A project report on study of banking products and investment behavior of consumers

1. Report on
Study of Banking Products and
Investment Behavior of consumers
Summer Project Report Submitted For the Partial Fulfillment of
Two Years Full Time Post Graduate Diploma of Management
(2007-2009)
Project supervisor Project by
Jaipuria Institute of Management
Noida

2. ACKNOWLEDGEMENT
I wish to express my gratitude to Standard Chartered Bank’s management for
giving us an opportunity to be a part of their esteem organization and enhance
our knowledge by granting permission to do our summer training project under
their guidance.
The project of the kind, that I am fortunate enough to be involved in, needed the
vision, guidance and expertise of various persons. Thus it was the vision, untiring
guidance and on-hand support and help of …………………………………. which
actually allowed me to do justice to the given topic.
I am grateful to …………………………………, our guide, for his invaluable
guidance and cooperation during the course of the project. He provided us with
his assistance and support whenever needed that has been instrumental in
completion of this project.
Finally I would like to thank the members of my family and all my friends for their
support and encouragement.
The learning during the project was immense & invaluable. Our work basically
included the study of various financial products of the bank and understanding
the customer investing patterns. The present report is an amalgamation of our
thoughts and our efforts to study the present banking and investment scenario
and market potential for the sale of products like ULIP and Mutual Funds.

3. EXECUTIVE SUMMARY
The title of the project is to study the banking product and investment behavior of
consumers while the objective of project is to find out the potential customers for
Standard Chartered bank and to find the investment behavior of investors which
would help the bank personal to decide proper strategy to tap a larger market
The …………………………… manages the entire sales functions of north zone of
Standard Chartered bank. He wants to provide such type of products and
services which can satisfy to his customers. He also suggests some strategic
and innovative ideas for improvement.
Chapter 1– The Indian banking system deals with introduction of the
investment scenario in India and the investment process. Standard Chartered
bank deals with the history of the bank, products offered by it and extensive
study of savings account, ULIP, and mutual fund.
Chapter 2 Introduction to study deals with scope and need of study,
Objective of the Study provides the direction to the study means it defines the
strategy to achieve the objective of the study.
Chapter 3 Research Methodology defines all those method by which the
researcher has done the research.
Chapter 4 Review of Relevant Literature literatures were reviewed to
understand the changes in banking system and modification of banks as per the
need of the consumers.
Chapter 5 Findings and Analysis contains the survey outputs relating
investment behavior using SPSS software, and analysis of the output.
Chapter 6 Conclusion, Limitations and Suggestions concludes the whole
study by telling limitations and suggestions.

4. Table Contents
S.No. PARTICULAR PAGE NO.
i. Company Certificate i
ii. College Certificate ii
iii. Acknowledgement iii
iv. Executive Summary iv
Lists of Figures
Lists of Tables
Chapter 1. Introduction - The Indian Banking System
1.1 The Current State and Road Ahead 1
1.2 New Business Opportunities 2
1.3 Major foreign banks in India 2-3
1.4 Investment Strategies in India 3-4
1.5 Introduction to Standard Chartered 4-7
1.6 Products offered by Standard Chartered 7-8
1.7 Savings account 8 -11
1.8 ULIP (Unit Linked Insurance Plan) 12 - 28
1.9 Concept of mutual fund 29 - 40
Chapter 2. Introduction to the Study
2.1 Needs of study 41 - 42
2.2 Scope of study 42 - 43
2.3 Objective of study 43
Chapter 3. Research Methodology 44
Chapter 4. Review of Relevant Literature 45 - 46
Chapter 5. Findings and Analysis 47 - 57

5. Chapter 6. Conclusion, Limitation and Solutions
6.1 Conclusion 58
6.2 Limitations 59
6.3 Suggestions 59 - 60
Appendix
Bibliography
Miscellaneous

6. Lists of Figures
S.No. Particulars Page No.
Chapter 1 Introduction - The Indian Banking System
1.1 New business opportunity tapped by banks 2
1.2 Mutual fund operation flow chart 29
Chapter 7 Findings and Analysis
5.1 Age group pie chart 47
5.2 Type of investor according to age 48
5.3 Investment made as per age 49
5.4 Investment made as per income 50
5.5 Influence pie chart 51
5.6 Factors affecting investment decision 52
5.7 Reinvestment as per age 53
5.8 Reinvestment as per income 53
5.9 Investment horizon as per age 53
5.10 Investment horizon as per income 54
5.11 Maturity sum use as per age 55
5.12 Maturity sum use as per income 56

7. Lists of Tables
S.No. Particulars Page No.
Chapter 1 introduction to Indian banking system
1.1 Parameters and service charges charged by bank 10 - 11
1.2 ULIP expense table 16
1.3 Comparison table of ULIP 28
Chapter 5 Findings and Analysis
5.1 Age distribution 47
5.2 Influence frequency chart 51
5.3 Factor affecting investment decision 52

8. Chapter- 1
INRODUCTION
The Indian Banking System
1.1 The Current State and Road Ahead
India’s banking sector is growing at a fast pace. India has become one of the
most preferred banking destinations in the world. The reasons are numerous: the
economy is growing at a rate of 8%, Bank credit is growing at 30% per annum
and there is an ever-expanding middle class of between 250 and 300 million
people (larger than the population of the US) in need of financial services. All this
enables double-digit returns on most asset classes which is not so in a majority
of other countries. Foreign banks in India achieving a return on assets (ROA) of
3%, their keen interest in expanding their businesses is understandable. Indian
markets provide growth opportunities, which are unlikely to be matched by the
mature banking markets around the world. Some of the high growth potential
areas to be looked at are: the market for consumer finance stands at about
2%-3% of GDP, compared with 25% in some European markets, the real estate
market in India is growing at 30% annually and is projected to touch $ 50 billion
by 2009, the retail credit is expected to cross Rs5,70,000 crore by 2010 from
the current level of Rs1,89,000 crore in 2004-05 and huge SME sector which
contributes significantly to India’s GDP.
In order to gain further access to the global trade, the government is expanding
the Free Trade Agreements (FTA’s) with many countries (like Singapore,
Thailand, and other ASEAN members). After the Comprehensive Economic Co-
Operation Agreement (CECA) with Singapore, the government is now planning a
similar deal with the 25-member European Union. The EU is also likely to ask
India to liberalize its financial sector on the lines of the India-Singapore CECA.

9. 1.2 New Business Opportunities
With the interest income coming under pressure, banks are urgently looking for
expanding fee-based income activities. Banks are increasingly getting attracted
towards activities such as marketing mutual funds and insurance policies,
offering credit cards to suit different categories of customers and services such
as wealth management and equity trading. These are indeed proving to be more
profitable for banks than plain vanilla lending and borrowing.
New Business Opportunities tapped by banks
Derivatives Trading
36.8%
Wealth Selling of Mutual
Management Funds 73.6%
21.05%
Forex Management
68.4%
Bancassurance
73.6%
Fig 1.1 New business opportunity tapped by banks
Major foreign banks in India are
ABN-AMRO Bank
Abu Dhabi Commercial Bank Ltd.
American Express Bank Ltd
BNP Paribas
Citibank
DBS Bank Ltd
Deutsche Bank
HSBC Ltd
Standard Chartered Bank

10. 1.4 Investment Strategies in India
Conventionally, Indian investors were investing in the following avenues:
• Fixed Deposits – They cover the fixed deposits of varied tenors offered
by the commercial banks and other non-banking financial institutions.
These are generally a low risk prepositions as the commercial banks are
believed to return the amount due without default. By and large these FDs
are the preferred choice of risk-averse Indian investors who rate safety of
capital & ease of investment above all parameters. Largely, these
investments earn a marginal rate of return of 6-8% per annum.
• Government Bonds – The Central and State Governments raise money
from the market through a variety of Small Saving Schemes like national
saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident
Funds, etc. These schemes are risk free as the government does not
default in payments. But the interest rates offered by them are in the
range of 7% - 9%.
• Money-back insurance - Insurance in India is mostly sold and bought as
investment products. They are preferred because of their add-on benefits
like financial life-cover, tax-savings and satisfactory returns. Even if one
does not manage to save money and invest regularly in financial
instruments, with insurance, the policyholder has no choice. If he does not
pay his premiums on time, his insurance cover will lapse. Money-back
Insurance schemes are used as investment avenues as they offer partial
cash-back at certain intervals. This money can be utilized for children’s
education, marriage, etc.
• Endowment Insurance – These policies are term policies. Investors
have to pay the premiums for a particular term, and at maturity the
accrued bonus and other benefits are returned to the policyholder if he
survives at maturity.
• Bullion Market – Precious metals like gold and silver had been a safe
haven for Indian investors since ages. Besides jewellery these metals are

11. used for investment purposes also. Since last 1 year, both Gold and
Silver have highly appreciated in value both in the domestic as well as the
international markets
• Stock Market – Indian stock markets particularly the BSE and the NSE,
had been a preferred destination not only for the Indian investors but also
for the Foreign investors. This is evident from the fact that FIs are buying
huge stakes on the Indian bourses. Although Indian Markets had been
through tough times due to various scams, but history shows that they
recovered very fast. Many scrip’s had been value creators for the
investors. People have earned fortunes from the stock markets, but there
are people who have lost everything due to incorrect timings or selection
of fundamentally weak companies.
• Real Estate – Approximately one fourth of all homes sold in 2006 have
been purchased as an investment. Returns are almost guaranteed
because property values are always on the rise due to a growing world
population. Residential real estate is more than just an investment.
• Mutual Funds - There is a collection of investors in Mutual funds that
have professional fund managers that invest in the stock market
collectively on behalf of investors. Mutual funds offer a better route to
investing in equities for lay investors. A mutual fund acts like a
professional fund manager, investing the money and passing the returns
to its investors. All it deducts is a management fee and its expenses,
which are declared in its offer document.
• Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual
funds in terms of their structure and functioning; premium payments made
are converted into units and a net asset value (NAV) is declared for the
same. In traditional insurance products, the sum assured is the corner
stone; in ULIPs premium payments is the key component.

12. 1.5 Introduction to Standard Chartered
Standard Chartered is one of the world's most international banks, employing
almost 60,000 people, representing over 100 nationalities, worldwide. This
diversity lies at the heart of the Bank's values and supports the Bank's growth as
the world increasingly becomes one market.
Standard Chartered PLC is listed on both the London Stock Exchange and the
Hong Kong Stock Exchange and is consistently ranked in the top 25 among
FTSE-100 companies by market capitalization.
Standard Chartered has a history of over 150 years in banking and operates in
many of the world's fastest-growing markets with an extensive global network of
over 1,400 branches (including subsidiaries, associates and joint ventures) in
over 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa,
the United Kingdom and the Americas. With strong organic growth supported by
strategic alliances and acquisitions and driven by its strengths in the balance and
diversity of its business, products, geography and people, Standard Chartered is
well positioned in the emerging trade corridors of Asia, Africa and the Middle
East. Standard Chartered derives over 90 per cent of profits from Asia, Africa
and the Middle East. Serving both Consumer and Wholesale Banking customers
worldwide, the Bank combines deep local knowledge with global capability to
offer a wide range of innovative products and services as well as award-winning
solutions. Trusted across its network for its standard of governance and
corporate responsibility, Standard Chartered takes a long term view of the
consequences of its actions to ensure that the Bank builds a sustainable
business through social inclusion, environmental protection and good
governance. Standard Chartered is also committed to all its stakeholders by
living its values in its approach towards managing its people, exceeding
expectations of its customers, making a difference in communities and working
with regulators. It serves both Consumer and Wholesale Banking customers.
Consumer Banking provides credit cards, personal loans, mortgages, deposit
taking and wealth management services to individuals and small to medium
sized enterprises. Wholesale Banking provides corporate and institutional clients

13. with services in trade finance, cash management, lending, securities services,
foreign exchange, debt capital markets and corporate finance.
1.5.1 Standard Chartered Bank in India
Standard Chartered Bank is the largest international banking Group in India with
78 branches in 30 cities. The Bank is having a combined customer base of 2.5
million in retail banking and over 1200 corporate customers.
The key businesses of Standard Chartered Bank in India include consumer
banking - primarily credit cards, mortgages, personal loans and wealth
management - and - wholesale banking, where the Bank specializes in the
provision of cash management, trade, finance, treasury and custody services.
Standard Chartered was the first to issue global credit card in India, the first to
issue Photo card, the first Picture Card and was the first credit card issuer to be
awarded the ISO 9002 certification. Some other product innovations of Standard
Chartered Bank in India include the 'Sapnay' credit card, the international debit
card that provides free access to over 1500 Visa ATM's, a first in the banking
industry, Mileage, an overdraft facility against the security of a car and Smart
Credit, a personal line of credit for salaried customer.
The name is derived from Standard & Chartered. Standard Bank of British South
Africa merged with Chartered Bank of India, Australia and China in 1969.
Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April
1858. During that time Kolkata was the most important commercial city and was
the hub of jute and indigo trades. The merger with the Standard Bank of British
South Africa in 1969 and the acquisition of Grindlays Bank in 2000 were two key
events that have played an important role in making the Bank the largest
international bank in India.
1.5.2 CSR by Standard Chartered
Corporate Social Responsibility (CSR) is at the core of the values of Standard
Chartered Bank. The Bank is committed to the communities and environments in

14. which it operates. The Bank strongly supports the trend towards delivering
shareholder value in a socially, ethically and environmentally responsible
manner. ‘Living with HIV’ is a global community initiative of Standard
Chartered that is aimed at raising awareness of HIV/AIDS amongst employees
through workshops and amongst stakeholders by providing thought leadership.
Under ‘Seeing believes’, a programme that aims to restore sight to one million
people globally by 2006, the Bank has raised funds to help 8000 people to see.
In partnership with Sight Savers International and VISION2020 the Bank is now
involved in two flagship projects at Vishakhapatnam and Muzaffarpur, both aimed
at the elimination avoidable blindness. Furthermore, in support of the
communities ravaged by the Asian Tsunami Crisis in 2004 the Standard
Chartered Group committed US$ 1 million to India. The Bank is utilizing these
funds for the rehabilitation of two villages adopted near Chennai.
In 2004, Standard Chartered initiated the phenomenally successful Standard
Chartered Mumbai Marathon - an event dedicated to charity fund raising. The
two marathons held so far have forged partnerships with customers and charities
and deepened the Bank’s ties with the community, with over US$ 1 million being
raised in 2005.
1.6 Products offered by Standard Chartered
Standard Chartered bank provides different products and services in order to
cater the needs of the customers which can be broadly classified into the
following categories:
1.6.1 Personal Banking
To cater the diverse financial needs, Standard Chartered offers a wide range of
premium banking products and services through its network of 81 branches in 31
cities across the country. As a privileged customer of this bank, the customers
can always be assured of a banking service that is flexible enough to tailor-make
a product suite to take care of his specific banking needs.

15. 1.6.2 SME Banking
SME Banking provides integrated financial solutions to small and medium
businesses, through a relationship management approach. Its customer focused
product offerings include working capital finance, trade services, foreign
exchange, and cash management.
1.6.3 Commercial Banking
Standard Chartered has maintained a long local presence, since 1858, with
particular emphasis on relationship banking. Significant networks have been
established with vendors and financial-related organizations to enable it to offer
the customers a comprehensive range of flexible financial services, with special
focus on transactional banking products. Supported by state-of-the-art
operations, Standard Chartered is pro-active in improving every part of services.
Electronic Delivery system has been put in place to ensure that transactions are
handled speedily. It has its Cash Product Specialists and dedicated Customer
Service Centers to provide its customers with effective solutions. to fully
understand the workings and functions of Standard Chartered Bank, the scope of
this project has been limited to the detailed study of only three products offered
by this bank under the above mentioned categories:
Savings Account : Personal banking
Unit Linked Insurance Plan (ULIP): Personal banking
Mutual Funds: Commercial banking
1.7 Savings account
An account primarily opened for and operated by individuals, wherein the
numbers of transactions are few and which give the customer liquidity, with the
facility to earn some interest on the residual balances.
Standard Chartered bank offers 4 types of Savings account matching different
needs of customers namely:
1. Axcess Plus :The Standard Chartered Bank have launched the Excess Plus
saving account as a premium product placed in the market with maintenance of

16. minimum quarterly balance of 10,000/- The product in supposed to be targeted
to a specific group elite of customers. This will help to increase the volume and
as such the profitability of the company. The name axcess plus means that the
account is accessible anywhere anytime, as well as it will be an innovative and
convenient services for the customers needs.
2. Super Value
3. Parivaar account
4. No frills Account
5. Aasaan account
6. 2-in-1 account
1.71 Eligibility criteria
Indian Residents
NRI’s
Clubs, Associations, Trusts and Registered Societies
HUF (Hindu Undivided Family)
Foreign Nationals (QA-22)
1.7.2 Product feature in general
Account can be in sole name or in joint names
Minimum balance: Minimum Quarterly balance of a specific amount is to be
maintained failing to which a specific fees per quarter has to be paid.
Account can be operated at any branch across the country.
.

17. PARAMETERS charges Charges
SuperValue Savings
SAVINGS ACCOUNT NAME AXcessPlus Savings Account Account
ACCOUNTS
CHARGES FOR OPENING THE
ACCOUNT NIL NIL
AVERAGE QUARTERLY
(DAILY)BALANCE REQD. Rs.10000 Rs 50,000
Rs. 1250/qtr
Rs. 1500/qtr (Bal<Rs.5000) (Rs.5000<=Bal<10k)
PENALTY FOR UNSUFFICIENT Rs.750/qtr(Rs.10000>Bal>Rs.5 Rs.1250/qtr(Rs.1000
AQB 000) 0>Bal>Rs.5000)
DORMANT A/C CHARGES Rs.1000 per yr. Rs.1000 per yr.
Rs.500 (within 6
ACCOUNT CLOSURE Rs.500 (within 6 months) months)
DEMAND DRAFT
DRAWN AT OWN BANK(min fee
Rs.50 & max Rs.1500) 0.25% FREE
CANCELLATION Rs 250 Rs.250
DRAWN AT OTHER BANK( Min Fee
Rs.250) 0.30% 0.25%
PAY ORDER Rs.75 FREE
STATEMENTS
STATEMENT OF ACCOUNT,(E-
STMT) FREE/qtr FREE/qtr
CHARGES FOR DUPLICATE
STATEMENT Rs.100 Rs.100
MONTHLY STATEMENT CHARGES Rs.100 FREE
ISSUE BALANCE CONFIRMATION Free for 1st Yr
CERTIFICATE Free for 1st Yr yr,250/yr yr,250/yr
CARDS
DEBIT CARD ANNUAL FEE Rs.200 per year FREE
DEBIT CARD REPLACEMENT FEE Rs.200 Rs.200
Free for first 4 transactions per
ATM INTERCHANGE(NON month/ Rs.50 for beyond 4
PARTNER) trans.
SERVICES
NETBANKING FREE
INTERBRANCH/ INTERCITY
BANKING Rs.50
BILLPAY FREE
PHONE BANKING FREE
MOBILE BANKING(SMS) NOT AVAILABLE

18. aXcessPlus Savings SuperValue Savings
PARAMETERS Account Account
STANDING INSTRUCTIONS
Rs.100(for setting) Rs.100(for setting)
SETTING UP Rs.25(on execution) Rs.25(on execution
DOOR STEP BANKING FREE
CASH PICK UP FREE
CASH DELIVERY/TRANSACTION FREE
CHEQUE BOOKS
CHEQUE BOOK CHARGES(AT PAR) FREE FREE
CHARGES FOR STOP PAYMENT OF
INSTRUMENT Rs.100 FREE
CHEQUE RETURN Rs.250 + other
CHARGES(Issued) banks charges Rs.250
CHEQUE RETURN Rs.100 + other
CHARGES(Deposited) banks charges FREE
MISCELLANEOUS
BALANCE CERTIFICATE(Upto 1 Yr)/
more Than 1 Yr old FREE/Rs.250 FREE/Rs.250
BANKER'S REPORT Rs.50 FREE
SIGNATURE VERIFICATION Rs.25 FREE
INSURANCE PARTNER BAJAJ ALLIANZ BAJAJ ALLIANZ
Table 1.1 parameters and service charges charged by bank
1.8 ULIP (Unit Linked Insurance Plan)
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with
a life insurance cover and the premium paid is invested in either debt or equity
products or a combination of the two. In other words, it enables the buyer to
secure some protection for his family in the event of his untimely death and at the
same time provides him an opportunity to earn a return on his premium paid. In

19. the event of the insured person's untimely death, his nominees would normally
receive an amount that is the higher of the sum assured or the value of the units
(investments). To put it simply, ULIP attempts to fulfill investment needs of an
investor with protection/insurance needs of an insurance seeker. It saves the
investor/insurance-seeker the hassles of managing and tracking a portfolio or
products.
A ULIP, as the name suggests, is a market-linked insurance plan. The main
difference between a ULIP and other insurance plans is the way in which the
premium money is invested. Premium from, say, an endowment plan, is invested
primarily in risk-free instruments like government securities (gsecs) and AAA
rated corporate paper, while ULIP premiums can be invested in stock markets in
addition to corporate bonds and gsecs.
ULIPs offer a variety of options to the individual depending on his risk profile. For
instance, an individual with an above-average risk appetite can choose a ULIP
option that invests upto 60% of premium in equities. Likewise, an individual with
a lower risk appetite can select a ULIP that invests upto 20% of premium in
equities.
1.8.1 ULIP VS Traditional insurance plan
It wasn't too long back, when the good old endowment plan was the preferred
way to insure oneself against an eventuality and to set aside some savings to
meet one's financial objectives. Then insurance was thrown open to the private
sector. The result was the launch of a wide variety of insurance plans, including
the ULIPs.
Two factors were responsible for the advent of ULIPs on the domestic insurance
horizon. First was the arrival of private insurance companies on the domestic
scene. ULIPs were one of the most significant innovations introduced by private
insurers. The other factor that saw investors take to ULIPs was the decline of
assured return endowment plans. Of course, the regulator -- IRDA (Insurance
and Regulatory Development Authority) was instrumental in signaling the end of

20. assured return plans. Today, there is just one insurance plan from LIC (Life
Insurance Corporation) -- Komal Jeevan -- that assures return to the
policyholder.These were the two factors most instrumental in marking the arrival
of ULIPs, but another factor that has helped their cause is a booming stock
market. While this now appears as one of the primary reasons for their
popularity, we believe ULIPs have some fundamental positives like enhanced
flexibility and merging of investment and insurance in a single entity that have
really endeared them to individuals.
1.8.2 Sum assured
Perhaps the most fundamental difference between ULIPs and traditional
endowment plans is in the concept of premium and sum assured.
When you want to take a traditional endowment plan, the question your agent will
ask you are -- how much insurance cover do you need? Or in other words, what
is the sum assured you are looking for? The premium is calculated based on the
number you give your agent.
With a ULIP it works in reverse. When you opt for a ULIP, you will have to
answer the question -- how much premium can you pay?
Depending on the premium amount you state, you are offered a sum assured as
a multiple of the premium. For instance, if you are comfortable paying Rs 10,000
annual premium on your ULIP, the insurance company will offer you a sum
assured of say 5 to 20 times the premium amount.
1.8.3 Investments
Traditionally, endowment plans have invested in government securities,
corporate bonds and the money market. They have shirked from investing in the
stock markets, although there is a provision for the same. However, for some
time now, endowment plans have discarded their traditional outlook on investing
and allocate about 10%-15% of monies to stocks. This percentage varies across

21. life insurance companies. ULIPs have no such constraints on their choice of
investments. They invest across the board in stocks, government securities,
corporate bonds and money market instruments. Of course, within a ULIP there
are options wherein equity investments are capped.
1.8.4 Expenses
ULIPs are considered to be very expensive when compared to traditional
endowment plans. This notion is rooted more in perception than reality. Sale of a
traditional endowment plan fetches a commission of about 30% (of premium) in
the first year and 60% (of premium) over the first five years. Then there is
ongoing commission in the region of 5%. Sale of a ULIP fetches a relatively lower
commission ranging from as low as 5% to 30% of premium (depending on the
insurance company) in the first 1-3 years. After the initial years, it stabilizes at
1-3%. Unlike endowment plans, there are no IRDA regulations on ULIP
commissions. Broadly speaking, ULIP expenses are classified into three major
categories:
1) Mortality charges
Mortality expenses are charged by life insurance companies for providing a life
cover to the individual. The expenses vary with the age, sum assured and sum-
at-risk for the individual. There is a direct relation between the mortality expenses
and the abovementioned factors. In a ULIP, the sum-at-risk is an important
reference point for the insurance company. Put simply, the sum-at-risk is the
difference between the sum assured and the investment value the individual's
corpus as on a specified date.
2) Sales and administration expenses
Insurance companies incur these expenses for operational purposes on a regular
basis. The expenses are recovered from the premiums that individuals pay
towards their insurance policies. Agent commissions, sales and marketing
expenses and the overhead costs incurred to run the insurance business on a
day-to-day basis are examples of such expenses.

22. 3) Fund management charges (FMC)
These charges are levied by the insurance company to meet the expenses
incurred on managing the ULIP investments. A portion of ULIP premiums are
invested in equities, bonds, G.secs and money market instruments. Managing
these investments incurs a fund management charge, similar to what mutual
funds incur on their investments. FMCs differ across investment options like
aggressive, balanced and debt ULIPs; usually a higher equity option translates
into higher FMC. Apart from the three expense categories mentioned above,
individuals may also have to incur certain expenses, which are primarily 'optional'
in nature- the expenses will be incurred if certain choices that are made available
to individuals are exercised.
a) Switching charges
Individuals are allowed to switch their ULIP options. For example, an individual
can switch his fund money from 100% equities to a balanced portfolio, which has
say, 60% equities and 40% debt. However, the company may charge him a fee
for 'switching'. While most life insurance companies allow a certain number of
free switches annually, a switch made over and above this number is charged.
b) Top-up charges
ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in
addition to the premium amount for a particular year. Insurance companies
deduct a certain percentage from the top-up amount as charges. These charges
are usually lower than the regular charges that are deducted from the annual
premium.
c) Cancellation charges
Life insurance companies levy cancellation charges if individuals decide to
surrender their policies (usually) before three years. These charges are levied as
a percentage of the fund value on a particular date.
Illustration-: of different charges on ULIP
table 1.2 ULIP expense table

23. Tenure Yearly Expenses (%) Fund Effective
(Yrs) premium Initial Remaining Annual Annual fund value rate of
(Rs) 2 yrs tenure administration management (Rs) return
(pa) (pa) expenses* charges (%) (%)**
(Rs)
10 358,417 6.48
15 703,694 7.53
20 25,000 27.00 3.00 180.00 1.00 1,232,827 7.98
25 2,042,497 8.22
30 3,281,631 8.36
pa: per annum
* Subject to inflation @ 5% pa. ** CAGR
Suppose an individual aged 30 years, wants to buy an 'aggressive' ULIP for a
sum assured of Rs500,000 for 30-Yr tenure. The premium he pays for the same
is Rs25,000. The expenses for the initial 2 years is assumed to be 27% while for
the remaining tenure, it is 3%. Fund management charges are assumed to be
1% p.a. of the corpus for the entire tenure. We have also assumed that the
individual stays aggressive throughout the tenure and does not shift his money
between the various fund options.
Assuming the investments appreciate at 10% compounded annualized growth
rate (CAGR). Thus fund value at the end of 10 years is Rs358,417 and the
effective CAGR net of expenses is approximately 6.48%. However, it can be
seen that as the years roll by, the CAGR keeps going up with a corresponding
increase in the fund value. For example, the fund value at the end of the 20th
year is Rs1,232,827 while the CAGR has gone up to approximately 7.98%. At the
end of the 30th year, the CAGR has gone up to 8.36%.
The reason why the CAGR goes up over a period of time is because the ULIP
expenses even out over a period of time. The 'evening out' occurs because
although the expenses are high in the initial years, they fall thereafter. And as the
years roll by, the expenses tend to 'spread themselves' more evenly over the
tenure of the ULIP. Another reason is also because the expenses are levied on

24. the annual premium amount, which stays the same throughout the tenure.
Therefore, the expenses do not have any impact on the returns generated by the
corpus. Mortality expenses for ULIPs and traditional endowment plans remain
the same as also the administration charges. One area where ULIPs prove to be
more expensive than traditional endowment is in fund management. Since ULIPs
have an equity component that needs to be managed actively, they incur fund
management charges. These charges fluctuate in the 0.80%-1.50% (of premium)
range.
1.8.5 Flexibility
As we mentioned, one aspect that gives ULIPs an edge over traditional
endowment is flexibility. ULIPs offer a host of options to the individual based on
his risk profile.
There are insurance companies that offer as many as five options within a ULIP
with the equity component varying from zero to a maximum of 100%. You can
select an option that best fits your objectives and risk-taking capacity.
Having selected an option, you still have the flexibility to switch to another option.
Most insurance companies allow a number of free 'switches' in a year.
Another innovative feature with ULIPs is the 'top-up' facility. A top-up is a one-
time additional investment in the ULIP over and above the annual premium. This
feature works well when you have a surplus that you are looking to invest in a
market-linked avenue, rather than stash away in a savings account or a fixed
deposit. ULIPs also have a facility that allows you to skip premiums after regular
payment in the initial years. For instance, if you have paid your premiums
religiously over the first three years, you can skip the fourth year's premium. The
insurance company will make the necessary adjustments from your investment
surplus to ensure the policy does not lapse. With traditional endowment, there
are no investment options. You select the only option you have and must remain
with it till maturity. There is also no concept of a top-up facility. Your premium
amount cannot be enhanced on a one-time basis and skipped premiums will
result in your policy lapsing

25. .
1.8.6 Transparency
ULIPs are also more transparent than traditional endowment plans. Since they
are market-linked, there is a price per unit. This is the net asset value (NAV) that
is declared on a daily basis. A simple calculation can tell you the value of your
ULIP investments. Over time you know exactly how your ULIP has performed.
ULIPs also disclose their portfolios regularly. This gives you an idea of how your
money is being managed. It also tells you whether or not your mutual fund and/or
stock investments coincide with your ULIP investments. If they are, then you
have the opportunity to do a rethink on your investment strategy across the board
so as to ensure you are well diversified across investment avenues at all times.
With traditional endowment, there is no concept of a NAV. However, insurers do
send you an annual statement of bonus declared during the year, which gives
you an idea of how your insurance plan is performing.
Traditional endowment also does not have the practice of disclosing portfolios.
But given that there are provisions that ensure a large chunk of the endowment
portfolio is in high quality (AAA/sovereign rating) debt paper, disclosure of
portfolios is likely to evoke little investor interest.
1.8.7 liquidity
Another flexibility that ULIPs offer the individual is liquidity. Since ULIP
investments are NAV-based it is possible to withdraw a portion of your
investments before maturity. Of course, there is an initial lock-in period (3 years)
after which the withdrawal is possible.
Traditional endowment has no provision for pre-mature withdrawal. You can
surrender your policy, but you won't get everything you have earned on your
policy in terms of premiums paid and bonuses earned. If you are clear that you
will need money at regular intervals then it is recommended that you opt for
money-back endowment.
1.8.8 Tax benefits

26. Taxation is one area where there is common ground between ULIPs and
traditional endowment. Premiums in ULIPs as well as traditional endowment
plans are eligible for tax benefits under Section 80C subject to a maximum limit
of Rs 100,000. On the same lines, monies received on maturity on ULIPs and
traditional endowment are tax-free under Section 10.
1.8.9 ULIP - Key features in general
1. Premiums paid can be single, regular or variable. The payment period too can
be regular or variable. The risk cover can be increased or decreased.
2. As in all insurance policies, the risk charge (mortality rate) varies with age.
3. The maturity benefit is not typically a fixed amount and the maturity period can
be advanced or extended.
4. Investments can be made in gilt funds, balanced funds, money market funds,
growth funds or bonds.
5. The policyholder can switch between schemes, for instance, balanced to debt
or gilt to equity, etc.
6. The maturity benefit is the net asset value of the units.
7. The costs in ULIP are higher because there is a life insurance component in it
as well, in addition to the investment component.
8. Insurance companies have the discretion to decide on their investment
portfolios.
9. They are simple, clear, and easy to understand.
10. Being transparent the policyholder gets the entire episode on the
performance of his fund.
11. Lead to an efficient utilization of capital.
12. ULIP products are exempted from tax and they provide life insurance.
13. Provides capital appreciation.
14. Investor gets an option to choose among debt, balanced and equity funds.
1.8.10 ULIP – Standard Chartered
The flexible Unit linked life insurance plans at Standard Chartered bank provides
the opportunity to participate in market-linked returns while enjoying the valuable

27. benefits of life insurance. Insurance Plans for Standard Chartered Bank
customers is issued by Bajaj Allianz Life Insurance Company Limited.
1.8.11 BAJAJ ALLIANZ- Background
Bajaj Allianz Life Insurance Co Ltd is a joint venture between two leading
conglomerates- Allianz AG, one of the world's largest insurance companies, and
Bajaj Auto, one of the biggest two and three wheeler manufacturers in the world.
Allianz Group is one of the world's leading insurers and financial service
providers. Founded in 1890 in Berlin, Allianz is now present in over 70 countries
with almost 174,000 employees. Allianz Group provides its more than 60 million
customers worldwide with a comprehensive range of services in the areas of
Property and Casualty Insurance, Life and Health Insurance, & Asset
Management and Banking.
Bajaj Auto Ltd, the flagship company of the Rs80bn Bajaj Group is the largest
manufacturer of two-wheelers and three-wheelers in India and one of the largest
in the world. Bajaj Auto has a strong brand image & brand loyalty synonymous
with quality & customer focus in India
Allianz AG with over 110 years of experience in over 70 countries and Bajaj Auto,
trusted for over 55 years in the Indian market, together are committed to offer
Insurance solutions that provide all the security needed for a family.
1.8.12 Capital unit gain a unit liked plan
Capital Unit Gain is a unit linked endowment regular premium plan with the
benefit of life protection offered by Bajaj Allianz. By choosing an appropriate
premium level and term, individual can match the maturity date of the plan to a
specific savings need such as child’s education, wedding, retirement etc. It has
unmatched flexibility to meet any emergency or any financial need. Bajaj Allianz
Capital Unit Gain gives up to 97% allocation from the first year onwards to
ensure that your investment income gets accelerated from the first year itself.
With Bajaj Allianz Capital Unit Gain one can get to choose from a wide range of

28. high quality investment funds coupled with flexible investment management. This
is the one-stop solution to investment, tax-saving and protection needs.
The Key Features of the Capital Unit Gain Plan are:
• Option of choosing any sum assured between minimum and maximum limits to
match insurance needs.
• Option of choosing from a host of additional rider benefits: UL Accidental Death
Benefit, UL Accidental Permanent Total/Partial Disability Benefit, UL Critical
Illness
Benefit and UL Hospital Cash Benefit
• Increase savings by paying top up premiums.
• Same premium allocation for all policy years with higher allocation for top up
premiums.
• Individuals choice of adopting own investment strategy to grow the funds under
the policy .
• Choice of 5 investment funds with flexible investment management, with the
option of changing funds at any time and also invest in the newer funds that
would be introduced from time to time.
• Partial withdrawals without any surrender charge .
• Flexibility to increase / decrease the regular premiums
1.8.13 COMPARISON OF BAJAJ ALLIANZ ULIP vis-à-vis OTHER POPULAR
ULIPS AVAILABLE IN INDIA
1.3 comparison table of ULIP
Features Bajaj Allianz ICICI ABN Amro
Policy Name Capital Unit Gain Life time Plus Life Bond

29. Age
0 Yrs (Risk
Minimum age at commences at age 7)
entry 0 1
Maximum age at
entry 60 Yrs 65 65
Risk covered for
age between 7-70 years 0-75 7-70 years
Premium Amount
(minimum)
Annual Rs.10000 20000 NA
Half-Yearly Available NA
Quarterly Available NA
Rs.1000 (Rs.5000 for
Monthly top up) NA
Single premium Available
payment option Available Available Min.25000
Y times the annual 1.25 times the
Maximum prem. depending on Annual Premium* Single
Assured Amount age (Term/2) Premium
Age Y
0-30 100
31-35 85
36-40 70
41-45 50
46-55 30
56-60 20
0.5 times the Policy
Minimum Assured Term times Annualized Annual Premium*
Amount Premium. (Term/2) As above
annual premium
Regular Premium Allocation charge in Allocation rate Allocation
allocation % rate

30. <Rs. 35000
95% 73% 97%
Rs.35000-
Rs.99999 95%
73% 99%
Rs. 100000-
Rs.149999 95%
99% 101%
Rs.150000- 95%(Uptil Rs.199999),
Rs.2499999 96% 99% 102%
Rs.2500000-
Rs.9999999 96% 103%
Rs.10000000-
Rs.4999999 97% 104%
Rs.5000000&above 97% 104.5%
Benefits offered
Sum assured
or fund value
Sum Assured or (which ever is
Death Benefit Fund Value higher)
Before Age of 7
yrs Fund value
Sum assured less
partial withdrawals/
Between age of 7 fund value on as on
yrs & 60 yrs date of intimation
Sum assured less
partial withdrawals/
fund value on as on
On & after 60 yrs date of intimation
Maturity Benefit Fund value Fund Value Fund value

31. Minimum partial
withdrawal amount Rs.5000 Rs.2,000 Rs.5000
(at bid price)
Investment Liquid Fund- Risk
Options profile –Low Flexi Growth II Protector
Bond Fund- Risk
profile- Moderate Maxi miser II Growth
Equity Growth Fund-
Risk Profile- Very High Flexi Balanced II Balanced
Equity Index Fund II-
Risk profile- High Balancer II
Accelerator Mid-Cap
Fund – Risk profile-
Very High Protector II
Preserver
Minimum Balance
across all funds Rs.10000 Rs.10000 Rs.10000
Tax Benefits
Save up to Rs.33660 Save up to Save up to
Sec 80(c) each Rs.33660 each Rs.33660 each
year as prem.
year as prem. Up to year as prem. Up to Up to
Rs.100000 Rs.100000 Rs.100000
are allowed as a are allowed as a are allowed as
deduction deduction a deduction
Benefits are tax Benefits are
Sec 10(10(d)) Benefits are tax free free tax free
Charges
Annual Mortality Depending on your Depending sum
charges age Assured Sum at Risk
charged every month

32. Annual 15% of single
Administration premium for
charges Rs.600p.a. per policy Rs.60 per month first 5 years
&1%
thereafter
2.75%p.a.of the NAV
Annual Fund for Equity growth fund
Management & Accelerator Midcap 1.5%p.a. Flexi 1%p.a. Profit
charges Fund Growth II Funds
2.25%p.a.for Equity 1.5%p.a. Maxi 1%p.a.
Index Fund II miser II Protector
1.75%p.a.for Liquid 1.0%p.a. Flexi 1.25%p.a.
Fund Bond Fund Balanced II Balancer
1.0%p.a. Balancer 1.5%p.a.
II Growth .
0 .75%p.a.Protecto
r II
0.75%p.a.
Preserver
No. of free switches
annually 3 4 2
0.5% subject
to max. of
Charges for Rs.100 of switch Rs.500 per
additional switches Rs.200/ 5% of switch amount switch
amount (which ever is
lower)
Minimum Switch
amount Rs.5000 or Fund value 2000 Rs.10000
(lower)
Minimum Top-up
premium Rs.1000 NA Rs.6250
Depending
upon the
Top up allocation 100% NA amount

33. Flexibility
To increase every 3rd year
premium every 3rd year up to not available up to
5 times of revised 3 times.
regular prem. / Quantum of
half of the term times
revised regular Increase would
premium be
25%of sum
(which ever is higher) assured/
Rs. 100000.
(lower)
to pay top up
premiums Level of top up prem. not applicable
Between 1.25 times to
5 times
Proportionate
To decrease decrease of sum
premium assured Available Available
(reduced regular prem.
Not to be less than
regular prem.)
Any amount,
available but only on
Policy
anniversaries
available
20% of
chosen
premium

34. 100 % penalty on
partial or full 4% and 2% of
withdrawal before value of
Cancellation or completion of firt three accumulation
surrender years units.
Of single
Charges premium
1.9 Concept of mutual fund
A Mutual Fund is a body corporate that pools the savings of a number of
investors and invests the same in a variety of different financial instruments, or
securities. The income earned through these investments and the capital
appreciation realized by the scheme is shared by its unit holders in proportion to
the number of units owned by them. Mutual funds can thus be considered as
financial intermediaries in the investment business that collect funds from the
public and invest on behalf of the investors. The losses and gains accrue to the
investors only. The Investment objectives outlined by a Mutual Fund in its
prospectus are binding on the Mutual Fund scheme. The investment objectives
specify the class of securities a Mutual Fund can invest in. Mutual Funds invest
in various asset classes like equity, bonds, debentures, commercial paper and
government securities

35. 1.9.1 Structure of mutual fund
The structure of a mutual fund differs from country to country. In India the
structure of mutual fund is determined by SEBI regulations. These regulations
are required to be established in the form of a trust under the Indian trust act;
1882.in India. The mutual fund industry has a four tier structure. The four parties
that are required to be involved are;
These four entities operate in the following manner
SPONSOR
BOARD OF TRISTEES/DIRECTORS OF TRUSTEES COMPANY
ASSET MANAGEMENT COMPANY
CUSTODIAN
Fig 1.2 Mutual Fund Operation Flow Chart
1.9.2 Working of mutual fund and their performance
Mutual funds invest their funds in capital market instruments such as shares,
debentures, bonds and money market instruments and therefore the net asset
value of such investments will reflect the market values of underlying assets.
These market values fluctuate and therefore the net asset values of the mutual
fund schemes also fluctuate.
All the capital market instruments have varying degrees of risk, the degree of risk
being the highest in equities and the risk factor is highlighted in the respective
offer documents as well as in the abridged offer documents. The investor
therefore is in the full knowledge and understanding of the risks involved in
various schemes. As per SEBI regulation all mutual funds disclose their portfolio

36. periodically and all open-ended funds offer exit option to investors at NAV based
price.
In the current year, the share market is passing through a bear phase with prices
falling across the board and steeply in the technology scrips. Reflecting this fall in
share prices, the NAVs of most of the equity schemes in general and of the
technology funds in particular have also fallen. This fall in the NAVs should
therefore be viewed in the context of the fall in the share prices, a phenomena
which is world wide today. The fall in NAVs not only affects the investors but it
has an impact on the fees and earnings of the investment managers also.
It may be recalled that the mutual funds have given good returns while the
market was in the upswing and even today, the non-equity schemes which
account for about 60 percent of total assets under management provide
competitive rates of returns.
1.9.3 Mutual funds work under strict regulatory frame work
The Association of Mutual Funds In India (AMFI) reassures the investors in units
of mutual funds that the mutual funds function within the strict regulatory
framework.
The different entities such as the Mutual Fund, the Asset Management Company
and the Custodian operate as per the provisions of the SEBI Mutual Fund
Regulation 1996 and the rules and guidelines issued by SEBI. Each of these
entities has independent Boards of Directors and separate auditors. SEBI keeps
a close watch on the mutual funds through periodical reports and every three
months, each mutual fund submits to SEBI a report conforming compliance with
regulatory provisions and mutual funds are required to record their investment
decisions. Any deficiency or non-compliance is dealt with suitably by SEBI.
Every year, each mutual fund is inspected by SEBI and such inspection is both a

37. detailed scrutiny of operations and a rectification exercise. Thus, the mutual
funds are strictly supervised and regulated entities and the regulatory provisions
match with international standards. AMFI also is engaged in upgrading
professional standards and in promoting best industry practices in diverse areas
such as valuation, disclosure, transparency etc
1.9.4 Types of mutual funds
Mutual funds differ from each other on the basis of various factors like their
structure, their investment objective, and the type of investors, management style
and load. The various classes of funds are:
TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE
Open – Ended Schemes.
Close – Ended Schemes.
Interval Schemes.
BY INVESTMENT OBJECTIVE
Growth Schemes.
Income Schemes.
Balanced Schemes.
OTHER SCHEMES
Tax Saving Schemes.
Special Schemes.
Index Schemes.
Sector Specific Schemes
1.9.4.1 Open – ended schemes
The units offered by these schemes are available for sale and repurchase on any
business day at NAV based prices. Hence, the unit capital of the schemes keeps

38. changing each day. Such schemes thus offer very high liquidity to investors and
are becoming increasingly popular in India. Please note that an open-ended fund
is NOT obliged to keep selling/issuing new units at all times, and may stop
issuing further subscription to new investors. On the other hand, an open-ended
fund rarely denies to its investor the facility to redeem existing units.
1.9.4.2 Closed – ended schemes
The unit capital of a close-ended product is fixed as it makes a one-time sale of
fixed number of units. These schemes are launched with an initial public offer
(IPO) with a stated maturity period after which the units are fully redeemed at
NAV linked prices. In the interim, investors can buy or sell units on the stock
exchanges where they are listed. Unlike open-ended schemes, the unit capital in
closed-ended schemes usually remains unchanged. After an initial closed period,
the scheme may offer direct repurchase facility to the investors. Closed-ended
schemes are usually more illiquid as compared to open-ended schemes and
hence trade at a discount to the NAV. This discount tends towards the NAV
closer to the maturity date of the scheme.
1.9.4.3. Interval schemes
These schemes combine the features of open-ended and closed-ended
schemes. They may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV based prices.
1.9.4.4 Growth schemes
These schemes, also commonly called Equity Schemes, seek to invest a majority
of their funds in equities and a small portion in money market instruments. Such
schemes have the potential to deliver superior returns over the long term.
However, because they invest in equities, these schemes are exposed to
fluctuations in value especially in the short term.

39. 1.9.4.5 Income schemes
These schemes, also commonly called Debt Schemes, invest in debt securities
such as corporate bonds, debentures and government securities. The prices of
these schemes tend to be more stable compared with equity schemes and most
of the returns to the investors are generated through dividends or steady capital
appreciation. These schemes are ideal for conservative investors or those not in
a position to take higher equity risks, such as retired individuals. However, as
compared to the money market schemes they do have a higher price fluctuation
risk and compared to a Gilt fund they have a higher credit risk.
1.9.4.6 Balanced schemes
These schemes are commonly known as Hybrid schemes. These schemes
invest in both equities as well as debt. By investing in a mix of this nature,
balanced schemes seek to attain the objective of income and moderate capital
appreciation and are ideal for investors with a conservative, long-term
orientation.
1.9.4.7 Tax saving schemes
Investors are being encouraged to invest in equity markets through Equity Linked
Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot
be assigned / transferred/ pledged / redeemed / switched – out until completion
of 3 years from the date of allotment of the respective Units.
The Scheme is subject to Securities & Exchange Board of India (Mutual Funds)
Regulations, 1996 and the notifications issued by the Ministry of Finance
(Department of Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the
Income-tax Act, 1961.
1.9.4.8 Index Schemes

40. The primary purpose of an Index is to serve as a measure of the performance of
the market as a whole, or a specific sector of the market. An Index also serves as
a relevant benchmark to evaluate the performance of mutual funds. Some
investors are interested in investing in the market in general rather than investing
in any specific fund. Such investors are happy to receive the returns posted by
the markets. As it is not practical to invest in each and every stock in the market
in proportion to its size, these investors are comfortable investing in a fund that
they believe is a good representative of the entire market. Index Funds are
launched and managed for such investors.
1.9.4.9 Sector specific schemes
Sector Specific Schemes generally invests money in some specified sectors for
example: “Real Estate” Specialized real estate funds would invest in real estates
directly, or may fund real estate developers or lend to them directly or buy shares
of housing finance companies or may even buy their securitized assets.
1.9.5 Tax benefit in mutual fund
The taxman has, over’s the years , been more or less kind to mutual fund .with
laws varying from time to time , the overall objective has been encourage the
growth of the mutual fund Industry . Currently, a variety of tax laws applies to
mutual funds, which are broadly listed below:-
1.9.6 Capital gain
Units of mutual fund schemes held for a period for more than twelve months are
treated as long term capital assets. In such cases, the unit holder has the option
to pay capital gain tax either 20% with indexation or 10% without indexation.
1.9.7 Tax deducted at source

41. For any income credited or paid by a fund, no tax is deducted withheld at source.
The relevant sections in the income tax act governing this provision are section
194k 196A.
1.9.8 Wealth tax
Mutual fund units are not currently treated as assets under section 2 of the
wealth tax act and are therefore not liable to tax.
1.9.9 Income from units
Any income received from units of the schemes of a mutual fund specified under
section 23(D) is exempt under section 10(33)of the act . While section 10 (23D)
exempt income of specified mutual funds from tax (which currently includes all
mutual funds operating in India), section 10(33) exempt income from funds in the
hands of the unit holders. However, this does not mean that there is no tax at all
on income distribution by mutual funds.
1.9.10 Income distribution tax
As per prevailing tax loss , income distributed by scheme other than open end
equity scheme is subject to tax at 20% (plus surcharge of 10%) . for this
purpose , equity schemes have been defined to be those schemes that have
more than 50% of their assets in the form of equity. Open end equity schemes
have been left out of the purview of this distribution tax for a period of three years
beginning from April 1999.
1.9.11 Section 88
The investment in mutual funds designated as equity linked saving scheme
(ELSS) qualifies for rebate under section 88. The maximum amount that can be
invested in these schemes is Rs10000, therefore the maximum tax benefit
available works out to Rs2000. Apart from ELSS schemes, the benefit of section
88 is also available in selected scheme in some funds such as UTI ULIP, KP
pension plan etc.
1.9.12 Income received from mutual funds

42. The finance bill 1999 made income (i.e. dividends) received from all mutual funds
tax free in the hands of investors. Investors need not pay any tax on dividends
received from a mutual fund for a period of three years effective from April 1,
1999. For the investors it does not matter what kinds of mutual fund schemes
they have invested in. Dividend whether received from equity, equity and debt
or a debt scheme will all be tax free for the investors.
While dividend in the hands of the investor are free from tax, mutual funds are
now required to pay a “distribution tax” of 20% from the financial year 2000-2001
(instead of 10% as distribution tax last year ). The distribution tax is nit to be paid
on all types of mutual fund schemes. Effective April 1, 1999, for a period of three
years, open-end equity oriented schemes will be exempt from paying the
distribution tax.
1.9.13 Tax implication for income received on open end equity oriented
schemes
As per the finance bill 1999, income distributed under the US-64 scheme and
other open ended equity oriented scheme of UTI and mutual funds are exempt
from the levy of this tax for a period of three financial years starting from
1.4.1999. An open ended equity oriented scheme is defined as one where more
than 50% of the schemes investible funds are invested in domestic equities. The
50% is computed taking the opening and closing percentage of particulars
month’s equity holdings, in turn, calculate the monthly average.
1.9.14 Long term capital gains arising from sale of mutual fund units
As per the current provision of the budget, long term capital gains arising from
the sale of listed securities and shares as define under the securities
contracts(regulations)act , 1956 (SCRA)are now chargeable to tax at a maximum
rate of 10%. As per the earlier income tax law, units of mutual funds did not
qualify as listed securities under the SCRA, but as per the provision of union
budget 2000-2001 units of all mutual funds will be considered as listed securities
and long term capital gains from units of mutual funds will be taxed at 20% after

43. giving benefit of past inflation indexation, or a flat rate of 10% whichever is lower.
That is, persons would have the option of either availing of cost indexation on the
capital gains and paying 20% capital gains tax or paying a flat rate of 10%
without cast indexation. As a result, the maximum capital gains tax payable has
been capped at 10%.
1.9.15 Advantage of investing in mutual fund
The advantages of investing in a Mutual Fund are:
• Professional Management.
The major advantage of investing in a mutual fund is that you get a
professional money manager to manage your investments for a small fee.
You can leave the investment decisions to him and only have to monitor the
performance of the fund at regular intervals.
• Diversification.
Considered the essential tool in risk management, mutual funds make it
possible for even small investors to diversify their portfolio. A mutual fund can
effectively diversify its portfolio because of the large corpus. However, a
small investor cannot have a well-diversified portfolio because it calls for
large investment. For example, a modest portfolio of 10 bluechip stocks calls
for a few a few thousands.
• Convenient Administration.
Mutual funds offer tailor-made solutions like systematic investment plans and
systematic withdrawal plans to investors, which is very convenient to
investors. Investors also do not have to worry about investment decisions,
they do not have to deal with brokerage or depository, etc. for buying or
selling of securities. Mutual funds also offer specialized schemes like
retirement plans, children’s plans, industry specific schemes, etc. to suit

44. personal preference of investors. These schemes also help small investors
with asset allocation of their corpus. It also saves a lot of paper work.
• Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective method
(the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as
mutual funds get concession from brokerages. Also, the investor gets the
service of a financial professional for a very small fee. If he were to seek a
financial advisor's help directly, he will end up paying significantly more for
investment advice. Also, he will need to have a sizeable corpus to offer for
investment management to be eligible for an investment adviser’s services.
• Liquidity.
You can liquidate your investments within 3 to 5 working days (mutual funds
dispatch redemption cheques speedily and also offer direct credit facility into
your bank account i.e. Electronic Clearing Services).
• Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your
investments on a regular basis. They also send quarterly newsletters, which
give details of the portfolio, performance of schemes against various
benchmarks, etc. They are also well regulated and SEBI monitors their
actions closely.
• Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You
also have the advantage of capital gains taxation. Tax-saving schemes and
pension schemes give you the added advantage of benefits under section
88.
• Affordability
Mutual funds allow you to invest small sums. For instance, if you want to buy
a portfolio of blue chips of modest size, you should at least have a few lakhs
of rupees. A mutual fund gives you the same portfolio for meager investment

45. of Rs.1,000-5,000. A mutual fund can do that because it collects money from
many people and it has a large corpus.
1.9.16 Disadvantage of investing in mutual fund
• No choice to the investors
The investor can not choose the security they want to invest in, or the
security they want to sell. They are dependant on the fund manager for this
purpose. He decides where the investment should be made.
• Wrong call of the fund manager
The investor faces the risk of the fund manager not performing well. Also if
the fund manager’s compensation is linked to the funds’ performance, he
may be tempted to show good result in the short – term without paying
attention to the expected long term performance of the fund. This would harm
the long term interest of the investors.
• Expense ratio
Management fees charged by the fund reduce the return available to the
investors. Though the maximum limit of the expense ratio is 2.5%. The
higher the expense of the fund reduce the return is given to the investor.
• No discretion in withdrawal
While investor in securities can decide the amount of earning they want to
withdraw a particular period , investor in mutual fund have no such discretion
as the amount of earning that are to be paid out to the investors in a
particular year is decided by the mutual fund .
• Uncertainty
Today’s environment is characterized by a deep industrial recession and
consequent high level of default on loans provided by banking sector to
industry. In such a scenario, it may be prudent to look at the credit quality
aspect very carefully before investing in an income mutual fund.

47. Chapter- 2
Introduction to study
2.1 Need of study
Fifteen years ago, a customer would have been content with just a fixed deposit
or a recurring deposit in addition to his savings account. Today, he wants to
spread his wealth around. He wants to park his savings in equities, fixed de-
posits, mutual funds, pension products and insurance. The bank has a choice -
either offer the customer all these products or lose him. While there has been a
lot of debate on which is a more successful model - niche banking or universal
banking - in India, at least for now, it is quite clear that it is the latter and banks
will necessarily have to offer every imaginable financial product to the customer
to avoid losing him to competition. The desire, or rather, the compulsion to be a
one-stop shop for the customer's investment and borrowing needs, has given
birth to what is being termed ‘the financial conglomerate' - a model that we are
g6ing to see an increasing number of banks adopt. Banking, until a few years
ago, was what I would call a desk job. You sat at your desk everyday, accepted
deposits, assessed loan applications and disbursed funds. The customer came
to you and you dictated terms to him. If your terms were not acceptable to him
and he went away, it never bothered you. The next person was already at the
door before the disappointed customer even left. Banking was a seller's market.
That is all now a thing of the past. The customer now decides which bank he
wants to deal with. He shops around to get the best price and if your prices are
not competitive enough or acceptable to him, he simply goes to another bank.
Bankers today need to be out there in the field, talking to the customer, finding
out and understanding his needs and, more importantly, making sure that they
are able to offer him a better deal than the competition. But while the corporate

48. customer is already changing the terms on which banks deal with him, I believe
that it is going to be the retail customer that is going to change the very face of
banks in India in the years to come. No one, not even the most far-sighted of
bankers, could have ever foreseen what banking might have looked like at the
turn of the 21 st century. Retail banking had a good buzz about it, there was
money to be made from it but no one ever imagined that this business would
drive the growth of the banking industry on a scale that we are now beginning to
see. The Indian financial system is typified by low financial product penetration.
The domestic loan to Gross Domestic Product (GDP) ratio in India is at only
62.4% compared to China which is 166.3% and even Malaysia which is 104.5%.
Consumer credit in India is still only 7% of GDP compared to Indonesia which is
22% or the US where it is as high as 70%. Only 8% of the population in India is
currently insured compared to 32% in Malaysia. Only one in every 23 of India's
bank account holders owns a credit card compared to Thailand where one in
every four Thais own a credit card. Life insurance premiums account for just 2%
of GDP and the mutual funds industry makes up under 2% of household savings.
India lags behind most other emerging markets in retail lending. For instance,
home loans as a percentage of GDP is at less then 3%. Compare this to
.Malaysia, where it is at 23% and Australia at 44% and you get a clear sense of
the potential that India, with its burgeoning middle class, has.
The Indian customer of today has become more demanding as a result of which
most banks in India now offer a full gamut of products to their retail clients. In
addition to the plain vanilla deposits, banks are striving to get a larger share of
their customers' wallets by undertaking mutual funds and insurance sales.
After seeing the immense competition and changing investment behavior
Standard Chartered Bank, personal decided that there is a need to understand
the investment behavior of investors as a result a market research was decided
to understand the need of the investors.

49. 2.2 Scope of the study
The project will give an idea to standard chartered bank personnel an idea about
the investment behavior of the investors. It will guide them in creating strategies
for sales force to target their potential customers. Questionnaire developed for
the survey will help standard chartered bank to identify its potential customers for
its products like ULIP and mutual fund. The study will also guide them to identify
the need of the up coming generation and their investment styles which will help
in development of the product for this generation.
2.3 Objective of study
The main objective of the research is the comprehensive study of banking
products like saving accounts, ULIP, mutual fund. Different service charges
charged by banks on these products by banks and understanding the product. A
comparative study of various charges charged by Bajaj Allianz , ABN amro bank
and ICICI . And the survey was carried to study the investment behavior of
investors. And to find out the potential customers for products of standard
chartered bank like ULIP and mutual fund
2.3.1 Objective of the survey
To know the existing investment pattern among different age groups and different
income group.
To know the present portfolio of the investors, their perceptions about different
investment schemes, their investment concerns, their present returns, and their
future expectations from different investment schemes.
.To know the potential customers for the investment schemes: ULIP and Mutual
Funds of Standard Chartered bank.

50. Chapter- 3
Research Methodology
Types of Research: descriptive study
Sampling: Convenient sampling
Types of Data
Collected: Primary Data – Through Questionnaire
Secondary Data – through extensive search
Websites and study material
Time Dimensions : The Time Dimensions of the study was
approximately eight weeks as it was
provided by the institute
The survey process involved two phases: First phase included identification and
selection of the target audience to be studied and to determine the parameters
on which respondents will justify their preferences. The audience were targeted
and analyzed basically on the basis of two important parameters: Age, and
Income. Demographical information was also taken in order to know the
investment patterns according to the location, age etc. A questionnaire was
designed to collect the needed information from the respondents. (See the
annexure)
In the second phase data was collected through questionnaire from more than
100 respondents within DELHI. Results were viewed cautiously as sample was
from a specific population. The responses that were generated during this
exercise were converted in the form of percentages to have a comparative
outlook, as the numbers itself cannot explain the true picture. These percentages

51. were then represented through the simple tools like bar graphs, pie charts using
SPSS software.
Chapter- 4
Review of the Relevant Literature
There used to be a time, not so long ago, when young boys doffed their caps as
their headmaster passed by; when the bank manager was held in such high
regard that it was inconceivable to question his authority; and when politicians
were revered as the custodians of a civilised society. And there also used to be
that enviable epoch when the consumer believed all he or she saw on television
and a comprehensive ad campaign could change the habits of a generation.
How adland must be missing these times as time moves on and behaviour
changes. However, the consumer no longer feels the need to reference its
behaviour against a small band of individuals and has slowly changed the shape
of the ‘authoritative’ pyramid it so longingly coveted. There is an ever increasing
chasm of trust between the historical mandarins and today’s consumer. Today
the trust in the aforementioned has wavered considerably and in many cases
vanished altogether. And every brand now needs to consider what the trust
deficit means to it. For instance, a recent study undertaken by YouGov on behalf
of Team spirit found that only half of consumers claimed to trust banks and
building societies and that just 5% trust investment companies and 8% insurance
companies
By Joanne Parker, Managing Director of Team spirit, economics times, 10 july 2004.
There is no denying the fact that the financial services industry has gone through
the most change since the process of liberalization began a little over a decade
ago. And while indeed Regulation has played a key role in the transformation of
Indian banks, I would include three other broad factors that have been

52. responsible for this change. These are Technology, the Customer and
Consolidation. The demographics of our country will also be a key driver in
creating a large retail customer base that banks just cannot afford to ignore with
54% of the Indian population under 25 years of age. As this population enters the
'wage earner' category by the year 2011, the propensity to use multiple financial
products will be high. Over 60% of this age group will be under 40 years of age
and a prime customer segment for insurance, mutual funds, credit cards etc.
Already, many banks enjoy a higher cross-sell ratio with customers in the 25-35
age group than they do with older customers.
CHANGING FACE OF INDIAN BANKING by NAINA LAL KIDWAL 31 st March 2005 ,
Coming to banking again, Banks are offering facilities to suit every pocket and
every segment of the Society. Human capital of the banks is facilitated to fine
tune their skills and attitudes to handle any type of complex and challenging
environment to ensure the needs of the society are met. So to say, the bank staff
are fully equipped and empowered to handle the job. The core function of HRD in
the banking industry is to facilitate performance improvement, measured not only
in terms of financial indicators of operational efficiency but also in terms of the
quality of financial services provided. Factors like skills, attitudes and knowledge
of the human capital play a crucial role in determining the competitiveness of the
financial sector. The quality of human resources indicates the ability of banks to
deliver value to customers
Address by Shri Vepa Kamesam, Chairman, Governing Council, IDRBT, Hyderabad and former
Deputy Governor, Reserve Bank of India at the Meet of General Managers in charge of HRD &
Training at JNIBD, Hyderabad on February 7, 2004.

53. Chapter- 5
Analysis and Finding
As a part of our project, in order to know the behavior of the investors about the
investment schemes basically ULIP and MUTUAL FUNDS, a survey was being
conducted by us in Delhi region.
5.2Age distribution in sample
Table 5.1 Age distribution
Cumulative
Frequency Percent Valid Percent Percent
Valid 18-25 23 23.0 23.0 23.0
26-35 29 29.0 29.0 52.0
36-50 25 25.0 25.0 77.0
>50 23 23.0 23.0 100.0
Total 100 100.0 100.0

54. age
18-25
26-35
36-50
>50
Fig 5.1 Age group pie chart
For the study proper attention was paid on the selection of respondent . a proper
proportion of different age group were taken for study .23%of the respondent are
from age group of 18 – 25, 29% from 26 -35, 25% from age group 36 -50. and
23% above the age group of 50 years.

55. 5.3 Type of investor as per age
Bar Chart
typeofinvestor
15
conservative
moderate
aggressive
12
9
C
n
u
o
t
6
3
0
18-25 26-35 36-50 >50
age
Fig 5.2 Type of investor according to age
The age brackets taken for the analysis are as follows:
18-25
26-35
36-50
50 Above
On doing the survey it was found that mostly people in every age group are safe
investors. They do not prefer taking any risk while investing and like to maintain
the risk free portfolio. Survey shows that in age group 18- 25 and 26 – 35 there
are 60.9% and 51.7% are very aggressive style of investment. as this age group
is young and in this growing economy of India their savings have increased so
this pattern can be seen. As the age of person increases he tries to save guard
his hard earned money this behaviour can be seen in age group above 50 here
the conservative style is seen in 56.5% of the people.

56. 5.4 Investment made in product as per age group
Bar Chart
investmentmade
14
ulip
mf
12 fd
ulip+mf
fd+insr
10
8
C
n
u
o
t
6
4
2
0
18-25 26-35 36-50 >50
age
Fig 5.3 Investment made as per age
Analysis
Sample taken for study shows different investment strategies indifferent age
group. In age group 18 -25 and in 26 -35 there are large number of investor who
have invested in mutual fund and ULIP. In age group 18 – 25, 39.1% and 56.5%
investment are made in ULIP and mutual fund respectively. In age group 26 – 35,
48.3% and 34.5% people have invested in ULIP and in mutual fund respectively.
In age group 36 -50 we see a mixed behavior this age group is moderate in its
investment style. People above 50 have parked their funds usually in fixed
deposit schemes or in insurance.

57. 5.5 Investment made as per income
Bar Chart
investmentmade
20
ulip
mf
fd
ulip+mf
fd+insr
15
10
C
n
u
o
t
5
0
<15000 15000 - 30000 30000 -50000 >50000
income
Fig 5.4 Investment made as per income
Analysis
Studying the survey data revels that according to income the investment
strategies opted by people differ according to income level. Income group Rs
15000- 30000 monthly have made their maximum investment in ULIP and mutual
fund. Almost 48.4% have invested in ULIP and 28.6% in mutual fund. in Income
group Rs30000 – 50000, 68.8% of respondent have invested their money in ulip
and mutual funds. In income group above Rs50000 there most of the investor
have made investment in fixed deposit and insurance.

58. 5.6 Influence on investment decisions
influnce
agents, brokers
peers
self analysis
Fig 5.5 Influence pie chart
Table 5.2 Influence frequency chart
Cumulative
Frequency Percent Valid Percent Percent
Valid agents,
40 40.0 40.0 40.0
brokers
peers 37 37.0 37.0 77.0
self
23 23.0 23.0 100.0
analysis
Total 100 100.0 100.0
Survey shows that 40% of people are influenced by their agents or broker. This
behaviour revels that sales force of banks is the major factor to turn the
investment need of people into final investment of their investment option.
Second influencing factor that is the effect of peers is seen to be 37% among
respondents, thus we can say that a large portion of population are influenced by
their peers and their experiences.

59. 5.7 Reasons for investment
factors
increase in wealth
monthly income
genereted
safety of principal
Fig 5.6 Factors affecting investment decision
Table 5.3 Factors affecting investment decisions
Cumulative
Frequency Percent Valid Percent Percent
Valid increase in
46 46.0 46.0 46.0
wealth
monthly
income 24 24.0 24.0 70.0
generated
safety of
30 30.0 30.0 100.0
principal
Total 100 100.0 100.0
After going through the survey data we come to know that a major portion of
population makes investment in different investment option to increase their
wealth and this group is 46% in size of total population. 30% of the respondent
are concerned about the safety of their principal amount invested. In other words
they are moderate risk taker and want security of their funds first. 24% of the
people make investment to get good monthly return.

60. 5.8 Reinvestment decision as per age
Bar Chart
reinvestment
20
if services are
good
if returns are
better
services+returns
15 are good
10
C
n
u
o
t
5
0
18-25 26-35 36-50 >50
age
Fig 5.7 Reinvestment as per age
Bar Chart
reinvestment
30
if services are
good
if returns are
25 better
services+returns
are good
20
15
C
o
n
u
t
10
5
0
<15000 15000 - 30000 30000 -50000 >50000
income
Fig 5.8 Reinvestment as per income

61. On going through the age and reinvestment graph and income and reinvestment
graph we can see that in every age group and in every income group people
reinvest in the same company’s product if the services provided by the company
are good and the investor gets a good return in comparison to the other service
providers. 55% of the respondents are in this view.
5.9 Investment horizon as per age and income
Bar Chart
investmenthorizon
20
upto 1 year
up to 3 yr
up to 5 yr
up to10 yr
15
10
C
n
u
o
t
5
0
18-25 26-35 36-50 >50
age
Fig 5.9 Investment horizon as per age

62. Bar Chart
investmenthorizon
25
upto 1 year
up to 3 yr
up to 5 yr
up to10 yr
20
15
C
n
u
o
t
10
5
0
<15000 15000 - 30000 30000 -50000 >50000
income
Fig 5.10 Investment horizon as per income
Analysis
On study data revels that in any age group or of any income group usually the
investor have investment horizon of three to five years. 36% of the respondent of
any age group have investment horizon of three years and 39% have horizon of
five years. According to income class also the same data comes to picture. due
to the changing interest rates and different investment options available in
today’s economy investors usually do not go for ver large duration investment
schemes.