assurance operates in 42 countries mainly through the bancassurance and partnership model. SBI Life has a unique multi-distribution model encompassing Bancassurance, Agency and Group Corporates. SBI Life extensively leverages the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans and personal loans. SBIs access to over 100 million accounts across the country provides a vibrant base for insurance penetration across every region and economic strata in the country ensuring true financial inclusion. Agency Channel, comprising of the most productive force of more than 40,000 Insurance Advisors, offers door to door insurance solutions to customers.

Mission: "To emerge as the leading company offering a comprehensive range of life
insurance and pension products at competitive prices, ensuring high standards of customer satisfaction and world class operating efficiency, and become a model life insurance company in India in the post liberalization period".

Values:
Trustworthiness Ambition Innovation Dynamism Excellence 50

 SBI LIFE PRODUCTS

2005-06 SBI Life Insurance Co. Ltd. List of Products/Riders with UIN's: 2006-07 Financial 2006-07 Year 2006-07 2006-07 2006-07 2000-01 2006-07 2001-02 2006-07 2006-07 2001-02 2006-07 2001-02 2007-08 2001-02 2007-08 2001-02 2007-08 2001-02 2007-08 2003-04 2007-08 2002-03 2007-08 2007-08 2002-03 2007-08 2007-08 2002-03 2007-08 2007-08 2002-03 2007-08 2007-08 2002-03 2007-08 2003-04 2008-09 2003-04 2003-04 2003-04 2001-02 2003-04 2003-04 2001-02 2003-04 2002-03 2004-05 2004-05 2002-03 2005-06 2005-06 2003-04 2005-06 SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. Name of Insurer SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI SBI Life Life Insurance Insurance Co. Co. Ltd. Ltd. SBI Life Life Insurance Insurance Co. Co. Ltd. SBI Ltd. SBI Life Life Insurance Insurance Co. Co. Ltd. Ltd. SBI SBI Life Life Insurance Insurance Co. Co. Ltd. SBI Ltd. SBI Insurance Co. Co. Ltd. Ltd. SBI Life Life Insurance SBI Life Life Insurance Insurance Co. Co. Ltd. Ltd. SBI SBI Life Life Insurance Insurance Co. Co. Ltd. Ltd. SBI SBI Life Insurance Co. Ltd. SBI Life SBI Life Insurance Insurance Co. Co. Ltd. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Co. Ltd. SBI Life Insurance Insurance Co. Co. Ltd. Ltd. SBI Life SBI Life Insurance Co. Ltd. SBI Life Insurance Insurance Co. Co. Ltd. Ltd. SBI Life SBI Life Insurance Co. Ltd. SBI Life - Immediate Annuity SBI Life - Group Leavencashment cum Life Cover Scheme SBI Life - Horizon II Name of the Product/Rider SBI Life - Unit Plus II Regular SBI Life - Unit Plus II - Single Products SBI Life - Group Superannuation Sanjeevan SBI Life - Horizon II Pension Young Sanjeevan SBI Life - Unit Plus II Pension Sukhjeevan (Single Premium SBI Life - Golden Gratuity 111N026V01 111L027V01 Product/Rider UIN No. 111L028V01 111L029V01 111N030V01 111N001V01 111L031V01 111N002V01 111L032V01 111L033V01 111N025V01

Product) SBI Life - Group Immediate Annuity 111N003V01 111N034V01 SBI Scholar SBI Life Life Dhanaraksha Plus - LPPT Super Suraksha SBI Life Dhanaraksha Plus - RP Swarna Ganga SBI Life Dhanaraksha Plus - SP Credit Guard SBI Life Grameen Shakti Credit Guard SBI Life Grameen Super Suraksha SBI Life - Sudarshan Sampoorna Suraksha Group Plan SBI Life - Sukhjeevan Pratham Nidhi Raksha RP (Single Premium Product) Group Leave Encashment Group cum Life cover Group Gratuity Supernnuation Scheme Group Gratuity SBI Life - Lifelong Pensions (for Unit Plus Elite Individual) Unit Plus Child Plan SBI Life - Lifelong Pensions (for Saral ULIP Groups) SBI Life-Dhanrashi SBI Life - Swadhan (Individuals) Swarna Jeevan SBI Life - Swadhan (Group) Riders SBI Life - Pension Tatkal Accidental Death and Permanent SBI Life - Sanjeevan Supreme Disability Rider SBI Life - Sethubandhan Group Accident death and permanent SBI Life - Shield disability rider Money Back SBI Life - Pure Term Rider SBI Life - Scholar II SBI Life - Dhanavantri (Individual HorizonIllness Rider) Critical SBI Life - Unit Plus_Single Dhanvantari Supreme ( Individual SBI Life - UnitRider Plus_Regular Critical Illness Product) SBI Life - Dhana Vriddhi 111N004V01 111N035V01 111N005V01 111N036V01 111N006V01 111N037V01 111N007V01 111N038V01 111N007V02 111N039V01 111N008V01 111N040V01 111N041V01 111N009V01 111N042V01 111N043V01 111N010V01 111N044V01 111L045V01 111N011V01 111L046V01 111L047V01 111N012V01 111N048V01 111N013V01 111N049V01 111N014V01 111N015V01 111N016V01 111C001V01 111N017V01 111N018V01 111B002V01 111N019V01 111B003V01 111N020V01 111L021V01 111B004V01 111L022V01 111L023V01 111C004V02 111N024V01

51

SBI Life - Premium Waiver Benefit 2003-04 SBI Life Insurance Co. Ltd. Rider (Individuals) 111B005V01

GROUP SWADHAN
SBI Life - Swadhan (Group) is a Non Participating Group Term Insurance Plan with Return of Premium. It is a simple and easy solution which offers dual benefits of life cover protection in the event of death and refund of premium in case of survival up to the end of the cover term. It is the policy on which we have worked during our training session at State Bank of India, Rajkot.

BASIC DESCRIPTION Product name: Eligibility: Term of cover: Life cover: SWADHAN GROUP SBI Customers ( including NRI ) AGE: Between 18 to 50 years old (as on last birthday) 10 years Rs. 50,000 Rs. 1,00,000 Rs. 3,00,000 Rs. 5,00,000 (only available for age 18 to 39)

Key Features: Eminently affordable premium rates Complete protection during cover term Refund of part/full basic premiums paid, depending on the Term of insurance Cover Choice with regard to Term of Insurance Cover and Sum Assured Flexibility to choose appropriate premium payment modes Simple and convenient joining process Hassle free and efficient claims settlement BENEFITS: Key benefits: No medical Insurance practically free Tax exemption for premium paid under Sec 80 C Tax free death/maturity Benefits under Sec 10 (10D) 52

 Maturity benefits: Total basic premium amount (100%) is refundable at maturity Death benefits: Sum assured payable lump sum

Exclusions: Death due to natural causes within the first 45 days from cover start date Death due to suicide within one year from cover start date

53

RESEARCH METHODOLOGY

54

INTRODUCTION
RESEARCH
Research is an academic activity and as such the term should be used in technical sense. Its is actually a voyage of discovery. According to Redman & Mory Research is systematized effort to gain new knowledge. According to The Advanced Learners Dictionary of Current English Research is a careful investigation or inquiry specially through search for new facts in any branch of knowledge.

RESEARCH OBJECTIVE

Research objectives are end results, which a researcher aims to achieve. These objectives direct the efforts and provide the base for research plan. The objective of this research is: To measure the effectiveness of distribution of mutual fund and insurance products through banking channel.

RESEARCH PLAN

RESEARCH PLAN
On the basis of the objectives, the researcher needs to draw out the most efficient research plan for gathering the needed information. Designing a research plan calls for decisions on the data sources, research approaches, research instruments.

Data Source :
All market researcher can tap two sources of data investigation, Primary data Secondary data 55

 PRIMARY DATA In primary data the information is obtained from the original source by researcher. Here, information needed about is people aware about SBI ELSS and are the existing customers satisfied with SBI MF, which is only possible through personal meets with them so it is primary data source. SECONDARY DATA The data, which is already collected and used previously, is secondary data. For finding out the expectations and satisfaction level of SBI MF brokers I took data base of existing brokers, therefore that is secondary data.

RESEARCH APPROACHES:
Primary data can be collected in four ways : Observation Focus groups Surveys Experiments Survey is the research approach, which have been used to meet the objectives of research.

RESEARCH INSTRUMENTS :
Researchers have a choice of two main research instruments in collecting primary data. Questionnaires and Mechanical Devices For surveying the customers, the research instrument used is questionnaires.

DATA COLLECTION

Data collection sources: Primary Data Source: Primary data collected from consumer survey. Secondary data source: Secondary data collected from internet, magazines and newspapers.

DATA COLLECTION METHOD:

a) Primary data method: Personal interview using structured questionnaire method. 56

b) Secondary data method: magazines, newspapers, internet.

SAMPLING DESIGN

Sampling method: Deliberately Sampling Sample Size: 50 people from Rajkot city.

57

DATA ANALYSIS

58

DATA ANALYSIS

As mentioned earlier, the primary data is collected through questionnaire in this research process. So the analysis of the questionnaire is as following: Question: Do you know about Mutual Fund?

Awaeness About Mutual Fund

28%

Yes No
72%

Above chart shows awareness of mutual fund in the samples taken. 72% of them are aware about the concept and benefits of mutual fund. Question: Do you invest in mutual fund?

Investment in Mutual Fund

38%

Yes No
62%

Among the people aware about mutual fund, only 38% of surveyed people invest in mutual fund. This shows a rigid and old mentality of these people. Question: If yes, which companys mutual fund are you purchasing?

59

Mutual Fund Companies

20%
Bank

46%
Private Indian Private Foreign

34%

The above chart shows the percentage of respondents invents in the three broadly divided types mutual fund companies. We can see that highest 46% people believe that mutual funds offered by banks are better than any other type of company. Question: From where have you come to know about mutual fund?
Source of Information About Mutual Funds Percentage of Respondents 30% 24% 31%

12% 2% Insurance Bank Financial Planner Direct Market

1% Full Service Brokers Discount Brokers

Source of Information

This chart gives data about the source of information from where the respondents have come to know about mutual funds. In this the highest number of people said they have come to know through direct market which involves the advertisement in television, magazines, news papers and hoardings.

60

Question: Which channel do you prefer for investing in mutual fund

Source of Information About Mutual Funds

Percentage of Respondents
32% 28% 18% 12% 9% 1% Full Service Brokers Discount Brokers Insurance Bank Financial Planner Direct Market

Source of Information

While answering this question, we came to know that 32% of respondents said they chose full service brokers for investing in mutual funds. Question: Do you know about SBI Mutual fund?

Awaeness About SBI Mutual Fund

39%

Ye s No
61%

Question: If yes, are you investing in SBI mutual fund?

Investment in SBI Mutual Fund

43%

Yes
No

57%

61

The above chart shows percentages of respondents invest in SBI Mutual Fund out of which are aware about the Mutual Fund. We can see that 43% people invest in SBI Mutual Fund. Question: Are you satisfied with the service of SBI mutual fund?
Satisfaction With SBI Mutual Fund

18%

Yes

No

82%

Looking to the answer given to this question, we came to know that 82% of respondents who have invested in SBI Mutual Fund are satisfied with the services rendered and returns provided by the company. Question: Do you want to give any suggestion for service of SBI mutual fund? In the answer of this question, respondents have given suggestions according to their experience with SBI Mutual Fund. We have divided the response into two categories namely positive and negative.

Positive:

Trustworthy: The SBI is Indias largest bank, so mutual fund offered by it can be easily trusted by people. Safety: As SBI Mutual Fund is a join venture which involves government stake, it is comparatively more safe than any other mutual fund company. Brand name

Negative:

lengthy procedure for dividend and other queries Return is not satisfactory

62

Question: Have you taken any life insurance policy?

Investment in Insurance

36%

Yes
No

64%

While answering this question, 36% of respondents said that they have taken any insurance policy of any insurance company. This shows less or lack of interest in investing in insurance sector. Question: Which companys life insurance do you have?

Investment in Various Insurance Companies

LIC Tata AIG 0% 1% 2% 1% 5% 0% 0% 1% 1% Bajaj Allianz SBI Life M ax Newyork ING Vysy a HDFC Std.Life Birla Sunlife ICICI Prulife Kotak M ahindra M etlife Sahara 82% Reliance Life Aviva

1% 2% 3% 1%

The above chart shows percentages of respondents invest in various insurance companies. Here, LIC has the largest market share. But if we consider the insurance offered by banks, SBI is having 10% share in the companies except LIC. According to The Economic Times latest article, SBI is at 6th rank in Indian insurance industry.

63

Question: What is your objective for taking life insurance policy?

Investment Objective 50% 40% 30% 20% 10% 0%

Life cover Saving T ax saving Investment Earning Other

45%

22% 10% 12% 9% 2%

Responding to this question, we came to know that most of people invest in insurance with an intension of tax saving i.e. 45%. Question: Do you know about SBI life?

Awareness About SBI Life

46%

Yes No
54%

While answering the question regarding awareness about SBI Life, 54% of the respondents replied positively. It shows that SBI Life has a scope to increase awareness in the market. This may need active participation of employees in marketing and awareness activities through innovative ways.

64

Question: Are you having any policy of SBI life?

Investment in SBI Life

27%

Yes No

73%

SBI Life insurance is growing in private insurance sector of India. Now a days Policyholders take the SBI life insurance maximum in the market. Question: If yes, are you satisfied with services and performance of SBI life?

Satisfaction With SBI Life

Yes
47%

No
53%

The respondents who have invested in SBI Life are satisfied with the performance and services of the company. The level of satisfaction is 53% among the people who have invested.

65

Question: Which channel do you prefer for investing in insurance?

Investment in Insurance 50% 40% 30% 20% 10% 0%

Bank Individual Agents Online Other

47%

42%

9% 2%

From above chart we can say that banks are now more preferred as a distributor of insurance. The individual agents are now loosing their monopoly in the distribution alternatives. So SBI Life still has a great scope to go ahead as it is a banking undertaking. Question: Any suggestion for SBI life The following suggestions we have received as the answer of above question from the respondents. Lack of awareness / comparatively less effective distribution Less attractive offerings

66

CONCLUSION AND SUGGESTIONS

67

 CONCLUSION
Looking to the analysis of primary data and secondary information, we can conclude that the distribution of mutual fund and insurance through banking channel is quite effective; still it has great potential for expansion. If we talk about mutual fund distribution, banking mutual funds have highest 46% share in distribution from our primary data. While secondary data also indicates its high efficiency. SBI Mutual Fund analysis also indicates its high efficiency in terms of distribution efforts and satisfaction level of its customers. As SBI Mutual Fund was the first Mutual Fund in India, it has made a great brand value which can be used as its strength as far as its distribution is concerned. People have more trust on the company as it belongs to public sector. Insurance distribution through banking channel has entered in growth stage. LIC is Indias most trusted insurer and having highest market share in life insurance sector. But the entry of private companies, especially insurance policies offered by banks have made a huge change in the distribution methods. SBI Life as SBI has grown widely in insurance sector. Though it has only 2% share in life insurance market in India, if we exclude LIC it has 10% of share out of remaining. According to a recent article in The Economic Times, SBI Life is now on 6th position in Indian insurance industry.

SUGGESTIONS
Cross selling has proved a golden hen for SBI as it generates quite more profit its core banking activities. So if it does greater efforts for distribution of Mutual Fund as well as Insurance products, it can have still greater results. Moreover, the specific suggestions given by the customers and other sources are as under: It should increase the efforts made by its marketing people by giving them effective marketing strategies and materials. The after sale services can be provided in a better manner. The customer queries should be given importance so as to retain valuable customers and attract new customers for market share expansion. Lengthy procedure for providing services and responding to customers can be completed in a shorter period

68

BIBLIOGRAPHY

69

 Magazines, Papers and books

The value research magazines The Economic Times Marketing management By Philip Kotlar

Website:
www.sbimf.com www.amfiindia.com www.valueresearchonline.com www.mutualfundindia.com www.myiris.com www.magindia.com www.agencyfaqs.com

70

Questionnaire
A questionnaire leading to a survey of effectiveness of distribution of Mutual Funds and Insurance through banking channel ______________________________________________________________________________ The purpose of this questionnaire is only to make a survey and it will never be misused. You are requested to fill answers and please tick wherever applicable.

Personal Details Name: _________________________________________________________________________ Address: _______________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ Occupation: Business Profession Student Service Govt. Job Other _______________

Contact No: (M): ___________________(O): ___________________ Age: ____________Years Annual Income: < 50,000 1,00,000-2,00,000 >5,00,000 Type of A/c in SBI (if any):__________________________________ 50,000-1,00,000 2,00,000-5,00,000

1. Do you know about Mutual Fund? Yes No

2. If yes, are you investing in mutual fund? Yes No

3. If yes, which companys mutual fund are you purchasing?

Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Can bank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company

Private foreign Private Indian Banks Banks Banks Private foreign 71

Limited Dundee Asset Management Company Limited Private foreign

DSP Merrill Lynch Asset Management Company Limited Private foreign Escorts Asset Management Limited First India Asset Management Limited GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited Unit Trust of India Zurich Asset Management Company (I) Limited Private Indian Banks Private Indian Private foreign Private foreign Private Indian Private Indian Private foreign Institutions Private foreign Banks Private foreign Private Indian Private foreign Private Indian Private Indian Institutions Private Indian Private Indian Institutions Institutions Banks Private foreign

4. From where have you come to know about mutual fund? Full service broker Insurance Financial planner Discount broker Bank Direct market 72

5. Which channel is you choose for investment in mutual fund? Full service broker Insurance Financial planner Discount broker Bank Direct market

6. Do you know about SBI Mutual fund? Yes No

7. If yes, are you investing in SBI mutual fund? Yes No

8. Are you satisfied with the service of SBI mutual fund? Yes No

9. Do you want to give any suggestion for service of SBI mutual fund? ________________________________________________________________________ ________________________________________________________________________ 10. Have you taken any life insurance policy? Yes No

11. Which companys life insurance policy has you? LIC BIRLA SUNLIFE TATA AIG SBI LIFE KOTAK LIFE INSURANCE ING VYSYA MET LIFE ICICI PRUDENTIAL HDFC STANDARD LIFE BAJAJ ALLIANZ MAX NEWYORK LIFE AVIVA LIFE INSURANCE AMP SANMAR SAHARA INDIA LIFE INSURANCE LIMITED

12. What is your objective for taking life insurance policy? Life Cover Tax saving Earning 13. Do you know about SBI life? Yes No Saving Investment Other

14. Are you having any policy in SBI life? Yes No

15. If yes, are u satisfied with SBI life? Yes No

16. Which channel do u prefer for investing in insurance? Bank Online Individual Agent Other 73

17. Any suggestion for SBI life ________________________________________________________________________ ________________________________________________________________________ ________________________________________________________________________

74

Performance Sheet

75