Professional Documents
Culture Documents
TOPICS
PAGE NUMBER
Introduction
Company profile
8,9,10,11
12,13
14
15
INVESTMENT OPTIONS
FIXED DEPOSITS
List of banks and their fixed deposit rates
19,20
20
21
STOCK MARKET
Advantages of shares
24
MUTUAL FUNDS
Benefits of mutual funds
29,30
30
31
32
INSURANCE
Advantages
35,36
Products
36,37,38,39,40
Annuities
40
SURVEY REPORT
45,46,47,48
RECOMMENDATION
49
BIBLIOGRAPHY
50
CEOs certificate
This report has not been previously submitted as part of any other degree or
diploma of another Business School or University.
Deans certificate
This report has not been previously submitted as part of any other degree or
diploma of another Business School or University.
Mentors certificate
This report has not been previously submitted as part of any other degree or
diploma of another Business School or University.
Prof. Ananthmurthy
Mentor, Indian Business Academy
Student declaration
This is my original work and has not been previously submitted as a part of
another degree or diploma of another Business School or University.
The findings and conclusions of this report are based on my personal study
and experience, during the tenure of my Summer Internship.
ACKNOWLEDGEMENT
It is not enough that we lay the super structure of the building, but the most
important part is the base of the building. Similarly, this project would be
incomplete without mentioning the real people who have guided, supported, and
me realize the corporate culture through which the long cherished dream of
implementing a quality program in this esteemed organization could be realized.
First of all, I would like to express my gratitude to my project guide Mr. Sukanta
Chatterjee, Assistant Business Development Manager, TATA-AIG Life
Insurance Co. Ltd. (Kankurgachi Branch, Kolkata), who supported and guided
me throughout the project and gave me all necessary facilities and inputs to make
this project a successful one and also made me as energetic and enthusiastic like
him.
I would also like to thank Mr. Amit Ganguly, Training Manager, TATA-AIG Life
Insurance Co. Ltd. (Kankurgachi Branch, Kolkata), who provided me enough
training and skills so that I can go into the market. I also have the foremost duty of
thanking Mr. Rajpratim Bose, Branch Manager, TATA-AIG Life Insurance Co.
Ltd. (Kankurgachi Branch, Kolkata), who had extended a lot of help in the
planning the overall procedure and application for this project.
I would like to thank Mr. Manish Jain, CEO, Indian Business Academy,
Bangalore, for providing me the opportunity to have such a good experience of an
internship program, Dr. Subhash Sharma, Dean, Indian Business Academy,
Bangalore and of course my faculty guide Prof. Ananthmurthy, the guiding
source of light in this vast journey of learning experience while doing the project
that really made me learn the real application and management principles of the
project. His continuous advice has really transformed me into a much mature
personality.
INTRODUCTION
And last but not the least, I would like to thank all the staffs of TATA-AIG Life
Insurance Co. Ltd. (Kankurgachi Branch, Kolkata), for helping me to complete this
project successfully and a very special thanks to Mrs. Ankana Basu, Provisional
Business Associate, TATA-AIG Life Insurance Co. Ltd. (Kankurgachi Branch,
Kolkata), for giving me some really very special inputs about the Insurance
Industry.
Savings form an important part of the economy of any nation. With savings are
invested in many forms of investment options available, the money acts as the
driver for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors.
We, Indians work hard for our entire life to earn our living. Out of that we save some
part in a hope that it will be used for our future to make it happy and reliable. These
savings are generally invested with a hope to get good returns from it. So, this
invested money earns us profit in a regular course. These profit margins depend
upon the different investment options available in the market. Below are mentioned
some of the basic and most opted for investment options to suit all financial
situations.
Investment options:
We can divide investment options in two categories. They are mainly, real
investments and financial investments. Real investments include investments made
to buy house, car or machinery which are real assets. Financial investments include
investing funds in buying some shares, mutual funds or bonds which are financial
assets.
In a more generalized form there are the below mentioned investment options
available.
COMPANY PROFILE
There are many companies and advisors to guide people regarding the selection of
a particular investment option. They analyze the market situation and refer a
suitable investment option for people. People can take their help if they want to
reduce their risks and increase their profits. There are even many investment
brokers and investment analysts to help people with the process of investment.
consumer products; and chemicals. The Group was founded by Jamsetji Tata in the
mid 19th century, a period when India had just set out on the road to gaining
independence from British rule. Consequently, Jamsetji Tata and those who followed
him aligned business opportunities with the objective of nation building. This
approach remains enshrined in the Group's ethos to this day.
The Tata Group is one of India's largest and most respected business
conglomerates, with revenues in 2006-07 of $28.8 billion (Rs129,994 crore), the
equivalent of about 3.2 per cent of the country's GDP, and a market capitalization of
$72.8 billion as on January 10, 2008. Tata companies together employ some
289,500 people. The Group's 27 publicly listed enterprises among them stand out
names such as Tata Steel, Tata Consultancy Services, Tata Motors and Tata Tea
have a combined market capitalization that is the highest among Indian business
houses in the private sector, and a shareholder base of over 2.9 million. The Tata
Group has operations in more than 85 countries across six continents, and its
companies export products and services to 80 countries.
The Tata family of companies shares a set of five core values: integrity,
understanding, excellence, unity and responsibility. These values, which have been
part of the Group's beliefs and convictions from its earliest days, continue to guide
and drive the business decisions of Tata companies. The Group and its enterprises
have been steadfast and distinctive in their adherence to business ethics and their
commitment to corporate social responsibility. This is a legacy that has earned the
Group the trust of many millions of stakeholders in a measure few business houses
anywhere in the world can match.
American International Group, Inc. (AIG), a world leader in insurance and financial
services, is the leading international insurance organization with operations in more
than 130 countries and jurisdictions. AIG companies serve commercial, institutional
and individual customers through the most extensive worldwide property-casualty
and life insurance networks of any insurer. In addition, AIG companies are leading
providers of retirement services, financial services and asset management around
the world. AIG's common stock is listed on the New York Stock Exchange, as well as
the stock exchanges in Paris, Switzerland and Tokyo.
Tata AIG General Insurance Company Limited (Tata AIG General) is a joint venture
company, formed by the Tata Group and American International Group, Inc. (AIG).
Tata AIG General combines the Tata Groups pre-eminent leadership position in India
and AIGs global presence as the worlds leading international insurance and
financial services organization. The Tata Group holds 74 per cent stake in the
insurance venture with AIG holding the balance 26 percent. Tata AIG General
Insurance Company, which started its operations in India on January 22, 2001, offers
complete range of general insurance for motor, home, accident & health, travel,
energy, marine, property and casualty, liability as well as several specialized
financial lines.
According to The Economic Times, Tatas are more reputed than Google, Microsoft
(published on 11th May, 2009 in The Economic Times). They are at 11 th position in
the trust factor, way ahead of Disney (21th), Google (23 rd), SBI (29th), Microsoft
(30th), INFOSYS (39th), Nokia (45th), L&T (47th), Maruti Suzuki (49th), Hindustan
Unilever (70th), & ITC (96th).
The list is made on the basis of admiration, trust and good feeling that consumers
have towards a company. Other Indian companies that are in the list of top 200 are
Canara Bank, HPCL, Wipro, Reliance, M&M, and Bharti Airtel, BPCL, Punjab National
Bank. The report revealed that corporate trust is higher in the emerging markets,
while companies in industrialized markets are trusted less.
Tata-AIG Life Insurance Company is a joint venture between the Tata Group (74%
equity stake) and American International Group Inc. (AIG) (26% equity stake). The
company offers a broad range of life insurance products to individuals and groups.
The products offered to individuals are variations of term life with or without a
savings element, e.g., endowment policies and money back policies. Tata-AIG Life
has been in operation since April 2001 (incorporated on Aug 23, 2000). While the
company itself is relatively new, the Tata group is widely known in Indian
households.
The Tata Group is one of the oldest and largest industrial conglomerates in India.
Established in 1868, it has interests in engineering, consumer products, chemicals,
financial services, hotels, information technology and telecommunications. With
over 80 companies, and with revenues close to 1.8% of the countrys GDP, the Tata
brand is very well respected across the socioeconomic classes. Most importantly, it
manufactures a large variety of goods that are highly visible to low-income
households, like consumer goods, trucks and automobiles that bear the Tata logo.
Having been around for over a century, the name Tata introduces immediate
credibility in its micro insurance operations. Agents selling micro insurance products
are able to assure potential clients that such a large conglomerate would have little
interest in stealing their miniscule (in relative terms) premiums.
AIG is the one of the worlds largest insurers. Aside from its massive pool of inhouse technical capacity, it has experience working on micro insurance in Uganda.7
Although Tata is the largest shareholder in Tata-AIG; AIG manages the company with
strategic guidance from AIGs Hong Kong office. Tata-AIG was among the few private
sector insurance players to have a well-known, reputable local brand, but it did not
have a strategic banking alliance with domestic banks or branch presence in smaller
towns that could enable it to promote micro insurance sales. As a result, its micro
insurance strategy had to be developed around other partner organizations to
enable the insurer to penetrate rural areas. Rural India comprises of over 650 000
villages with over half of them having a population of less than 500. Even the state
relies on NGOs to provide services to remote and poorly connected locations. For
Tata-AIGs rural programme, it was evident that the main partners would need to be
NGOs. Fortunately, Tata has the reputation of having contributed to community
development over the years. Substantial parts of the groups profits go into a trust
and several social organizations across the country receive grants and assistance
from these trusts. The link with Tata helped to create a climate in which many NGOs
were favorably disposed towards Tata-AIG.
Although AIG was forced to find a local partner to get a license to do business in
India, the choice of
Tata, with its excellent reputation in the development community, made it an
invaluable partnership.
This was especially significant in India where many multinational corporations have
faced significant difficulties in entering the India market.
Core Values:
Integrity: We must always conduct our business with fairness, honesty and
transparency, so that we can at all times stand public scrutiny. We will never
undermine the heritage of trust that comes with the Tata brand.
Entrepreneurship: we would encourage innovative ideas for individual and
organizational development. This thinking would be fostered, encouraged and
recognized for enhancing business. We would take delight in stretching our goals
and each of us would have a sense of ownership and responsibility for all our
business dealings.
Agility: We will encourage an organizational culture and structures that has
capacity for change. Flexibility and adaptability will be critical to our operations. We
will aim for nimble, flexible and customized responses at all times to all our
stakeholders.
Excellence: All our activities must be driven by a passion for excellence. We must
strive, uncompromisingly, to achieve the highest standards in our daily work and in
the quality of the goods and services we offer. We would endeavor to achieve 'best
in class' status in all our processes and results.
Unity: We must work cohesively with our colleagues, customers and partners
around the world, leveraging synergies and building strong networks based on
collaboration and mutual cooperation.
Mission:
To be a competitive value provider in international business for Group companies
and all our partners.
Vision:
Become a globally networked enterprise seizing opportunities worldwide to
generate USD 25 million annual profits by .
Vivid Description of Vision:
A strong global supply base for world class goods and services
Effective and responsive systems and processes that will underpin our
business decisions to manage risks
Resources:
Besides company funds, the micro insurance team has been able to harness
external funds. In September 2002, DfID put out the bidding process for its Financial
Deepening Challenge Fund, a matching grant for which the private sector could bid
based on innovative ideas to each the poor. Tata-AIG bid for an assistance of 89
500 ($168 620) and committed matching funds to the tune of 104 000 ($195 520).
The FDCF grant is being used for product development, capacity building, and
physical and communication infrastructure like vans and the Internet portal.
Profit allocation and distribution:
Tata-AIG is private company and all profits generated by the company go to its
owners (shareholders). The exception to this is with endowment policies where
regulations require that 90% of profits must be returned to policyholders.
Partnerships:
Tata-AIG has NGO partnerships with over 50 NGOs. Over 40% of its 35 000 social
sector policies were sold through the partner-agent model. In this model, the
NGO/MFI partner performs the sales and servicing functions, primarily for its current
microfinance clients. The two other models, the business associate model and the
CRIG model, account for the remaining 60% of the new business and are described
in more detail below.
STRENGT
HS
Premium
rates are increasing
and so are commissions
The variety of products are
increasing
Customers expects more
services from their brokers
OPPORTUNITI
ES
Ability to cross sell financial
services barely being tapped
Technology is improving to
that point that paperless
transactions are available
Clients increasing need for
insurance consultant can
open new ways to service
the client and generate
income
WEAKNES
S
Companies
are slow respond to
changing needs
Increasing trend of financial
weakness among the companies
More competitors for agencies to
compete with banks & internet
players
THREATS
INVESTMENT OPTIONS
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There are many investment options available for the people in the market, but there
are mainly five investment options, which are considered to be as most popular and
most effective investment options available in the current market scenario. In
general, almost 95-98% people do invest in these, since the Expected Rate of
Return is much higher than any other investment options, irrespective of the
amount of risk is very high in some of the cases. These investment options are:
This investment option is most popular and safest option available in the market.
With almost every working people invest in fixed deposits; this investment option
leads the chart of four investment options because of its safety and popularity.
FIXED DEPOSITS:
Though the amount of return is much lesser than the other three options, this option
heads the table as it has almost no risk of losing the invested amount. Also, it is the
oldest among the other three, so the trust factor of people is very high.
There are mainly three types of fixed deposits available in the market, namely, viz.
1. Fixed deposits offered by Banks
2. Fixed deposits offered by Post Offices
3. Company fixed deposits
However, today the interest rate structure in the country is headed southwards,
keeping in line with global trends. With the banks offering just above in their
fixed deposits for one year, the yields have come down substantially in recent
times. Add to this, inflammatory pressure in the economy and we have a position
where the savings are not earning. The inflation is creeping up almost 8% at
times, this means the value of money saved goes down instead of going up. This
effectively mars any chance of gaining investments from the banks.
Fixed deposit
rates
5-6.75%
5.5-6%
5.5-6%
6.5-7.3%
6-7%
6.75-7%
5-5.5%
7-7.5%
4.25-4.5%
5-5.5%
6.75-7.5%
3-4.5%
6.5-8%
6.5-7.5%
HDFC Bank
Hongkong Sanghai Banking
Corp. Ltd.
ICICI Bank
IDBI Bank
Indian Overseas Bank
Indusind Bank
ING Vysya Bank
Jammu and Kashmir Bank
Karnataka Bank
Karur Vysya Bank
Kotak Mahindra Bank
Oriental Bank of Commerce
Punjab National Bank
SBI
Standard Chartered Bank
State Bank Of B&J
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Travankore
Syndicate Bank
UCO Bank
Union Bank of India
United Bank Of India
Vijaya Bank
YES Bank
5.5-7%
8-8.75%
5.25-7.5%
7-7.75%
6-7.5%
7-8.25%
5.75-7.75%
5.5-6%
7-8%
7-8.25%
6-7%
5.5-6%
5.5-6.5%
6.25-7%
4.5-7.25%
6.75-7.5%
6.5-7.5%
6.75-7.5%
6.5-7.25%
4.25-5.75%
7-7.5%
6.5-7%
5.50%
6.5-7.5%
5.5-6%
7.25-7.75%
Though certainly current market position is not the most efficient systems in terms
of service standards and liquidity; these have still managed to attract the attention
of small, retail investors. However with the government investing its intention of
reducing the interest rates in small savings options, this avenue is expected to lose
some of the investors. Public Provident Funds act as options to save for the post
retirement period for most people and have been considered good option largely
due to the fact that returns were higher than most other options and also helped
people gain from tax benefits under various sections. This option too is likely to lose
some of its sheen on account of reduction in the rates offered.
STOCK MARKET:
In the Indian market scenario, the large FMCG companies reached the top line with
a double-digit growth, with their shares being attractive for investing in the Indian
stock market. Such companies like the Tata Tea, Britannia, to name a few, have
been providing a bustling business for the Indian share market. Other leading
houses offering equally beneficial stocks for investing in Indian Equity Market, of the
SENSEX chart are the two-wheeler and three-wheeler maker Bajaj Auto and second
largest software exporter Infosys Technologies.
Thus, the growing financial capital markets of India being encouraged by domestic
and foreign investments is becoming a profitable business more with each day. If all
the economic parameters are unchanged Indian Equity Market will be conducive for
the growth of private equities and this will lead to an overall improvement in the
Indian economy.
Now apart from all these, the first question that comes in our mind is,
Why do so many people invest in shares?
Simply put, you want to invest in order to create wealth. While investing is relatively
painless, its rewards are plentiful. To understand why you need to invest, you need
to realize that you lose when you just save and do not invest. That is because the
value of the rupee decreases every year due to inflation. Historically shares have
outperformed all the other investment instruments and given the maximum returns
in the long run. In the twenty-five year period of 1980-2005 while the other
instruments have barely managed to generate returns at a rate higher than the
inflation rate (7.10%), on an average shares have given returns of about 17% in a
year and that does not even take into account the dividend income from them.
Were we to factor in the dividend income as well, the shares would have given even
higher returns during the same period.
[Inflation: general rise in prices and wages caused by an increase in the money
supply and demand for goods, and resulting in a fall in the value of money. Inflation
occurs when most prices rise by some degree across the economy.]
Investment options
Stock market
Bank fixed deposits
Gold
17%
18%
16%
14%
12%
9%
10%
6%
8%
6%
4%
2%
0%
Stock Market
Gold
broker provides you. Some brokers, such as Sharekhan, offer its clients regular
updates on companies, multiple means to transact and customer service support.
D. Depository fees: Since most of the shares exist in a dematerialized form, every
time you buy or sell shares the transactions are being noted by your DP. The DPs
normally levy a charge which is an annual charge or a charge on each transaction.
Risks ---the only disadvantage in investing in shares:
There are two types of risk associated with this kind of investment: company
specific risk and market risk.
Set of risks that deals with a company and its sector are referred to as company
specific risk.
Examples of company specific risk: bad management, bad marketing strategies,
sector disturbances that have an impact on industry etc.
External factors (economic, global factors) that affect the market as a whole are
referred to as market risk.
Examples of market risk: political instability, high inflation, rupee depreciation,
rising interest rates, global incidents like wars and disasters that throttle the
nation's economy etc.
It is difficult to predict market risks. The only thing we can say here is that start
noticing all the small signs early. If the election results are feared to lead to a fall in
the stock market, notice the signals beforehand. Read Sebi's bulletins and track
companies whose shares prices are very volatile.
How people can minimize their risk and maximize their return?
Buy when stocks are falling, sell when these are rising. This works well when you
are a long-term investor and there is an extended bear or Bull Run. Don't try to
second guess or predict that the market will fall today and rise tomorrow. Even
seasoned investors cannot do that!
2. Don't try to guess the market's favorites
Your instincts might tell you that pharma or technology stocks are hot due to certain
policies or events, but remember millions of investors have already guessed that
and bought these stocks. The prices of these stocks would therefore be at a higher
level when you buy them. Instead focus on the long term and don't get swayed by
short-term events.
3. Aim for the long haul
Short-term investing is prone to higher risks. When investing in stocks, aim to get
good returns after a period of three to five years at the minimum. Also churn your
portfolio periodically and based on the progress that a company makes in a quarter
or in six months, decide whether to hold the stock or get out of it.
4. Avoid hot tips
You may have overheard some news about a stock or your friend may advise that a
particular stock is all geared to move up. Avoid such tips like the plague and your
investments will remain safe.
5. Blue-chips are safe bets
Blue-chip companies are there because they have done well in the past and have a
high market capitalization. It is a likely guess that they will maintain their track
record and give you higher returns even in future. Therefore invest in companies
that have a good track record.
6. Slow and steady stream of investments
Set aside a certain portion of your earnings every month and invest that sum in
shares irrespective of the market conditions. This way, over a period of time you can
amass a substantial number of shares of the stocks in your portfolio.
7. Think portfolio
Don't put all your earnings in a single stock. Try to have a diverse portfolio of stocks.
This way even if one stock doesn't do well, you are still well protected. Also invest
across sectors, since any problem in one sector would affect all stocks in the sector.
As a thumb rule, if you have investments of up to Rs50, 000 invest in two to three
stocks. For about Rs150, 000 invest in three to five stocks, for around Rs500, 000
have five to seven stocks and around ten stocks for higher amounts.
8. Dont invest all your savings
Always maintain a core set of reserves. You should never touch these reserves for
investing, so that even in the worst case you still have some money. Typically these
reserves should be your salary of about six months.
9. Be level-headed
Invest wisely, don't get swayed by rumors and allow Sharekhan to be your guide at
all times. Investment success won't happen overnight, so avoid overreacting to
short term market swings.
Mutual Funds are essentially investment vehicles where people with similar
investment objective come together to pool their money and then invest
Mutual funds:
accordingly. Each unit of any scheme represents the proportion of pool owned by
the unit holder (investor).
Mutual Funds in India are financial instruments. These funds are collective
investments which gather money from different investors to invest in stocks, shortterm money market financial instruments, bonds and other securities and distribute
the proceeds as dividends. The Mutual Funds in India are handled by Fund
Managers, also referred as the portfolio managers. The Securities Exchange Board
of India regulates the Mutual Funds In India. The share value of the Mutual Funds in
India is known as net asset value per share (NAV). The NAV is calculated on the total
amount of the Mutual Funds in India, by dividing it with the number of shares issued
and outstanding shares on daily basis.
Mutual funds in India advantages:
These funds are available in small units, so they are affordable to the small
investors.
The fees charged for to the custodial, brokerage and others services are very
low in case of Mutual Funds in India.
These funds have the option of redeeming or withdrawing money at any point
of time.
Like most developed and developing countries the mutual fund cult has been
catching on in India. The important reasons for this interesting occurrence are:
Mutual funds make it easy and less costly for investors to satisfy their need
for capital growth, income and/or income preservation.
properly allocate their assets. By pooling your funds with others, you can quickly
benefit from greater diversification. Mutual funds invest in a broad range of
securities. This limits investment risk by reducing the effect of a possible decline in
the value of any one security. Mutual fund unit-holders can benefit from
diversification techniques usually available only to investors wealthy enough to buy
significant positions in a wide variety of securities.
Low Cost :
A mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000,
and sometimes less.
The offer document shall contain disclosures which are adequate in order to
enable the investors to make informed investment decision including the disclosure
on maximum investments proposed to be made by the scheme in the listed
securities of the group companies of the sponsor A close-ended scheme shall be
fully redeemed at the end of the maturity period. Unless a majority of the unit
holders otherwise decide for its rollover by passing a resolution.
Rules Regarding Advertisements:
The offer document and advertisement materials shall not be misleading or
contain any statement or opinion, which are incorrect or false.
Investment Objectives and Valuation Policies:
The price at which the units may be subscribed or sold and the price at which
such units may at any time be repurchased by the mutual fund shall be made an
available to the investors.
Restrictions on Investments:
A mutual fund scheme shall not invest more than 15% of its NAV in debt
instrument issued by a single issuer, which are rated not below investment grade by
a credit rating agency authorized to carry out such activity under the Act. Such
investment limit may be extended to 20% of the NAV of the scheme with the prior
approval of the Board of Trustees and the Board of Asset Management Company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments
shall not exceed 25% of the NAV of the scheme. All such investments shall be made
with the prior approval of the Board of Trustees and the Board of Asset Management
Company.
No mutual fund under all its schemes should own more than ten percent of any
companys paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on
spot basis. The securities so transferred shall be in conformity with the investment
objective of the scheme to which such transfer has been made.
INSURANCE:
Introduction to insurance:
The business of insurance is related to the protection of the economic values of the
assets. Every asset has a value. The asset would have been created through the
efforts of the owner. The asset is valuable to the owner, because he expects some
benefits from it. It is a benefit because it meets some of his needs. But every asset
is expected to last for a certain period of time during which it will provide the
benefits. After that the benefit may not be available. The owner is aware of this and
he can so manage his affairs that by the end of that period or life-time, a substitute
made available. Thus he makes sure that the benefit isnt lost. Here comes the
thought of insurance.
Purpose and needs of insurance:
Assets are insured, because they are likely to be destroyed or made non-functional
before the expected life time, through accidental occurrences are called perils. Fire,
floods, breakdowns, lightning, and earthquakes such things are called perils. If such
perils can cause damage to the assets, we say that the asset is exposed to that
risk. Perils are the events. Risks are the consequential losses or damages.
The risk only means that there is a possibility of loss or damage. The damage may
or may not happen, but the word possibility implies uncertainty. Insurance is
relevant only if there are uncertainties. If there is no uncertainty about the
occurrence of an event, it cant be insured against.
Insurance doesnt protect the asset. It does not prevent its loss due to the peril. The
peril cant be avoided through the insurance. The risk can sometimes be avoided,
through better safety and damage control measures. Insurance only tries to reduce
the impact of the risk on the owner of the asset and those who depend on that
asset. They are the ones who benefit from the asset and therefore, would lose,
when the asset is damaged. Insurance only compensates for the losses-and that
too, not fully.
Classification of risks:
Risks are classified in various ways. One classification is based on the extent of the
damage likely to be caused. They are,
a) Critical or catastrophic risks: this may lead to the bankruptcy of the owner.
b) Important risks: may not spell doom, but may upset family or business
finances badly, require a lot of time to recover.
c) Unimportant risks: like temporary illness or accidents.
d) Financial risks
e) Non-financial risks
f) Dynamic risks: caused by perils which have national consequence, like inflation,
technology etc.
g) Static risks: caused by perils which have no consequence on the national
economy, like a fire or theft.
h) Fundamental risks: that affects large populations.
I) Particular risks: affects only specific persons.
j) Pure risks
k) Speculative risks
An example of how insurance works:
In a village, there are 4000 houses, each valued at Rs.20000. Every year, on an
average, 4 houses get burnt, resulting into a total loss of Rs.80000.if all the 400
owners come together and contribute Rs.200 each, the common fund would be Rs.
80000. This would be enough to pay Rs.20000 to each of the 4 owners whose
houses got burnt. Thus the loss of Rs.20000 each of 4 owners is shared by 400
house-owners of the village, bearing Rs.200 each. This works out to 1% of the value
of the house, which is the same as the probability of risk (4 out of 400 houses).
The business of insurance:
Insurance companies are called insurers. The business of insurance is to,
Bring together persons with common insurance interests (sharing the same
risks)
Collect the share or contribution (called premium) from all of them
Pay out compensations (called claims) to those who suffer from the risks.
The premium is determined on the same lines, but with further refinements.
In India, insurance business is classified primarily as life and non-life or general. Life
insurance includes all risks related to the lives of human beings and general
insurance covers the rest. General insurance has 3 classifications viz. fire (dealing
with all fire related risks), marine (dealing with all transport related risks and ships)
and miscellaneous (dealing with all others like liability, fidelity, motor, crop, etc).
Personal accident and sickness insurance, which are related to human beings, is
classified as non-life in India but is classified as life, in many other countries.
What is non-life in India is termed property and casualty in some other countries.
In India, the IRDA has, in 2005, issued regulations enabled micro insurance (broadly
meaning insurance for small sums assured, like 5-50 thousands) to be done by both
life and general insurers on the basis of mutual tie-ups. A policy may be issued by a
life insurer covering both life and non-life risks, but premium on account of the nonlife business will be passed on to a general insurer and the claim amount collected
from the latter.
Trustee:
The insurer is in the position of a trustee as it is managing the common fund, for
and on behalf of the community of policyholders. It has to ensure that nobody is
allowed to take undue advantage of the arrangement. That means that the
management of the insurance business requires care to prevent entry (into the
group) of people whose risks are not of the same kind as well as playing claims on
losses that are not accidental. The decision to allow entry is the process of
underwriting of risk. Underwriting includes assessing the risk, which means, making
an evaluation of how much is the exposure to risk. The premium to be charged
depends on this assessment of the risk. Both underwriting and claim settlements
have to be done with great care.
Reinsurance:
Insurance companies are taking risks they have to pay claims as and when they
occur. They cannot be sure when the claim will occur and how big the claim may be.
This is so because of the very nature of the perils. Insurers normally are financially
sound enough to be able to pay claims. But there are limits. An event like the
tsunami or hurricane may generate claims amounting of crores of rupees, which
may put a very heavy strain on the reserves of the insurer. Insurers protect
themselves from such situations, which may be beyond their capacity, by reinsuring
the risk with other insurers. If there is a claim, the burden is shared by the primary
insurer and the reinsurers.
Advantages of life insurance:
Life insurance has no competition from any other business. Many people think that
life insurance is an investment or a means of saving. This is not the correct view.
When a person saves, the amount of fund available at any time is equal to the
amount of money set aside in the past, plus interest. This is so in the fixed deposit
in a bank, in national savings certificate, in mutual funds or any other savings
instruments. If the money is invested in buying shares and stocks, there is the risk
of the money being lost in the fluctuations of the stock market. Even if there is no
loss, the available money at any time is the amount invested plus appreciation. In
life insurance, however, the fund available is not the total of the savings already
made (premiums paid), but the amount one wished to have at the end of the
savings period (which is next 20/30 years). The final fund is secured from the very
beginning. One is paying for it over the years, out of the savings. One has to pay for
it only as long as one life or for a lesser period, if so chosen. The assured fund is not
affected. There is no other scheme which provides this kind of benefit. Therefore life
insurance has no substitute.
A comparison with other forms of savings will show that life insurance has the
following advantages:
In the event of death, the settlement is easy. The heirs can collect the
moneys quicker, because of the facility of nomination and assignment. The
facility of nomination is now available for some bank accounts, provident fund
etc
There is a certain amount of compulsion to go through the plan of the
savings. In other forms, if one changes the original plan of savings, there is
no loss. In insurance, there is a loss.
Creditors cant claim the life insurance moneys. They can be protected
against the attachments by courts.
There are tax benefits, both in income tax and in capital gains.
Marketability and liquidity are better. A life insurance policy is property and
can be transferred or mortgaged. Loans can be raised against the policy.
It is possible to protect a life insurance policy from being attached by debtors.
The beneficiaries interest will remain secure.
The following tenets help agents to believe in the benefits of the life insurance.
Such faith will enhance their determination to sell and their perseverance.
Life insurance is not only the best possible way for family protection. There is
no other way.
Insurance is the only way to safeguard against the unpredictable risks of the
future. It is unavoidable.
The terms of life are hard. The term of insurance is easy.
The value of human life is far greater than the value of any property. Only life
insurance can preserve it.
endowment plan, the sum assured is payable on survival to the end of term on
earlier death.
A marriage endowment plan has nothing to do with the contingency of the
marriage. It only stipulates the date on which the sum assured will be paid, even if
the life insured dies early. That date can be chosen to coincide with the age of a son
or daughter, for whose marriage the sum assured would come in handy.
Similarly, the educational annuity plan is not an annuity. It is an ordinary
endowment plan, which states that the sum assured would be paid on installments,
commencing from a date, which may be chosen as the likely date when the child
may be old enough for higher education.
An interesting plan is a term assurance plan for a specified term, at the end of
which the premiums paid till date is refunded, but cover continues indefinitely
thereafter. To a layman, this looks like a free cover being granted gratis. In effect,
the premium is calculated in such a way that the interest accumulated on the
premium during the term, is enough to meet the single premium cost of the
extended cover.
Convertible plans:
Convertible plans of assurance are plans, which provide, in its terms and conditions,
that it can be changed to another plan after, or within, a certain period after
commencement. For example, a convertible term assurance plan can be converted
into a whole life policy or an endowment policy, within a period specified in the
original plan.
The advantage of convertible plan is that, when the right of conversion is
exercised, there would be no further underwriting decision to be made. There would
be no medical examination at that time. So, even if the insured has an adverse
medical condition at that time, the policy of his choice will not be denied to him.
Such policies usually taken by persons in the early stages of their careers, who
expect their financial conditions to improve soon, but would not like to delay the
benefits of insurance till then.
With profit and without profit plans:
Without profit or non-participating policies are not entitled to bonuses, which are
declared after actuarial valuations. With profit or participating policies pay a
slightly higher premium for the right to participate in the progress of the insurer.
Participating policies are popular as the bonuses are expected to be more than the
extra premium paid. Participating policies, where the premium is payable for a
limited period, will continue to participate even after the premium have ceased.
Joint life policies:
2 or more life can be covered under 1 policy. Such policies usually cover married
couples or partners. The sum assured paid on the death of any of the insured
persons during the term or at the end of the term. Some plans also provide
payment of sum assured, on the death of one life and the policy is continued to
cover the second life till maturity, without payment of further premium.
Children plans:
Insurance can be taken on the lives of children, who are minors. The proposal will
have to make by a parent or guardian.
In these plans, risk on the life of the insured child will begin only when the child
attains a specific age. The time gap between the date of commencement of the
policy and the commencement of the risk is called the deferment period.
There is no insurance cover during the deferment period. If the child dies during the
deferment period, the premiums will be returned. Risk will commence automatically
on the deferred date, without any medical examination. The main advantage of
these plans is that the premium would be relatively low and cover will be obtained
irrespective of the state of health of the child.
These policies have conditions whereby the title will automatically pass on to the
insured child, on his attaining to the age of majority. This process is called
vesting. The policy anniversary after attaining the age of majority that is the age
of 18, or any later date may be chosen will be the vesting date. After vesting, the
policy becomes a contract between the insurer and the insured person.
The vesting date cannot be earlier than 18. This is because there cannot be a valid
contract with a minor. The deferred date however, can be fixed without such
limitation. The vesting date and the deferred date need not be the same.
Sss policies, sometimes also called payroll insurance, are also intended to cater
to the needs of the working classes. The insurer arranges with the employer to
deduct the premium from the salary of the worker policyholder and remit the same
to the insurers office every month. This scheme benefits,
Because of these benefits, the sss is popular. The amount to be deducted from the
salary is worked out by calculating the premium without adding extras for monthly
mode. The employer makes deduction on the basis of an authority letter signed by
the employee, who is collected with the proposal and is sent to the employer by the
insurer, when the policy is accepted.
An added advantage of sss is that there is a group pressure to buy life insurance,
making the job of an agent slightly easier. The resistance would be less and the
relationship with the group can be strong.
Riders:
A rider is a clause or condition that is added on to a basic policy providing an
additional benefit, at the choice of the proposer. For example, a provision that in the
event of death of the life assured by accident, the sum assured would be double can
be a rider of an endowment policy. This rider can be added on to a policy under any
plan.
Some of the riders offered by insurers in India are as follows:
Increased death benefit, being twice or even bigger multiple of the survival
benefit.
Accident benefit allowing double the sum assured if death happens due to the
accident.
Permanent disability benefits, covering loss of limbs, eyesight, hearing,
speech etc.
Premium waiver, which would be useful in the case of childrens assurances,
if the parent die before vesting date or in the case of permanent disability or
sickness.
As per the regulations made by IRDA in April 2002 and amended in October 2002,
The premium in all the riders relating to health or critical illnesses, in the case
of term or group products shall not exceed 100% of the premium of the main
policy.
The premiums on all the riders put together should not exceed 30% of the
main policy.
The benefits arising under each of the riders shall not exceed the sum
assured under the basic product.
Annuities:
Annuities are practically same as the pensions. Pensions provide regular periodical
payments (usually every month) to employees, who have retired. They are paid as
long as the recipient is alive. Sometimes the pension is also paid to the dependents
after the pensioners death. Annuities are also periodical payments, not necessarily
monthly, and are not related to employment.
Annuities are also called reverse of life insurance. In annuity contracts, a person
agrees to pay to the insurer a specified capital sum in return for a promise from the
insurer to make a series of payments to him so long as he lives, while in insurance,
the insured pays a series of payments in return for a promise of a lump sum on his
death.
Annuities are paid by insurers in monthly, quarterly, half-yearly or annual
installments, as may be preferred by the annuitant. An annuity can be made
payable
During the life time of the annuitant, in which case it ceases on his death.
This is called a life annuity or annuity for life
During the life time of the annuitant or his spouse, whichever is longer
For a fixed number of years like 5, 10, 15, 20 or 25 years and thereafter, as
long as the annuitant is alive. This is called an annuity certain.
For a fixed number of years and thereafter till the death of the annuitant or
the annuitants spouse
As long as the annuitant lives and thereafter, at 50% to the spouse as long as
the spouse lives.
Annuity for life and return of premium on annuitants death
On any of the above terms, but with the annuity increasing every year by a
fixed rate or amount
The annuity may commence immediately after the contract is concluded. Such
annuity is called immediate annuity. The purchaser of an immediate annuity
pays the purchase price in lump sum. The first installment will start at the end of
the month, quarter, and half year or at the end of the year as the case may be.
The alternative of an immediate annuity is called deferred annuity. In this case,
the annuity payment will start after the lapse of a specified period, called the
deferment period. The purchase price can be paid as a single premium at the
commencement or may be paid in installments during the deferment period.
The annuity will commence at the end of the deferment period, which is called the
vesting date. The amount due on that date can be used to buy annuities at the rate
prevalent on that date, from the same or another insurer. The annuitant may have
the option to receive as a lump sum, a certain portion of the amount due on that
date and use only the balance for the purchase of annuity. This is called
commutation. The lump sum is called the commuted value.
Group insurance:
Group insurance is a plan of insurance, which provide cover to large number of
individuals under a single policy called the master policy.
Salient Features:
1. GIS-05 provides a life insurance cover as given in table below to Officers, Airmen
and NCs(E) respectively. Disability insurance cover would be half of life cover for
100% disability and reduces proportionately up to 20%.
2. With the increased cover, the amount of monthly contribution has also been
increased correspondingly. Thus Officers/Airmen/NCs (E) pay a basic contribution of
Rs. 1365/-, Rs. 700/- and Rs. 250/- per month respectively. Additional Contribution
will be recovered from aircrew as Flying Extra.
3. The Survival Benefit under GIS-05 will consists of Saving Element and Interest.
4. The facility of final withdrawal from Survival Benefit to meet any financial
commitment before their retirement is available provided the individual is a
member of GIS-05 Scheme.
Covers (Rs.
In lacs)
Risk
element
Flying extra
Saving
element
Total subs
22
330
635
1035
2000
22
330
170
1035
1535
22
330
nil
1035
1365
11
4.40
160
64
nil
nil
540
186
700
250
Recovery of Contribution:
The scheme will be effective from 01 Nov 2005. Contribution for the first month will
be recovered through IRLA from the pay and allowances for the month of Oct 2005.
Death Benefit:
Death benefit includes the cover assured and accumulated balance of Saving
Element of contribution up to the month of death together with interest and bonus
as applicable.
Disability Benefit:
Member who is invalidated out of Indian Air Force by an Invalidating Medical Board
(NOT the Released Medical Board held at the time of retirement/release) on account
of a disability, whether attributable to service or not, will be eligible for disability
benefit at half the life insurance cover for 100% disability. The disability benefit will
be reduced proportionately depending upon the percentage of disability. In case of
disability of less than 20%, a member will not be eligible for any disability benefit.
Disability benefit is in addition to accumulated balance of saving element, together
with interest and bonus, payable on invalidment from service.
Members invalidated out of Indian Air Force due to reasons mentioned below will not
be entitled to any disability benefit, irrespective of percentage of their disability:(a) Alcoholism
(b) Drug addiction
(c) Self inflicted injuries.
(d) Disability as a result of attempted suicide.
(e) Any disability arising out of intentional acts resulting in criminal conviction.
(f) Invalidment within one year of enrolment due to disability, which is not
attributable to service.
No disability benefit is admissible, if the individual with disability is retained in
service till their completion of term of engagement, dismissal, superannuation,
release on own request or is released from service on his refusal to accept a change
in Branch/ Trade.
Survival Benefit:
Survival Benefit constitutes the saving element of contribution and the interest
earned on it as per the rates declared by the Society every year. The rate declared
at the beginning of each year will be as approved by BoT of AFGIS based on the
likely interest earnings of the Society for the year and its requisite allocation. The
scheme does not cater for the concept of refund of contribution or the saving
element along with interest whichever is higher as survival benefit.
Survival Benefit accumulated under the earlier schemes will be retained by the
Society till such time the same is repayable to the members on account of his
death/ retirement/ release. The Survival Benefit (excluding Bonus) accumulated
under the old schemes will continue to earn interest as applicable to GIS-05.
Bonus:
after requisite allocation to various funds and payment of the interest on saving
element as declared at the beginning of the year, if the society generates excess
income by way of interest earnings during the year the same will be distributed to
members as Bonus for the year. The quantum of such surplus available will decide
the quantum/rate of bonus to be paid to the members. The bonus will be admissible
to all those who were members of the scheme on the last day of year. Bonus does
not earn any interest since the effort of the society will be to maximize interest on
Saving Element. Separate letter will be issued by AFGIS as and when bonus for a
year is approved by Board of Trustees.
Withdrawals from Survival Benefit:
GIS-05 Scheme provides the facility of periodical withdrawal of accumulated
Survival Benefit (including the old schemes but excluding FPLI and Bonus) by
members, without assigning any reason.
Only members of GIS-05 scheme are eligible for withdrawal facility. Any final
withdrawal from Survival Benefit restricts your quantum of loan from AFGIS.
Individuals applying for Final Withdrawal should not have any AFGIS loan
outstanding.
Re-employed Personnel:
Re-employed personnel who are member of GIS-97 Scheme shall automatically be
made members of the GIS-05 Scheme. Personnel who are reemployed after
introduction of the scheme will have the option to become member, in which case,
they will have to refund the survival Benefit element paid to them at the time of
release from regular employment along with the contribution due for the period
from the date of retirement / cessation of reemployment to the date of reemployment.
Nomination:
In the event of death of a member, the death benefit will be payable to the
beneficiaries nominated by the member for his/ her Provident Fund.
In the absence of valid nomination, the beneficiaries would be wife, minor children
and major unmarried daughters. 50% of the share will be paid to the wife and the
balance will be shared equally between minor children and major unmarried
daughters. In the case wife has pre-deceased, the amount will be equally shared by
minor children and major unmarried daughters. In case of minor children the
amount will be payable to the guardian appointed by the court. In the absence of
such family members, the beneficiaries would be father and mother in that order. In
all other cases a Succession Certificate from a court of competent jurisdiction would
be required to determine the beneficiary.
Nomination by Exception:
Survey report:
Members who avail House Building Advance from specified Financial Institutions
may execute nomination (AFGIS 225) up to 100% of death/ disability/ survival
benefit in favor of the organization advancing the loan.
A member can also nominate any person other than beneficiaries nominated in
DSOP/AFPP Fund by executing AFGIS 223 up to 100% of death benefits. Prescribed
beneficiaries who can be nominated are:(a) Male Members: Wife, Parent(s), children, minor brother(s), Unmarried sister(s),
deceased sons widow and children, paternal grandparent (when no parent of
member is alive).
I had conducted a survey (online) of sample size 54 and got the following results:
Age
Sl No
1
2
3
4
5
6
7
8
9
NAME
1824
Gaurav
Amit
Biswaji
t
Bharat
Mitali
Kaberi
Chaitali
Divya
Kavya
24-30
30-40
40
and
abov
e
fixed
deposi
ts
y
y
y
Investm
ent
Options
stock
market
y
y
y
insuran
ce
Y
Y
y
y
y
y
y
mut
ual
fund
s
Y
y
y
y
y
y
y
y
Y
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
Amrit
Fazal
Parv
Sujit
Anil
Udit
Siddha
rth
Monica
Prajna
Ekta
Neha
Niharik
a
Praful
Anil
Rajesh
Nitin
Sumit
Suraj
Samee
r
Pankaj
Atul
Achal
Heena
Wesley
Ashay
Pradee
p
Aman
Mande
ep
Sancho
y
Avi
Mayan
k
Shagun
Vinaya
k
Tanu
Nandin
i
y
y
y
y
y
y
y
Y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
45
46
47
48
49
50
51
52
53
54
Palash
Tamal
Rahul
Prasha
nt
Supriy
a
Sneha
Richa
Saloni
Moiz
Nitya
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
So, after decorating the above data age wise and choice of investment option wise,
we get the following table:
age
no of
people
investment
options
stock market
fixed
deposit
mutual
funds
insuran
ce
18-24
24-30
30-40
40 &
above
14
12
16
12
7
8
3
8
10
6
13
8
7
4
5
5
3
4
6
5
total
54
26
37
21
18
40
35
30
25
20
number of people
15
10
5
0
investment options
Therefore, we can easily see from the chart that majority of people like to invest in
the stock market, even though market situation is not so good and there is so much
risk available.
Now, if we see what % of people like to invest in which investment option in the
following pie chat, then,
% of people's preference
insurance; 18%
So, we can see from the above pie chart that 36% people like to invest in the stock
market, irrespective of the volatility of the market. Then comes fixed deposit with
25% people likes to play safe, as it is the safest option available in the market.
Now, let us see which age group is more prone to play safe, which is, like to invest
in fixed deposits.
7
6
5
4
number of people
3
2
1
0
18-24
24-30
30-40
40 above
age group
Therefore, we can see from the above chart that people of age group 24-30 and
above 40 years dont like to take much risk may be because these are the
settlement periods of their life.
Now, let us see which age group likes to take the highest possible risk in the
following chart.
6
5
4
number of people
3
2
1
0
18-24
24-30
30-40
40 above
age group
So, we can see from the above chart that people of age group 30-40 likes to take
more risk, as they became more financially stable by that age and have fewer
responsibilities.
Now, we will see that which age group likes to take moderate risk in the following
chart.
40 above
30-40
age group
24-30
18-24
0
number of people
So, we can see that people of age group 18-24 like to invest in mutual fund, as it
has moderate risk.
Lastly, in the following chart, we will see that which age group likes to take very less
risk and wants higher return in the long term.
investment in insurance
7
6
5
4
number of people
3
2
1
0
18-24
24-30
30-40
40 above
age group
So, we can see from the above chart that people of age group 30-40 more likely to
invest in insurance, as by that time they think about the future and long term
return.
People are more inclined to invest in the stock market, irrespective of the
market scenario and the level of risk.
Majority of the people wants higher return in short period of time that is why
they prefer to invest in stock markets and mutual funds rather than any other
form of investments.
People between ages 30-40 think about long term returns as well as higher
return in short period of time that is why they invest in stock market for short
period of time and in insurance for long term return.
People between ages 18-24 dont have much money to invest and they cant
take higher risk, so they invest in mutual funds which are of moderate risk.
People between ages 24-30 wants to be financially stable that is why they
dont like to take risk at all. So, they invest in the banks fixed deposit scheme
which has almost no risk and lower return.
Bibliography:
www.tata-aig-life.com
www.moneycontrol.com
www.investsmartindia.com
www.insurancejournal.com
www.irdaindia.org
IRDA book
Various banks websites