Project Profile

CHAPTER 1: INTRODUCTION


This chapter gives an overview of Indian investor and how project is is undertaken

1.1. The Current Scenario:
The past few years have not been great for the retail investor due to factors like recession, non-availability of investment options and the lack of awareness for the same. It had squeezed out of the investor the desire to invest in any option, which was even slightly market driven.
However, with the increase in GDP and economy coupled with decrease in interest rates, it seems that the investment sector is all set make a come back after a lull.
The World Bank has projected that this year India’s GDP will grow around 8-8.5%. The interest rates have also decreased since 1990s from 11-12% and 12-13% to 3.5 and 4-5 %( approx.) in year 2002 in savings and fixed deposits respectively. Also due to liberalization, the financial sector is on a boom with array of investment options available. This has given the retail investor the opportunity to park his funds in options, which gel together with his investment objectives.

1.2. The Indian Investor:
Over the years the perception of risk taking ability of the Indian investor has undergone a substantial change .It is the need of the investor to balance the risk in the investment of diversifying investment portfolio depending on his or her level of income. This widely affects the choice of his instruments .The selection of an instrument for investment contains four attributes essential for an individual investor for taking investment decision i.e.
· Yield of the Instrument
· Liquidity
· Risk Perception
· Initial Investment
The mix of these attributes governs the characteristics of instruments. However, the magnanimity of the same varies from urban to rural investor. Apart from these attributes, the investor pattern of an investor is also dependent on his investment objective Acknowledging the availability of sound professional advice of accessibility to wide range of information; the 21st century Indian investor does have a smart of intelligent head above his shoulder, to know where to park his funds.

1.3. Objective of the Study:
Primary Objective
The objective of the study revolves around the comparison of mutual funds with various other investment avenues available in India and to infer whether mutual funds are better options or not.

Secondary Objective
To do an in-depth study on various investment avenue with certain criteria.
To find the present scenario and innovations in investment avenues
To find the potentials of major players in various investment options.
To study the quantitative and qualitative aspects of major players and rank them.

1.4. Scope of the study
The scope of study encompasses the various investment avenues available in our country. It analyses various investment avenues on certain criteria and then compares all avenues with mutual funds. The basic idea of this project is to infer about whether mutual fund is competitive investment avenue and how it is better than other avenues. The analysis was done sole from secondary data.

1.5. Methodology
To fulfill the objective of the project, we collected the information in various ways like:
Interviewing with various personals of various mutual funds
Secondary Data collection i.e. through fact sheets and various newspaper and magazines articles
Interaction with the project guide
1.6. Limitations
· From various schemes of mutual funds, we have not taken funds which are very risky like equity and index, because those are very volatile.
· For insurance, we have not taken pure risk policies as they do not have any saving element and those are not part of investment avenues.
· The project will not be able to cover the wide gamut of investment options as it will make the study complex.
· It is difficult to cover all the factors for comparing various options on some qualitative models.
· Primary Data collection will be difficult, as investors will not divulge their personal financial information.



















CHAPTER TWO: VARIOUS INVESTMENT AVENUES AVAILABLE IN INDIA

This chapter discuss in detail the various investment avenues in India

2.1. Investment avenues in the last decades
The Indian investor in the last decades was very risk averse so the savings was focused in high fixed earning investment with savings focused on earning high interest .Also there were not many investment options and Investment trends
· The investment industry is growing at a CAGR of 72% over the past 5 years.
· 9% - 11% share of total Asian Investments
· Estimated 80% of Funding came from Foreign Sources
· Overtaken Singapore and Taiwan in Share of Investments
· Ranked 5th in Asia


2.4. The New Age Investors
Along with this, the investors also acknowledged that earning Competitive Return on investments might not be easy if adequate risk is not taken. Interest rates are likely to be volatile and will probable go down as high interest rates are not sustainable in a growing economy .Thus a re-look at Investment Avenues is becoming a necessity.
However, the globalization of the Indian economy brought about changes in the investment scenario. These changes were:
Alignment with global interest rates
High fixed earning investment a thing of the past
Interest Rate Volatility to stay
Return on Investment - Market driven
Proactive Interest Rate Management - The need today




2.5. Various Investment Avenues
The increasing awareness about investment products together with plethora of options has put the financial service sector on a roll. The various options are:

2.5.1. Mutual Funds

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 appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus, Mutual Fund is the most suitable investment for the common person as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Types of Mutual Fund Schemes

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.
· By structure
· Open ended schemes
· Close ended schemes
· Interval schemes
· By investment Objective
· Equity schemes-Invest predominantly in stocks. Provide returns by way of capital appreciation. More volatile, but better returns. Good for long-term investors. Typical returns over long term of 15-25% p.a. Equity schemes are of the type:
- Equity diversified: Provide capital appreciation over a medium to long period (2 - 5 years). Invest in stocks from a diverse array of industries. Prevent adverse impact due to a downturn in one or two sectors. Less volatile to sectoral schemes. Typical returns between 15-25% p.a.
- Equity linked savings schemes: Offer tax rebates under section 88 of the IT law. Diversify the equity risk by investing in a wider array of stocks across sectors. Variant of diversified equity. Typical returns between 15-20% p.a.
- Equity index: Invest in stocks that make up a particular index. Investment in each stock is in proportion to the stock's weight in the index. Volatility in harmony with the index. A bull market can get max returns of 40% p.a. Bad year can erode principal by 30%.
- Sectoral basis: Invest only in stocks in the basic industry (core industries like petrochemicals, cement, steel, etc.) sector e.g., TISCO & Reliance. Least volatile to other sectoral schemes. Benefit in the medium term (2 years). Typical returns could be as high as 15%.
- Sectoral FMCG: Invest only in stocks in the fast moving consumer goods sector e.g., HLL & Cadbury's. Medium risk-reward ratio. Benefit in the short term (2 years). Typical returns could be as high as 25%.
- Sectoral MNC: Invest only in stocks of multi-national companies in various industries e.g., HLL & ABB. Medium risk-reward ratio. Benefit in the medium term (2 years). Typical returns could be as high as 25%.
- Sectoral pharma: Invest only in stocks in the pharmaceutical sector e.g., Ranbaxy & Novarits. Medium risk-reward ratio. Benefit in the medium term (2 years). Typical returns could be as high as 25%.
- Sectoral-TMT: Invest only in stocks in the technology, media & telecom sector e.g., Infosys & Zee Telefilms. High risk-reward ratio. Benefit in the short term (1 year). Typical returns could be as high as 35%

· Debt schemes: Invest mainly in income-bearing instruments like bonds, debentures, government securities, commercial paper & call money. Less volatile than equity schemes. Volatility depends on rupee depreciation, fiscal deficit, inflationary pressure etc. Returns depend on bond ratings. Typical returns between 7 to 12% p.a. Debt schemes are of the type:
- Gilt: Invest in government and money market securities or their combination. Tend to give higher returns than money market schemes. Good for parking short-term surplus funds. Easy entry & exit without load. Instant cash on redemption. Slightly volatile. Typical returns of 8.5-10% p.a.
- Income: Slightly more overweighed on corporate bonds (50-60% of portfolio). Also invests in government securities and money market instruments. Ideally suited for investment beyond 1 year. Typical returns of 11-12% p.a.
- Liquid: Invest in short-term debt instruments like T-bills, CDs, commercial papers & call money. Preserve the principal while yielding a modest return. Ideal for corporate investors. Good for parking short-term surplus funds. Easy entry & exit without load. Instant cash on redemption. Typical returns between 7-8% p.a.
- MIP: Variant of income scheme. Provide option to get monthly returns in the form of dividends. Returns are however not assured (except UTI). Typical returns of 10.5 -11.5% p.a.

· Balanced schemes-Invest in both equity and income-bearing instruments. Reduce risks of investing in stocks by having a stake in both the equity and the debt markets. Flexibility in changing asset composition between equity and debt. Less risky than equity schemes, higher returns than debt schemes. Typical returns of 15-18% p.a.






2.5.2. Post Office Savings

· National Savings Scheme - National Savings Scheme (NSS) offers an assured return and tax rebates under Section 88 of the Income Tax Act, 1961. The rate of interest is 9 per cent per annum, compounded annually. Min Amount that can be invested is Rs. 100/- and additional investment in multiples of Rs. 100/-there is no maximum amount. The scheme is available through out the year with an investment period of 4 years. The mode of operation is:
- Single
- Joint (Two or more)
- Minor with parent/guardian
- Hindu undivided family
- Association of persons or Body of individuals
There is no provision of premature closure of account in the scheme except on the death of the depositor’s. The tax benefit that is available is that Deposits (not interest) will be covered under section 80C of Income Tax Act. The scheme is a boon for those investors who want to deposit a lump sum in a year in order to obtain adequate returns along with tax rebate under Section 80C of the Income Tax Act.
Public Provident Fund- Interest 8.0% p.a. (compounded annually) is credited to the PPF account at the end of each financial year. A PPF account can be opened at anytime during the year. It is open all through the year. Min Amount for investing is Rs. 500/- and additional investment in multiples of Rs 5/-.The Max Amount is Rs. 70,000/- . the mode o operation is Single
- Minor with parent/guardian
- HUF.
The PPF account matures after 15 years. One can then exercise on option of





continuing the account for an additional block of 5 years or close it. The facility of first withdrawal in the 7th year of the account subject to a limit of 50% of the amount at credit preceding three year balance. Thereafter one Withdrawal in every year is permissible. Tax benefits can be availed under sections 80C for the amount invested. Interest accrued is Tax free. Apart from a Post Office, a PPF account can also be opened in SBI & its associates and other select nationalized banks. The most popular tax saving instrument which gives a rebate under section 80C. A PPF account cannot be attached by the Govt. or any court of law or through any decree.
· Kisan Vikas Patra- This is an option which doubles money in 8 years and 7 months. the scheme is available through out the year. The Min Amount for investing is Rs. 500/- and additional investment in multiples of Rs. 100/- No Limit for maximum amount. It is available in denominations Rs. 100/-, 500/-, 1,000/-, 10,000/-, 50,000/-.
Rate of interest 8.40% compounded annually
The mode of operation is:
- Single
- Joint (Two or more)
- Minor with parent/guardian
Money doubles in 8 years & 7 months. Premature encashment is permitted after 2.5 years from the date of investment. Interest income taxable but no TDS Deposits are exempt from Wealth tax. Patras can be pledged as security against a loan to Banks/Govt. Institution Lower interest accrued, if prematurely withdrawn. No Tax benefits are available for investments in this scheme under the Income Tax Act. It is a

good investment instrument for all retired persons who would require the money at a later date and for those who do not have taxable income.
· Monthly Income Scheme- The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a lump-sum amount initially and earn interest on a monthly basis for their livelihood. The scheme is, therefore, a boon for retired persons. The post-office MIS gives a return of 8 per cent plus. Scheme is available through out the year with minimum amount being Rs. 1,000/- and additional investment in multiples of 1,000/-.however the maximum amount Rs. 3,00,000/- (if Single) or Rs. 6,00,000/- (if held Jointly).The mode of operation is:
- Single
- Joint (Two or more)
- Minor with parent/guardian
- Minor who has attained age of 10
Interest income is taxable, but no TDS. Deposits are exempt from Wealth Tax. It is a good scheme for the retired to get a fixed income.
· Savings deposits- P. O. Savings deposit provides an interest rate of 3.5% p.a. which is compounded annually. This is applicable for individual/joint and group accounts. 3% per annum is rate applicable for public accounts and Security deposits account. With the mode of operation of single, joint, minor with guardian the scheme is available through out the year. The minimum amount Rs. 20/-(for ordinary account) Rs. 250/- (for account with a cheques book) The maximum amount is Rs. 100,000/-(in case of single account holder) and Rs. 200,000/- (in case of a joint account). The interest from P.O. Savings deposit is tax-free. A savings account in a post office comes handy if a person is maintaining a Monthly income scheme in the same post office. The monthly interest is directly credited to the account. In such accounts, the post office issues cheques book to the customers.




· Post Office Time Deposits- It is of the nature of the fixed deposits having an investment option of 1, 2, 3 and 5 years. The scheme is availability through out the year. The minimum amount is Rs. 50/- additional investment to be in multiple of Rs 50/-. The maximum amount is unlimited. The returns are 6.25% for first year, 6.5 for 2nd, 7.25% for 3rd, and 7.5% for 5th year. The mode of operation is, single, joint (Two or more), minor with parent/guardian) as tax is concerned exemption within the limits specified under section 80L is available on interest on these deposits. No Tax benefits are provided under section 88.
· Recurring deposits- A Post-Office Recurring Deposit Account (RDA) is akin to a Recurring Deposit in a bank, where you invest a fixed amount on a monthly basis. The deposit has a fixed tenure, and the scheme is a powerful tool for regular savings. As the name says, the RDA is a systematic way of saving money. The scheme is meant for investors who want to deposit a fixed amount regularly, in order to get a tidy sum after five years. If you invest Rs 10 every month, you will get back Rs 758.53 after 5 years. The scheme is availability through out the year. With the mode of operation as, single, joint (Two or more) ,minor with parent/guardian P. O. Recurring Deposit has an investment period of 5 years.
Tax benefits can be availed under section 80L. No Tax benefits are provided under section 88.A P. O. Recurring Deposit is a novel way of saving a fixed sum every month for a particular period which will fetch the investor a large sum after 5 years.
· National Savings Certificate- National Savings Certificates (NSC) are an assured return scheme, armed with powerful tax rebates under Section 80C of the Income Tax Act, 1961. Interest is payable at 8 per cent, compounded half-yearly for a duration of 6 years. The minimum amount is Rs. 100/- and additional investment in multiples of Rs. 100/-. The maximum amount is unlimited. The scheme is available all through the year.





The mode of operation is:
- Single
- Joint (Two or more)
- Minor with parent/guardian
The NSCs have a maturity period of 6 years. A useful instrument for people who invest to save tax. Deposits are exempt from Wealth Tax.

2.5.3. Bank Deposits
A bank deposit clearly scores high in safety, liquidity and convenience. In days of better Interest rates banks offer to compound the rate on a quarterly basis. This means a higher effective annual rate. Money in some bank deposits can double in 6 years. An analysis of bank rates reveals that short-term bank deposits are the best investment in terms of maximum yield, safety, convenience and flexibility. Investors can actually park their money for a period as short as 15 to 45 days and earn interest up to 6-7%, which few other investment products offer.
On the flipside, a bank deposit is not as transparent as, say, a mutual fund. One doesn’t know where the money is actually going. It could be a matter of concern for risk averse investors. Aggressive players like the new private banks and foreign banks have devised investor-friendly deposits that give easy access to one’s funds while earning a higher rate of interest. There are some hidden advantages that a bank deposit gives like avail of safe deposit lockers for keeping valuables, financial assistance in emergencies, discounted financial products like credit and debit cards, home and car loans to name a few. Bank deposits are fairly safe because all banks come under the control of RBI which checks a bank's functioning to see that the depositors' monies are safe with operational rules.

Traditional Term Deposits
You can place your money from 15 days to 3 years or more in these deposits. Banks fix interest rates on these deposits from time to time. But once your money is locked in at a rate, it does not change till maturity. They attract TDS (tax deducted at source) if the interest credited by the bank exceeds Rs. 5,000. These deposits cannot be broken. Should you need funds in an emergency, you can get a loan against the FD or you can withdraw the money after losing certain interest on the deposit.
· Special deposits
To offer the investors the best of both the worlds banks have come up with instruments that combine positive aspects of savings account and fixed deposits - namely the liquidity of a savings account and the high interest rates of an FD. Different banks offer them in attractive sounding names like 'Sweep In Account,' 'Unfixed Deposits', 'Smart Money', or 'Quantum Optima', 'Cluster deposits.' There are facilities like Auto-Sweep, where funds are transferred from your fixed deposit to your savings account when you need them.

· Recurring Deposits
The Recurring deposit in Bank is meant for someone who want to invest a specific sum of money on a monthly basis for a fixed rate of return. At the end, you will get the principal sum as well as the interest earned during that period. The scheme, a systematic way for long term savings, is one of the best investment option for the low income groups.


Features The minimum investment of Recurring Deposit varies from bank to bank but usually it begins from Rs 100/-. There is no upper limit in investing. The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested. The interest is calculated quarterly or as specified by the bank. The period of maturity ranging from 6 months to 10 years.
The deposit shall be paid as monthly installments and each subsequent monthly installment shall be made before the end of the calendar month and shall be equal to the first deposit. In case of default in payment, a default fee is chargeable for delayed deposit at the rate of Rs. 1.50/- for every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer maturities.
Since a recurring deposit offers a fixed rate of return, it cannot guard against inflation if it is more than the rate of return offered by the bank. Worse, lower the gap between the interest rate on a recurring deposit and inflation, lower your real rate of return. Premature withdrawal is also possible but it demands a loss of interest.
Returns The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested. The interest is calculated quarterly or as specified by the bank.



Amount invested per month
Maturity amount in 2 years (5%interest)
Rs 100
Rs 2626
Rs 500
Rs 13,132
Rs 750
Rs 19,698
Rs 3000
Rs 78,792

Advantages Some Nationalised banks are giving more facilities to their customer, State Bank of India give Free Roaming Recurring Deposit facility to their customers. They can transfer their account to any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000 Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer, per year, per branch.

CHAPTER THREE: COMPARATIVE ANALYSIS OF POST OFFICE SCHEME
In this chapter authors have compared various post office savings on some criteria
3.1. Features of Post office deposits
Post office schemes are one of the well-known investment avenues in our country. Mainly the small investor, who have low risk appetite prefer to park their funds in it. Since Government of India promotes it, so it has sufficient credibility in the market. Over the years, various schemes have come in to for play to suit different investment objectives of the investor’s .Inspite of decreasing interest rate people seem to prefer this option with fervor due to the safety component attached.
Features of Post office deposits:
· Risk: The risk is very Low. All these savings are operated directly by the Government or by Government organizations like banks; post offices and therefore they are very safe.
· Return: These have assured returns. The returns themselves depend on the schemes. Some schemes Kisan Vikas Patra offer rates of interest that are even higher than bank deposits.
· Liquidity: All these accounts have some provisions for premature withdrawal. Therefore, liquidity is not such a problem. The National Savings Certificates are liquid while the Kisan Vikas Patra can be easily transferred.
· Tax –Efficiency: These are beneficial for those in the high tax brackets, since they offer several exemptions like Income Tax, Wealth Tax and Gift Tax.
3.2. Findings of Comparative Analysis:
Here we have taken five post office schemes, we have not taken post office saving deposits and time deposits as those are similar to bank deposits. The criteria for comparison are as follows:

Post Office Schemes

Scheme
Interest (%)
Min. Investment (Rs)
Max.Investment (Rs)
Features
Tax breaks
National Savings Certificate
8.00
100
No limit
6-year tenure
Section 80C benefit
Public Provident Fund
8.00
500
70,000
15-year term; tax-free returns
Section 80C benefit
Kisan Vikas Patra
8.41
100
No limit
Money doubles in 8 years, 7 months
No tax benefit
Monthly Income Scheme
8.00

1,000

Single A/c: 3 lakh Joint A/c: 6 lakh
6-year tenure; monthly returns
No tax benefit
Recurring Deposits
7.50
10
No limit
5-year tenure
No tax benefit







Sec 80C benefit: Investments up to Rs 1 lakh in specified securities (maximum of Rs 70,000 in PPF) qualify for deduction



· Returns: for investors who want their money to get doubled in short duration then Kisan Vikas Patra is the place to park funds for it doubles money in just 8.7 years. Rest of them gives a steady return of 8%. However post office schemes need to be avoided if the investment objective is returns. Since it has low risk it also has low returns.
· Min/Maximum amount for investment- As such there isn’t much difference in the minimum amount to be invested except and it varies in the range of Rs 10 to Rs 1000. As far as maximum amount is considered only in PPF the ceiling of Rs 70000/- and in Mis the ceilin of 3 lacs is there. In rest of the schemes there is no limit for the maximum investment.
· Liquidity- If liquidity is the investment criteria of the investor then Kisan Vikas Patra is the liquid scheme with premature withdrawals being allowed. In recurring deposits amount can be withdrawn after three years at interest rate calculated as per rules. In the monthly income scheme no withdrawal before 1 year & on withdrawals between 1 to 3 years, showing this to be one of the most illiquid schemes along with National savings Certificate where no premature withdrawals is allowed.
· Tax Benefits – The different schemes provide different benefits under Indian income tax laws. If the investment option doesn’t include tax consideration then Kisan Vikas Patra is the most appropriate option as it doesn’t give any tax benefit.
On the other National Savings Certificate gives tax concession under section 80C. For monthly income plan and Post office non-recurring only interest income is nontaxable. No tax rebate is given on amount payable and maturity value.






CHAPTER FOUR: COMPARATIVE ANALYSIS OF BANK DEPOSIT

This chapter gives comparisons of bank deposits on certain criteria
4.1. Features of bank deposits
A bank deposit clearly scores high in safety, liquidity and convenience. Interest rates are better these days, and there are banks that offer to compound the rate for you on a quarterly basis. This means a higher effective annual rate. The investor’s money in some bank deposits can double in 6 years. An analysis of bank rates reveals that short-term bank deposits are the best investment in terms of maximum yield, safety, convenience and flexibility. One can actually park one’s money for a period as short as 15 to 45 days and earn interest, which few other investment products offer.
On the flipside, a bank deposit is not as transparent as, say, a mutual fund. The investors don't know where there money is actually going. Still then it is not a big matter for concern. Aggressive players like the new private banks and foreign banks have devised investor-friendly deposits that give easy access to investor’s funds while earning a higher rate of interest. With increase in competition the private players extend hidden advantages that a bank deposit gives. For instance giving free credit or debit cards for one year.
The features of bank deposits are as follows:
· Risk: bank deposits carry very low risk.
· Returns: the returns are assured. Bank FDs give interest rates between 7 and 9.5%. Interests are compounded quarterly. So, even in bank deposits, the investor’s money can double in 6-7 years.
· Liquidity: With traditional banks, premature withdrawal is not possible but loans are available upto 90% of your deposit. However, the more recent private and foreign banks have come out with so-called "unfixed" deposits where one can withdraw from one’s deposit. So, in that sense there is high liquidity in such deposits.
· Tax-efficiency: They are quite tax efficient since the investor gets exemption upto Rs. 9,000 under Section 80L. As far as individual bank deposits go, banks have to deduct tax at source (TDS) on interest cheques exceeding Rs. 5,000. The tax deducted is 10.2% (including surcharge) for individuals and 20.4% (including surcharge) for corporates. However, if the investor furnishes a 15H form, then no TDS is cut. With effect from Assessment Year 1993-94, bank deposits are totally exempt from Wealth Tax.
· Maturity: On maturity, the entire amount and the interest, if any are credited back to the depositor. How it will be remitted, is mutually decided upon by the investor and the bank. Sometimes it is credited to the savings account of the depositor. Or it could be sent to the depositor in the form of a draft, in case he does not have a savings account with the same bank. Or Sometimes the depositor instructs, for it to go in for automatic renewal, incase he feels he might forget the date of maturity. This is a wise thing to do if the investor doesn't need for it immediately. The case of premature withdrawal of deposit varies from bank to bank, and from deposit to deposit thus one need to find out before deciding to make a deposit with them. However, it is certain that the investor will have to forfeit a percentage of interest that he would have otherwise earned on a full term deposit.
4.2. Investment guidelines for investing in Bank Deposits:
· Avoid banks requiring high amount of minimum deposits.
· Keep smaller amounts in individual fixed deposits. Interest earned beyond Rs.5, 000 from one bank attracts TDS. Keeping smaller amounts is also good because you can break your FDs without losing interest on all the money.
· Keep deposits in joint names.
· It is better to go for automatic renewal in order to avoid hassles of remembering to renew the FD. The next best thing is to instruct your bank to credit your savings account on maturity of the FD in order to at least earn savings account interest.
· Go for a longer term, to get better interest rates for FD
4.3. Comparison of Interest given by major players of Bank
Tenure
Centurion Bank
Global Trust Bank
HDFC Bank
HSBC
ICICI Bank
IDBI Bank
Stan Chart Bank
UTI Bank
36 months & above but upto 120 months
7.00
6.5
5.75
4.50
5.75
5.5
4.50
6.05

4.4. Comparison of Services Provided By Players of the Bank

Phone Banking
Net Banking
ATM
Mobile Banking
Locker
HDFC Bank
ICICI Bank
Standard Chartered Bank


Global Trust Bank


IDBI




UTI Bank


Citibank
Centurion Bank



HSBC

ABN - Amro Bank




4.5. Findings:
After doing the comparative analysis of interest rate of bank deposits and services provided by banks we come to following findings:
· The interest rate differs from bank to bank depend upon the how efficiently they are using the funds.
· Today after the privatization banks are providing wide range of services, but there are several banks which do not provide all the services.
· ATMs have become the common features in all the banks, but net banking is not provided by all the players.
After doing the comparison of banks we can rank the banks on the services provided, deposits rates. The ranking given by us after evaluation is as follows:
· ICICI
· HDFC
· CitiBank
· HSBC.



























CHAPTER FIVE: COMPARATIVE ANALYSIS OF INSURANCE PRODUCT

This chapter gives comparative analysis of insurance products of different companies

Insurance
Insurance in its purest form is a risk management tool, a security blanket. It provides one financial protection against unexpected event. However, in our country it is also taken as investment Avenue. India has traditionally been a high savings oriented country. Insurance sector canalizes the savings of the people to long-term investments. In India where infrastructure is said to be of critical importance, this sector will bring the nations own money for the nation. In India, we have 13 life insurance player in which LIC is having highest share of pie.

· Type of Insurance Policies
In India the fundamental life insurance policies are six in number, however based there objective a lot of combination schemes have come into existence. Combined with this to provide cover for some extreme contingencies riders come in to picture, which are available at an extra cost.
The six fundamental policies are:
- Term Plans: These are purest form of insurance. These no- frills policies cover only the risk of dying .In the event of death during the policy term the nominees receive sum assured.
- Endowment Plans: Apart from covering the risk of death, they also offer some return on the premium paid. In case of death during the policy, term the nominee gets back the sum assured and the returns. The mantra of this plan “Money if you die money if you live”. The returns are barely 4-6% a year.
- Money Back Plans: These are variance of endowment plan with a basic difference that the pay back in money back plans is staggered through the policy term .A part of sum assured is returned at periodic intervals through the policy terms.
- Whole Life Plans: It is only class of insurance policy which provides a cover through your life time .They are structured in such a way that the policy holder has the option to pay premiums till maturity age or a specified age

- Unit Linked Insurance Plans: These plans get around the restrictions in rigidity in investment, by giving you a greater control over where the premium is investment. For instance, the insurance plans can double up as mutual funds. They enable to periodically monitor the performance the investment. Exisisting the plan is also easier.

- Pension plans: Pension plans differ from the five types of insurance plans mentioned above in a fundamental way not all of them offer life cover, they are pitched as retirement planning schemes, similar to other investment based insurance plan.
5.1. Insurance as an investment option
Endowment plans are best selling insurance product in India. The single fact says a lot about how most of the Indians who get themselves covered like their insurance product to be; insurance cum investment option. The upcoming insurance product which is very popular among the investors is unit linked insurance plan, which is some what like Mutual funds with added feature of death risk, but the return of this product is based on NAV.
In India we have total 13 insurance companies consisting of private as well public player. In this chapter we are comparing each product of insurance of seven insurance companies on certain criteria. The major players we have selected are: Feature of plans of each company is given in
- LIC
- Bajaj Allianz
- Aviva
- Birla Sun life
- HDFC standard life
- ICICI Prudential

Based on their objective, the basic plans can be classified under three broad categories: pure insurance products, pure investment products and investment-cum-insurance products.
The features of the insurance products are as follows:

· Return and liquidity: Due to high premiums the returns in the endowment plans are dragged down to barely 4-5%.Same is the case with unit-linked plans where the returns are in single digit due to inflexibility on the part of the insurer to invest in high yielding options. However the money back plans give good source of income as the payback is staggered through out the policy years.
· Risk: Endowment plans covers the risk of death as well as they also offer some returns on the premium paid by the investor. As investment mode the unit-linked plan is the most rigid as the investor has a little say over his money is invested. The investor has no idea where his money is being put. But from the investment point of view it ensures safety as the insurer can invest maximum of the 10% in equities and the remaining of it in debt.
· Tax-incentive: All the insurance policies give tax benefit of sec88 that is premium paid up to 70000 has the certain rebate depending upon the income group of the person. Insurance paybacks –income, maturity benefit and death claims are tax free, but for single premium the tax free status is revoked by an amendment to the tax rule in budget 2003.
5.2. Comparison of Insurance Products of Various Players
Endowment Plans
Insurer
Policy
Entry age
Policy tenure
Annual [1]premium
Additional feature
Allianz Bajaj
Invest gain
0-65
5-40
22020
Option to increase cover by 2-4 times.
Aviva
Life saver
18-65
5-52
27777
Terminal bonus: additional investments can be made
Birla sunlife
Flexi save plus
1-65
5-30
23820

HDFC standard life
Endowment assurance plan
12-60
10-30
23575

ICICI-Prudential
Save-n- protect
0-60
10-30
22833
GA @3.5%p.a. for the first four years, free life cover worth 50% of the original sum assured for 5 years from the date of maturity.
ING-vyasa
Reassuring life(with cash bonus)
12-55
10-30
22171

LIC
Endowment with profit
12-65
5-55
23977


Money Back Plans
Insurer
Policy
Entry age
Tenure
Annual [2]premium
Periodic payback[3]
Allianz Bajaj
Cash care economy
15-55
15,20,25,30
28865
Year 4:10%of sum assured Year 8 :15%,year12-25%.
Birla sunlife
Flexi cash flow
1-65
10,15,20,25
28080
Year 1-10: 30% of SA; year 11-15:25%,year 16-20:20%
HDFC
Money back plan
12-60
10-30
37325
25 %every fifth year
ICICI-Pru
Cashbak
16-55
15,20
33099
Year 4: 10%ofSA ;year 8:15%;year 12: 20%
ING vyasa
Maximum life money back plan
12-49
16,20,24
29293
20%of sa each in years 5,10,15 ;40%in year 20
LIC
Jeevan surabhi
14-50
20
45148
-same as above

Unit Link Plans

Company
ICICI-Pru
Birla Sun
Aviva Life
Om-Kotak
LIC
Death Benefit
Higher of fund value /sum assure
Fund Value + sum assured
Higher of fund value /sum assure
Higher of fund value /sum assure
95 % of fund value+ 5% bonus
Maturity Benefit
Fund Value
Fund Value
Higher of fund value or sum assured
Higher of fund value or sum assured
95 % of fund value+ 5% bonus
Withdrawals
After 3 years
After 2 years
After 3 years
Anytime
After 1 year
Investment option
Protector, Balancer,
Maximize
Protector,
Builder,
Enchaser
Single Fund
Money Market,
Gilt, Balanced,
Growth
Secured , Balanced ,Risk
Guarantees
None
3% Of fund Value
None
2.75% of fund value
5% of sum assured
Fund Switch`
I free switch per annum more at a cost
I free switch per annum more at a cost
I free switch per annum more at a cost
I free switch per annum more at a cost
Maximum of two in policy term; both free
Charges (allocation charges percentage of premium)
Year 1
20 % if premium <50,000;18%>50000
0 -15 year term : 54.6 % 15 + term 65%
1% if premium<7500,none for 7500 to10000 101 % allocation for over rupees 10000
14 %
3.5 to 10 % based on sum assured;
Year 2
7.5%
7.5%
ND
ND
7.5%
Year3
4 %
7.5%
ND
ND
7.5%
Year 4
4 %
5 %
ND
ND
5%
Switching Charges
1 % per switch
Rupees 100 per switch
Buy –Sell spread of 5 %
Buy –Sell spread of0.01-.43 %
2 % of bid value

5.3. Findings:

· Endowment Plans: For comparison of endowment plans we have taken 7 insurance companies and have compared them across four parameters. Based on the comparison our findings are as follows:
- Endowment plans of LIC are the most popular and highly sold because of credibility of LIC which is Public Sector Company and oldest life insurance company in India.
- As far as additional features are concerned LIC offers a wide range while in private sector players, ICICI prudential offers the best additional features.
- For Eligibility to take a policy three private players vis Allianz Bajaj ,Birla Sunlife and ICICI prudential offer the minimum entry age of 0 -65 ;while LIC ‘s entry age is 12 -65.
- The range of policy tenure is highest Allianz, Aviva, and LIC 5- 55 years i.e. While ICICI Pru and HDFC Standard and Birla Sunlife it is 10 -30 years.
- The annual premium is lowest in Allianz Bajaj and highest in Aviva.

· Money Back Plan: For comparison of money back we have taken 7 insurance companies and have compared them across four parameters. Based on the comparison our findings are as follows:
- LIC is most popular among various money back plans of various players because of regular periodic payback.
- HDFC charges higher premium though it gives regular returns, while Birla Sunlife charges the lowest premium but have very complex payback strategies.
- As far as tenure is concern LIC gives no choice while Allianz Bajaj, Birla sunlife gives maximum number of choices.
- For entry age Birla Sun life gives a wide range of 1 to 65 years where as for other players including LIC the minimum entry age is 12 and 13 respectively.
· Unit linked Plan: Here we have taken the most popular unit link plan available in market. Thus we have not considered all the players under this plan.
- Considering death benefits Birla sunlife provide maximum returns followed by kotak, ICICI and Aviva, while death benefit of LIC is totally market driven.
- Kotak mahindra scores high with maturity benefit while LIC scores low.
- As far as withdrawals are concerned Kotak Mahindra again leads followed by LIC, Birla Sunlife and others.
- LIC gives the maximum guarantee while ICICI Pru and Aviva give no guarantees.
- Fund switching cost is free in LIC but it is restricted to two in a policy term whereas others have switching cost but no restrictions
- ICIC Pru and Birla Sunlife give good combination of debt and equity while OM Kotak and LIC are more in debt ,so returns in that case are low.
- Total charges that is investment, switching and allocation, ICICI and Birla charges highest amount while as far as LIC is concerned charges are Low.

5.4. Ranking
Considering the company background, product offered, services provided and charges levied and the comparison done above on certain criteria, the top three insurance players in country are:
· LIC
· ICICI Prudential
· HDFC
· Birla Sunlife.
CHAPTER SIX: MUTUAL FUND INDUSTRY OF INDIA


This chapter gives detailed overview of mutual fund industry of India

6.1. Structure and Organisation of Mutual fund

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The structure of mutual fund industry in India is like:
Structure of Mutual Fund

Organisation of Mutual Fund
There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:



6.2. Phases Of Growth of Mutual Fund Industry In India

· First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management

· Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

· Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

· Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of June 30, 2003, there were 31 funds, which manage assets of Rs.104762 crores under 376 schemes










6.3. Growth In Assets Under Management





6.4. Major Players Of Mutual Fund Industry

In Total in India we have 39 players and they have in total more than 700 schemes. of all .Here the list of Top 5 is given:
Rank
Players
Corpus (crores)
No. of Schemes
1
UTI
41,622.51
I59
2
PRU ICICI
35232.16
229
3
RELIANCE
34636.90
172
4
HDFC
29555.13
174
5
FRANKLIN TEMPLETON
23832.70
139




Performance Measure of Mutual funds
Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a huge number of schemes to choose from, the retail investor faces problems in selecting funds. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.
There are two broad factors, which should be kept in mind to measure the performance of mutual fund:
· Qualitative Characteristics
· Quantitative Characteristics
Qualitative Characteristic: Investment strategy and management style are qualitative but only these characteristics are not important, but fund record is also important. In qualitative aspect we look at various aspects like
- Objective of fund
- Asset Management Company
- Portfolio Composition
- Ranking of Portfolio
Quantitative Characteristics: Past return is important measure of performance, but return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Therefore, what is important is risk adjusted return.
· Type of Risk
Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. There are two types of risks attach to mutual fund. First, general market fluctuations, which affect all the securities, present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. By using the risk return relationship, we try to assess the competitive strength of the mutual funds.


















CHAPTER SEVEN : ANALYSIS OF MUTUAL FUNDS OF MAJOR PLAYERS

This chapter gives analysis of comparison of mutual funds and findings of the same

7.1. Selection Criteria
For comparison of various schemes of mutual fund players we have taken certain criteria
· Players: We have taken those are in top rung in mutual fund industry as far as corpus is concerned. We have not taken UTI schemes as it’s the oldest fund in India and also being a public sector enterprise it has different credibility which may bias the analysis that we are making.
· Schemes: The authors have considered only those schemes which are not purely market driven because in that case risk is high. Our objective is to compare mutual funds with other investment options which are not market driven, so we have taken debt and balanced funds.
· Method of Comparison: The basis of comparison is strictly restricted to the known facts given in the fact sheets .No mathematical models like Sharpe or Johnson measure is used because it will complicate the analysis which is beyond the scope of our study.

7.2. Debt Funds
Invest mainly in income-bearing instruments like bonds, debentures, government securities, commercial paper & call money. Less volatile than equity schemes. Volatility depends on rupee depreciation, fiscal deficit, inflationary pressure etc. Returns depend on bond ratings. Typical returns between 7 to 12% p.a. Debt schemes are of the type
· Monthly Income Plan
· Income Fund
· Liquid Fund

7.2.3. Monthly Income Plan
It is a variant of income scheme. Provide option to get monthly returns in the form of dividends. Returns are however not assured (except UTI). Typical returns of 10.5 -11.5% p.a. Here we have taken four players to compare the MIP ,the details of all the players are given in ( Refer Exhibit 2)

· Objective of Major Players
- ICICI Prudential : To generate regular in come through investment in debt and money market instrument and to generate long term capital appreciation by investing a portion in equity and equity related instruments
- Principle MIP: The objective is to generate regular income through investments in debt securities to enable periodical income distribution and to generate long- term capital appreciation by investing.
- Templeton MIP: Seeks to provide regular income through a portfolio of predominantly high quality fixed income securities with a maximum exposure of 20% to equities.
- Birla MIP: The objective is to generate regular income so as to make monthly payments or distribution with growth of capital

· Fund Size





· Returns



· Average Maturity


· Debt Equity Ratio


· Expense Ratio : As expense ratios of all the fund is not given but as per industry norms it is around 2.2 but maximum is charged by prudential i.e. 2.25

· Minimum Investment: Minimum investment varies with companies

Players
ICICI Pru
Principle
Templeton
Birla Sunlife
Minimum Investment
25000
10000

10,000
5000

· Load Factor
- Entry Load is nil in all the companies but all the companies charges minimum amount for redemption of less than 6 month.
- Exit Load :Most of the companies charges same exit load i.e. .5 % except Templeton and Birla which charges 1 %for less than 10 lakh rupees and for more than 10 lakh charges varies from nil to .25 %

· Portfolio
- Corporate Debt
- Securitized Debt
- PSU/PFI Bonds/Banks
- Government Bonds
- Equity
- Money Market Instruments
- Deposit with Bank

7.2.1.1. Findings of Monthly income plan
· Though the objective of each company is same of regular return and capital appreciation, but only Templeton gives the ratio of equity exposer.
· The highest corpus is of ICICI Pru followed by Birla
· The one year benchmark return of plan is 16.18 %, by comparison we found out that only Templeton is giving more others are giving less than benchmark.
· As maturity is concerned ICICI is best having maturity of 1.08 years, while Birla has maturity of 3.05 %.
· Templeton though giving best returns as have maximum equity exposer, Principle has highest debt component but its returns are comparatively high, this shows a good fund management.
· The minimum investment varies from 5000 to 25000.ICICI Pru demand high initial investment that is the reason they have big corpus.

RANKING
Based on above findings the authors suggest the following findings:
· Franklin Templeton
· Principle
· ICICI Prudential
· Birla Sunlife

7.2.2. Income Fund:
Slightly more overweighed on corporate bonds (50-60% of portfolio). Also invests in government securities and money market instruments. Ideally suited for investment beyond 1 year. Typical returns of 11-12% p.a.The detail description of all the players is given (Refer Exhibit3)
· Objective of Major Players
- Franklin Templeton: Seeks to generate a steady stream of income .The investment in fixed income securities.
- HDFC Income Plan : To optimize return while maintaining a balance of safety, yield and liquidity
- Principle :To generate regular income of capital appreciation through investing in debt and other related securities
- ICICI Prudential –To generate income through investment in a basket of debt instrument of various maturities with a view to maximize income while maintaining the optimum balance of yield, safety and liquidity.
· Size

· Returns
· Average Maturity


· Portfolio Composition

· Minimum Investment
Players
Templeton
HDFC
Principle
ICICI -Pru
Minimum Investment
10000
500 and multiple of 100

5000
500and multiple of Re.1
· Rating Composition
· Load Factor
- Entry Load: The entry load is nil in HDFC, Principle and ICICI Pru, however in FT it is .5 ,if investment is less than 10 lakh and redemption in six month of inception..
- Exit Load: The exit load is .25 % if investment is less than 10 lakh if redeemed in six month of inception for FT. For more than 10 lakh of investment .5 % is load in HDFC and ICICI Pru
7.2.2.1. Findings
· The objective of most of the players is more or less equal but HDFC specifically mention about maintaining a balance of safety, yield and liquidity.
· HDFC has the maximum fund size and principle has the lowest
· Principle Gives maximum returns as compared to its benchmark inspite of having alowest corpus ,
· FT gives the lowest maturity value followed by principle .HDFC has maximum
· HDFC gives minimum investment benefits.
RANKING : Based on above find the rating of Income fund is:
· Principle
· ICICI Prudential
· HDFC.
7.2.3. Liquid Fund
It invests in short-term debt instruments like T-bills, CDs, commercial papers & call money. Preserve the principal while yielding a modest return. Ideal for corporate investors. Good for parking short-term surplus funds. Easy entry & exit without load. Instant cash on redemption. Typical returns between 7-8% p.a..For schemes details of major player (refer exhibit 4)
· Objective of Major Players
- Franklin Templeton: Seeks to provide income and liquidity through investing in high quality money market and debt instrument.
- HDFC: To enhance income consistent with a high level of liquidity ,through judicious portfolio mix comprising of money market and debt instruments
- ICICI Pru: Seek to earn better return on their idle money and getting money back in just one business day should they need it.
- Birla: The objective of the scheme is to provide reasonable return ,at a high level of safety and liquidity through judicious investment in high quality debt and money market instrument.
· Minimum Investment

Players
Templeton
HDFC
ICICI -Pru
Birla
Minimum Investment
25000
10000 and multiple of 1000

5000
10000
· Size

· Returns

· Average Maturity



· Portfolio Composition





· Rating of Portfolio




· Load Factor

The entry and exit load of f the liquid fund is nil.

· Portfolio Composition
- Money Market instrument
- Call and equivalent instrument
- Corporate debt
- Deposits and Receivables

7.2.3.1. Findings
· Returns from liquid funds have been moving narrow as the call money market too has been giving yield of 4.25-4.5 %
·As per corpus is concerned ICICI is leading and which is Important feature in liquid mutual fund
·Average maturity is concerned then also ICICI is leading
·Rating composition also ICICI is have good mix
·There is no load factor in liquid fund.
·As usual tax benefit is available
.
Ranking

As per the above finding the Ranking of the companies are:
· ICICI Pru
· Templeton
· Birla
· HDFC.

7.3. Balance Fund
Invest both in equity and income-bearing instruments. Reduce risks of investing in stocks by having a stake in both the equity and the debt markets. Flexibility in changing asset composition between equity and debt. Less risky than equity schemes, higher returns than debt schemes. Typical returns of 15-18% p.a The details of all players schemes (refer Exhibit 5)

· Objectives of Players
- Franklin Templeton : Seeks to generate long term capitals appreciation of current income
- Principle: The objective is to provide periodic returns and capital appreciation through a judicious mix of equity and debt instruments, while simultaneously aiming to minimize capital erosion
- HDFC : To generate capital appreciation along with current income from a combined portfolio of equity and equity related and debt and money market instruments
- ICICI Pru: To seek to generate long term capital appreciation and current income from a portfolio that is invested in equity and equity related securities as well as in fixed income securities.
· Size



·Return



· Composition of Portfolio


·Minimum Investment

Players
Templeton
Principle
HDFC
Birla
Minimum Investment
25000
10000 and multiple of 1000

5000
10000

· Load Factor
- Entry Load: The entry load range from 1.5 to 2.25% which is charged by ICICI while least is charged by Franklin Templeton
- Exit Load: The exit load is nil.
· Portfolio :
- Money Market
- Equity
- Debt

7.3.1. Findings
· As per benchmark balance funds gives good returns that is about 23. %.
· It does not have any exit barrier as most funds are freely tradable.
· Minimum investment is lowest for HDFC while more Templeton.
· Maximum investment i.e. around 60 to 70 5% is invested in equity fund.

· RANKING
After the comparing and analysis of balanced fund the ranking is
- HDFC
- ICICI
- Templeton
- Principle
CHAPTER EIGHT: COMPARISON OF MUTUAL FUND WITH POST OFFICE SCHEMES

This chapter gives comparative analysis of post office deposits with Mutual funds.

8.1. Criteria for Comparison

We have compared Mutual funds with post office schemes based on the following criteria:
- Credibility of Management
- Returns
- Risk
- Tax Benefits
- Maturity Period
- Initial investment
- Cost
- Liquidity
- Services Provided

· Credibility of Management
In India the post office schemes was initiated by Government and thus they have credibility in eyes of investors. That knows that the funds are safe as government has the power to absorb risk. Compared to this the mutual fund is a new industry with lot of private players, who don’t have backing of the government. Thus investors who are risk averse may not want to park there funds there, however this might be a difference in perception

· Returns
Post office gives assured returns as an inbuilt criteria but it has been noticed that over the past few years returns have taken a decreasing trend it has slipped about 4 to 5 % while the mutual funds have schemes .The investors by combining various schemes can get substantially good return over post office
· Risk
Post office schemes being backed by government has negligible risk and thus became first preference of risk averse investors. Most of the schemes of mutual funds are market driven a, which makes their returns subject to market volatility. Investors who have sufficient cushion against risk prefer to play in this industry.

· Tax Benefits
For post office schemes rebate are available on the invested amount under sec88 and also for returns under section 80L.While in Mutual funds capital gains are taxable but only dividends are tax free up to the limit of 10000

· Maturity Period
The maturity period of postal saving higher as compared to mutual funds. The average maturity of any mutual fund schemes is around 4 to % years, while for post office it is 6 to 7 years.

· Initial Investment
The initial investment is very low at Rs100 in case of post office savings which gives very small scale investors an option to invest. This is not so in mutual funds where compared to other investment option that minimum may be low but compared with post office it high.

· Cost
There is as such no cost in post office but in mutual funds there are various cost attach to it like load factor, expense ratio, administration cost etc.

· Liquidity
In case of Postal savings there is not much problem of liquidity but there is an opportunity return attached to it due to higher maturity period. But in case of mutual fund liquidity is not an issue as they are freely traded in the stock market.

· Services Provided
The postal savings scores low on several front in services provided for instance in promptness of service, channel of service, customer care, follow-up, investment advice. The Mutual fund industry being crowded by private players attach lot of importance to services provided in terms of advisory agents, corporate agents, and appropriate delivery channels, regular updated and regular features
Finally we can compare mutual fund with post office in tabular form


Credibility
Returns
Risk
Tax benefit
Maturity Period
Initial Investment
Cost
Liquidity
Services
Provided
Mutual Fund

Low
Moderate
Moderate
80l
Low
Moderate
High
High
Good
Post
High
High but constantly decreasing
Low
Sec88
Sec80l
High
Low
Low
high but cost attached
Fair


So, we can say that mutual definitely score high on the postal saving s based on stated criteria.
















CHAPTER NINE: COMPARISON OF MUTUAL FUNDS WITH BANK

This chapter gives comparative analysis of Mutual fund with bank

9.1. Bank V/ Mutual Fund
A few year ago when bank deposits gave a return of 12% a year, it was a matchless tool for creating wealth with low lock in period and without taking any risk. However, following the declining falling interest rate its time to look beyond banks. To the contrast of this stock market offer higher return on investment, we want to be part of it, but do not know to evaluate stocks, so other option available is Mutual Funds.
To know whether Mutual Fund is really better than Bank deposits we will compare the Banking products with mutual Funds. Here we are giving overall comparison of Bank with mutual funds and then comparing the schemes of banks with mutual funds schemes.

BANKS V/S MUTUAL FUNDS

BANKS
MUTUAL FUNDS
Returns
Low
Better
Administrative exp.
High
Low
Risk
Low
Moderate
Investment options
Less
More
Network
High penetration
Low but improving
Liquidity
At a cost
Better
Quality of assets
Not transparent
Transparent
Interest calculation
Minimum balance between 10th.
& 30th. Of every month
Everyday
Guarantee
Maximum Rs.1 lakh on deposits
None






9.2. Liquid Fund and Saving Deposits.
Saving Deposit
The return on saving deposits is 3.5-5.25 percent pre tax. With inflation inching up in recent weeks our real return is close to zero and even worse is if person’s balance plummets at the end of every month person is left with even less, since banks calculate interest on lowest deposit amount between 10th and 31st of each month. The final argument is defense of saving account is liquidity but it has a cost attach to it.

Liquid Funds

Liquid funds from mutual funds offer high liquidity and to invest in safer money market instrument like commercial paper and treasury bills. Unlike interest taxed at an investor’s, dividends on mutual funds are subject to effective distribution tax of 12.8 percent .This results in higher yield compared to banks.
Liquid funds offers a person need –liquidity, safety, higher than bank, tax adjusted returns.
Comparison of returns of liquid funds with bank deposits

(1 month Duration)
Liquid Funds
Bank Deposits
Pre Tax Returns
5 – 5.5
5.25
Post tax Return
4.4 -4.8
3.6


9.3. Income Fund and Fixed deposits

Fixed Deposits
When a person deposit a certain sum of money with a fixed rate of interest and a specified time, it is called a bank Fixed Deposits. It offers liquidity along with higher returns on surplus cash than those offered by regular savings accounts. Before privatization of banks, FDs meant high lock in and breaking them in case of contingencies meant penalties but due to growing competition both from banks and other flexible financial products, breaking FDs is much cheaper

Income Funds
Income funds invest in fixed income securities .As an investment class, they offer higher returns than bonds and FDs and are tax efficient, though they carry higher risk.
Comparison of returns of FDs and Income Funds

Returns
Income funds
Fixed Deposits
Pre Tax Return (% p.a)
5.75
6.5-7
Post Tax Return (% p.a)
4
5.7-6.1


9.4. Systematic Investment Plans and Recurring Deposits

Recurring Deposits
It is a deposit wherein you can invest small amount of money periodically for a specific period in your bank account .It gives a return of 5-5.5%

Systematic investment Plan
Systematic Investment plans which allow for small amount of money to be invested at regular intervals .A predetermined amount is automatically transferred from an investor bank account and put in desired mutual fund. A SIP does not ensure profits or protection against a loss in a declining market .But it does smoothen out the market difficulties and reduces the risk of investing in a volatile market
CHAPTER TEN: COMPARISION OF MUTUAL FUND WITH INSRUANCE

In this chapter we have compared insurance mainly market driven policies with mutual fund.

10.1. Basis of Comparison

For the basis of comparison, we have only taken market linked policies of insurance policies, because basic policies can’t be compared because there main purpose is risk coverage
Unit linked insurance plan is innovation in insurance product which caters savings with life risk. Mutual fund is pool of money created from public and invests on behalf of public in securities and other money market instruments. If we deduct life risk from Unit linked insurance plan it is simply mutual fund.
Here this project will compare between both investment option will be compare on following criteria.
· Management
· Tax Benefits
· Liquidity
· Various costs
· Lock in period
· Past performance

· Management

Unit Linked Insurance Plan is managed by insurance company. In India except LIC all other private life insurance provider players had formed Joint venture with foreign insurance players and distribute insurance in India. The IRDA manages all affairs relating to insurance company. The company has to follow the regulations stipulated by IRDA. The insurance company is responsible for managing and regulating investment they done on behalf of investors. They can also take help of AMC in managing their investment. If any unit linked insurer states to give some guarantee return and if this guarantee is not achieved with investment than insurance company is liable and they have to give guaranteed return from their own pockets.

The structure of mutual funds in India is governed by SEBI (Mutual fund) Regulations, 1996. According to this regulation it is mandatory for mutual funds to have a three tier structure of Sponsor-Trustee-Asset Management Company (AMC). The sponsor is the promoter of the mutual fund and appoints trustees. The trustees are responsible to the investors in the mutual fund and appoint the AMC for managing the investment portfolio. The AMC is the business face of mutual fund, as it manages all the affairs of the mutual fund. The mutual fund and AMC have to be registered with SEBI. Mutual fund can also be in company form but these type of mutual fund are popular in United States, while in India mutual funds are organized by trusts.

· Industry Analysis

The insurance industry is one of leading investment avenues in India. People contribute to thousands of crore yearly by the way of premium. Looking at Unit linked insurance plan, they are just beginning to gain pace, with the boom in stock exchange and good GDP growth unit linked insurance plan, has posted excellent return. The return act an single biggest factor in growing of unit linked insurance plan. If we looked at unit linked policy provider they are just few. Indian life insurance companies consist of 16 players out of which only 6 to 7 players have plan that are unit linked. Market of unit linked insurance is still in nascent stage.

While on the other hand Mutual fund is one of the oldest industry in India. There are more than 39 players with more than 700 policies caters to varieties of customer. Mutual fund industry manages corpus more than Rs. 14,50,000 crore.

· Tax Benefits

- Tax Benefit on Investment in Insurance

Investment in Unit Linked Insurance Plan will be in the form of premium while investment in mutual fund is like payment make to purchase units. Here premium paid by an investor for Unit Linked Insurance Plan is eligible for tax benefits under section 88 of the income tax Act, 1961. Payment for investing in mutual fund is not eligible for any tax benefits under income tax act. While if investment is made in Equity link saving scheme it is eligible for tax benefit. The following table shows tax benefits from Unit Linked Insurance Plan and Equity link saving scheme.

Gross total income
Investment in Unit Linked Insurance Plan
Investment in ELSS
Up to Rs.1.5 Lakh
20%
20%
1.5 Lakh to Rs.5 Lakh
15%
15%
Above Rs.5 lakh
Nil
Nil
- Tax Treatment on Maturity or Capital Gains
Under the provisions of Sub-section 10D of section 10 of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus is exempted from income tax. However any sum received under an insurance policy affected on or after 1-4-2003 in respect of which the premium paid in any of the years during the term of the policy exceeds 20% of the actual capital sum assured will no longer be exempted under this section.
In case of mutual fund, there is no maturity. The amount received by selling its units is known as capital gains. The capital gains received by investor are fully exempt from Tax.



- Tax Treatment on Dividend in Mutual Fund

Dividends received from mutual funds are eligible for deduction under section 80L, along with dividend and interest from other eligible instruments, up to maximum of Rs. 12,000.In certain new schemes of mutual fund like ELSS rebate under sec88 is given.

· Liquidity
Liquidity is one of the important aspects for making investment. One can need money at any time at any point, so easy availability of money is main criteria.

-Liquidity in Unit Linked Insurance Plan
The liquidity in unit linked plan is in form of surrender value or selling of units. Surrender value will be generally available after few years of policy taken. Generally most of players provide surrender value after one year. They will deduct surrender charges from the said amount and balance they will provide us in cash. Surrender charges varies according to different players. Generally it is in range of 16% to 10% for first year and it will reduce as years increasing. After five years generally they don’t charge for surrender value.
Second option of liquidity is in the form of selling of units. Here the price equivalent to units is paid to policy holder on selling of underlying units. If only part of units is sold than, here is a minimum slab of withdrawal which is pre defined by insurance company and account balance should not move below specific level pre-defined by insurance company.

-Liquidity in Mutual Fund
The liquidity in mutual fund is highest compare to Unit Linked Insurance Plan. Here one can redeem any number or all units underlying with them. They will receive amount within 2-3 days after redemption of units take place. Generally the investor has to paid only exit charge if specified by mutual fund, otherwise there is no charge which will deduct by selling of units.

Thus liquidity feature in mutual fund is high compare to Unit Linked Insurance Plan.

· Costs
Unit Linked Insurance Plan and Mutual fund both invest in secondary market investment, money market investment, bonds and many other financial instruments. In order to transact and to manage it they incur costs. Generally these costs would be pass on to the investors as they are the ultimate beneficiaries from the profit arise from that fund. Cost is an important parameter more the cost less the profit to investor. Lets look broadly various costs incur by Unit Linked Insurance Plan and Mutual fund both.

- Fund Management Fees
A Unit Linked Insurance Plan can charge maximum 2% of the premium received as Fund Management Fees. This rate is stipulated by IRDA. The company providing Unit Linked Insurance Plan can charge investment management fees according to their cost. Generally it varies from 0.80% to 2%. The following table shows fund management fees charged by different players of Unit Linked Insurance Plan.

Name of Insurer
Fund Management Fees
(% of premium)
HDFC Standard Life
0.80%
ICICI PRU Life
1%
AVIVA Life
1.25%
LIC Life
1%
KOTAK Life
0.6% - 1.5%

In case of Mutual fund, SEBI is regulating the rate of fund management fees. It would be based on net assets of particular fund. SEBI has stipulated norms that Mutual fund can maximum charge up to 1.25% if net assets are less than 100 crore and 1.00% if net assets are more than 100 crore. SEBI has complete authority to change the rates of fund management fees.

- Administration Charges
Unit Linked Insurance Companies as well as Mutual fund both incurs administrative expenses to maintain their daily records. The former charged as a certain percentage of premium while for latter SEBI has prescribed norms for administrative and other expenses. The following table show the administrative expenses charged by Unit Linked Insurance companies.

Name of Insurer
Administration Charges
(% of premium)
HDFC Standard Life
Rs. 25 per month
BIRLA SUN Life
0.5%
AVIVA Life
1.5%
LIC Life
Depends on Sum Assured
KOTAK Life
Depends on Sum Assured

The amount of charges of Mutual fund is based on net assets of particular fund. SEBI has laid down the charge structure based on net assets which is as follows.

Net Assets
% of Net Assets
Upto 100 crore
2.5%
Next 300 crore
2.25%
Next 300 crore
2.00%
Remaining net assets
1.75%

Thus, if any expense goes beyond specific limit described by SEBI then AMC has to borne those expenses. In short, there is ceiling on expenses in Mutual Fund while in Unit Linked Insurance Plan it is not there.



- Loads
Load is specific charge which is borne by investor for meeting certain initial issue expenditure. Load can be in the form of entry load or exit load or both depending on the AMC. Generally all mutual funds are having load factors. Unit Linked Insurance may also charge load but it depends on the insurance company. The following table shows load structure which charged by Unit Linked Insurance Plan providing companies.

Name of Insurer
Load Charges
(% of premium)
HDFC Standard Life
No load
BIRLA SUN Life
Entry Load 2.5%
AVIVA Life
No load
LIC Life
No load
KOTAK Life
No load

Thus, from the above table it is clear that except BIRLA SUN Life no other insurance company charges load fees. Mutual fund charges load fees which varies from 0.25% to 2% depending on fund.

- Switching Costs
Switching costs are fees unit linked plan provider charge towards changing risk option available with in the same fund. Unit Linked Insurance Plan provides varities of option of investment depending on risk of person. If person wants to shift from one option to another they had to pay some fees for it which is known as switching costs. Switching costs are different as per company policies. Some insurance players do not charge for initial switching than after they charge on every switching done by investors. Switching cost will be based on market value of securities based on switching date or amount transferred from one option to another. The following table shows switching charges charged by insurance company.



Name of Insurer
Switching charges
(% of premium)
HDFC Standard Life
Free
BIRLA SUN Life
0.5%
AVIVA Life
0.5% ( Minimum Rs. 100)
LIC Life
2%
KOTAK Life
n.a

In Mutual fund there are no such types of switching cost available, there are only load charges which could be entry or exit.

· Look in period
This is a special type of option provided by insurance company to investors. Here they gave some days within which in investors is unhappy with policy details or performance of policy or due to any problem, if he return back the policies whole amount will be refunded to investors after deducting some amount towards initial expenditure and amount fluctuate by market risk. Generally unit linked insurers provided free look in period for 15 days.
There is no such look in period in mutual fund.

· Initial Investment
To invest in unit linked insurance product, investor has to pay premium. The companies providing unit linked insurance plan has stipulated minimum premium below which investor cannot invest. The minimum investment will depends on company who provides policy. The following table shows amount of minimum premium.
Name of Insurer
Minimum Premium (in Rs.)
HDFC Standard Life
10,000
BIRLA SUN Life
25,000
AVIVA Life
25,000
LIC Life
20,000
KOTAK Life
10,000
In case on mutual fund there is no requirement of minimum investment. Units of mutual fund can be purchase of any amount. If new policy is going to launch by Mutual fund than there is criteria of minimum investment. Generally it differs according to AMC. Normally for subscribing units in initial offer period minimum investment is Rs. 5000.

· Age
Age is also an important factor while investing in any avenues. In insurance company who provides unit linked plan will define criteria for minimum age. Some companies take policy of major persons only while some includes minor. Other criteria under this would be maximum age to purchase policy. As unit linked policy covers life risk also, insurance company has specified maximum limit on age, so they will not suffer from death risk. The following table shows details of minimum and maximum under which person can purchase policy.

Name of Insurer
Minimum Age
Maximum Age
HDFC Standard Life
18
65
BIRLA SUN Life
Any age
80
AVIVA Life
01
75
LIC Life
12
55
KOTAK Life
18
65
ICICI PRU Life
00
60

Thus, for investing in unit linked insurance plan, you should be fall in age brackets specified by insurance company.
Mutual fund does not have any criteria of ages. The person with any age can enter to purchase mutual fund. If investor is minor his/her parents should operate on behalf on them. As mutual fund does not carry death risk and it is just a contract, any person at any age can enter to purchase mutual fund.

CHAPTER ELEVEN: CONCLUSION

This chapter concludes the project while giving insides to investment in mutual fund

The booming markets, falling interest rates have left the customers with sufficient disposable income to park their funds in options of their preference .However, with increasing emphasis on returns , risks , liquidity, tax benefits and YTM, it is necessary to compare the various investment options among each other . By comparing mutual funds across Bank Deposits, Post office, Savings and insurance, it has been found that they score high in most of the funds making it an ideal investment option.
Apart forms this various reasons about why mutual funds should be included in ideal investment portfolio are as under:
· Mutual funds various schemes to start with which they introduce after a through market study. Thus investors always find schemes satisfying their investment objective.

· Mutual Funds are regularly rated by credit agencies which give investors an inside about the AMC and fund performance .This regular and upto date follow-up lacks in other investment options.

· Mutual funds managers give lot of importance to asset allocation which is critical for investment today as the interest rates may fluctuate.

· Markets are at all time high, thus offering a lot of opportunities to the fund manager to enhance return by actively managing funds.

· Investment in debt funds is good as they do not lead to capital loss, due to booming economy, where credit default risk is low. It is the realization of regular coupon and capital at the end of the predefine period, which distinguishes debt from equity as an asset class.
· As per the study the performance of liquid funds has been getting better, making it an ideal investment option. This is testified by the fact that liquid schemes saw gross inflow of 259000crore rupees and debt schemes saw inflow of 132000crore rupees in last quarter

· Monthly Income Plans are another place to play as they give assured returns ,though post office schemes give assured return ,but it is on decreasing note, this is not so in MIP.

· For greeting good returns of 11 to 12 % income plans are the best as they give a rare combination of safety ,liquidity and yield

· Balance funds are riding high on good performance of underlying market having good mixture of debt and equity with moderate risk.

· Keeping the growing needs of customers in mind mutual fund houses want to introduce specialized funds called Feeder funds or mirror funds through which investment in equity in abroad is possible.

· Taking a cue from the volatile markets highbrid funds may be the nest launching option to maximize return, through a mixture of debt and equity.

· Indian Investors give lot of importance to tax benefits thus fund managers want to introduce a real estate sector bonds which will attract investors of small savings.

· When liquidity is an issue then government may bring market stabilization bonds thus involvement of government will increase credibility in the eyes of investors

Mutual fund tends to be the most professionally monitored as far as services and customer relationship is concerned, thus it comes out to be a natural contender to park ones funds.
Concluding the project we feel that irrespective of the interest rate outlook, the asset class needs to be determined by the investors need and the investment instruments with in each asset class be a function of their investment horizon.
[1] For 30 year old male, sum assured of 5 lakh and a 20 year term.
[2]For 30 year old male, sum assured of 5 lakh and a 20 year term.

[3] For a 20 year plan.