Investment Strategies of General Public & Comparative Analysis of Mutual Funds and ULIPs by Sanjay Gupta

Final Report of Summer Training In

Topic Investment Strategies of General Public & Comparative Analysis of Mutual Funds and ULIPs By Ashish Chatrath PGDM- (07-09) FT-07-529 Institute for Integrated Learning in Management Graduate School of Management 16, Knowledge Park-11, Greater Noida - 201306 1

Table of Contents Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Topic Acknowledgement Synopsis Banking in India Challenges faced by Banking Industry Strategic Options to cope with the Challenges List of Banks in India Fact File of Banks in India Company Profile(Worldwide) Company Profile(India) SWOT Analysis Problem Statement & Objective Investment Strategies of General Public Data Collection and Research Investment Strategy Questionnaire Data Profile Findings of The Research Comparison of the Services and Products offered by different Banks Products Offered by Standard Chartered Bank Mutual Funds Concept How Mutual Funds Work Frequently used Terms with Mutual Funds Return Risk Types of Mutual Funds Advantages of Mutual Funds Disadvantages of Mutual Funds Standard Chartered Mutual Fund Unit Linked Insurance Plan Features of ULIP Latest IRDA Guidelines for ULIPs Guideline to Select The Right ULIP Life Insurance Products at Standard Chartered Comparative Analysis of Mutual Funds and ULIP

Page No. 3 4 5 14 16 18 24 25 32 38 40 41 41 42 43 47 57 62 71 71 73 73 74 75 78 83 88 92 93 95 96 98 101 104

Acknowledgment I want to place on record my gratitude to the organization and its people whose generous help and support enabled me to complete this project within the stipulated time period. My special thanks to Mr. Nitish Diapnkar, Area Sales Manager, Standard Chartered Bank Limited, Wealth Management-Consumer Banking, New Delhi for his active help, guidance and support in making me understand Banking operations. I am greatly indebted to all those people who have helped me in some way or other in the completion of the project. I am also grateful to the staff members of STANDARD CHARTERED BANK for their support and co-operation during the course of my summer training. The Faculty of my institute deserves the praise for their role in shaping this summer training project. In the end, I take the responsibility for all my shortcomings.

Ashish Chatrath

Synopsis In the last five decades the field of investments has received considerable attention from academic researchers keen on understanding issues like: • How do people select an Investment option? • How successful are the various strategies followed by investment practioners? • How much Risk do people take up while investing? With the coming up of large number of multinational corporations, the competition in the investment sector has increased tremendously. Today, an investor has many investment products to choose from according to his / her needs and preferences. By keeping in mind all these points the analysis of the investment pattern is done through sample survey in this project report.

BANKING IN INDIA Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India in 1906, in Mumbai- both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.

Structure of the Organized Banking Sector in India

(Number of banks is in brackets.)

Early History: At the end of late-18th century, there were hardly any banks in India in the modern sense of the term. At the time of the American Civil War, a void was created as the supply of cotton to Lancashire stopped from the Americas. Some banks were opened at that time which functioned as entities to finance industry, including speculative trades in cotton. With large exposure to speculative ventures, most of the banks opened in India during that period could not survive and failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century.

(The Bank of Bengal, which later became the State Bank of India.)

At the beginning of the 20th century, Indian economy was passing through a relative period of stability. Around five decades have elapsed since the India's First war of Independence, and the social, industrial and other infrastructure have developed. At that time there were very small banks operated by Indians, and most of them 7

were owned and operated by particular communities. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon India's independence, was renamed the State Bank of India. There were also some exchange banks, as also a number of Indian joint stock banks. All these banks operated in different segments of the economy. The presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency banks, and the exchange banks. There was potential for many new banks as the economy was growing. Lord Curzon had observed then in the context of Indian banking: "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, a number of which have survived to the present such as Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank.

During the Wars The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for the Indian banking. The years of the First World War were turbulent, and it took toll of many banks which simply collapsed despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed during the years 1913 to 1918 as indicated in the following table:

Years

Number that failed

banks Authorised (Rs. Lakhs)

capital Paid-up (Rs. Lakhs)

1913

274

1914

710

109

1915

1916

231

1917

1918

209

Capital

Post-Independence The partition of India in 1947 had adversely impacted the economies of Punjab and West Bengal, and banking activities had remained paralyzed for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: â&#x20AC;˘

â&#x20AC;˘

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a licence from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19th July, 1969.

Nationalisation By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalisation In the early 1990s the then Narsimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation techsavvy banks, which included banks such as Global Trust Bank (the first of such new generation banks to be set up) which later amalgamated with Oriental Bank of Commerce, UTI Bank(now renamed as Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.

Current Situation Currently (2008), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in 12

rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Challenges faced by Indian Banking Industry 13

The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated sellers market to completed deregulated customers market.

ď&#x20AC; Deregulation: This continuous deregulation has made the Banking market extremely competitive with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off

take thanks to sluggish economy has resulted in large number of competitors battling for the same pie. ď&#x20AC; New rules: As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this has led to a series of innovative product offerings catering to various customer segments, specifically retail credit. Efficiency: This in turn has made it necessary to look for efficiencies in the business. Banks need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets Diffused Customer loyalty: This will definitely impact Customer preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. There are ultiple choices, the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery. ď&#x20AC; Misaligned mindset: These changes are creating challenges, as employees are made to adapt to changing conditions. There is resistance to change from employees and the Seller market mindset is yet to be changed coupled with Fear of uncertainty and Control orientation. Acceptance of technology is slowly creeping in but the utilization is not maximised. ď&#x20AC; Competency Gap: 15

Placing the right skill at the right place will determine success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be on doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

Strategic Options with Banks to cope with the Challenges Leading players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives include:  Investing in state of the art technology as the back bone of to ensure reliable service delivery  Leveraging the branch network and sales structure to mobilize low cost current and savings deposits  Making aggressive forays in the retail advances segment of home and personal loans.  Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction.  Focusing on fee based income to compensate for squeezed spread, (e.g. CMS, trade services)  Innovating Products to capture customer ‘mind share’ to begin with and later the wallet share. 16

 Improving the asset quality as per Basel II norms

Public sector banks SBI group: State Bank of India, with its seven associate banks commands the largest banking resources in India. SBI and its associate banks are: • • • • • • • •

State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore

After the amalgamation of New Bank of India with Punjab National Bank, currently there are 20 nationalized banks in India: • • • • • • • • • • • • • • • • • • •

Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank

Private sector banks • • • • • • • • • • •

Axis Bank (formerly UTI Bank) Bank of Rajasthan Bharat Overseas Bank Catholic Syrian Bank Centurion Bank of Punjab (Merged with HDFC bank) City Union Bank Development Credit Bank Dhanalakshmi Bank Federal Bank Kumfu Blade Bank Ganesh Bank of Kurundwad 18

• • • • • • • • • • • • • • • • • • • • • •

HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Limited Karur Vysya Bank Kotak Mahindra Bank Lakshmi Vilas Bank Lord Krishna Bank ( now Centurion Bank of Punjab) Nainital Bank Nedungadi Bank (now Punjab National Bank) Ratnakar Bank Rupee Bank Saraswat Bank SBI Commercial and International Bank South Indian Bank Tamilnad Mercantile Bank Ltd. Thane Janata Sahakari Bank Bassein Catholic Bank United Western Bank( now IDBI Bank) YES Bank

Foreign banks • • • • • • • • •

ABN AMRO Bank N.V. Abu Dhabi Commercial Bank Ltd American Express Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon 19

• • • • • • • • • • • • • • • • • • • • •

Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank BNP Paribas Calyon Bank ChinaTrust Commercial Bank Cho Hung Bank Citibank DBS Bank Deutsche Bank HSBC (Hongkong & Shanghai Banking Corporation) JPMorgan Chase Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Société Générale Standard Chartered Bank State Bank of Mauritius Scotia Taib Bank

Total: 88 Banks.

Regional Rural Banks (RRBs) • • • • • • • • • •

Adhiyaman Grama Bank Alaknanda Gramin Bank Aligarh Gramin Bank Avadh Gramin Bank Aryavart Gramin Bank Balasore Gramya Bank Ballia Kshetriya Gramin Bank Banaskantha Mehsana Gramin Bank Bareilly Kshetriya Gramin Bank Baroda Uttar Pradesh Gramin Bank 20

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Bijapur Grameena Bank Bilaspur-Raipur Kshetriya Gramin Bank Bolangir Anchalik Gramya Bank Bundelkhand Kshetriya Gramin Bank BundiChittorgarh KshetriyaGraminBank Cauvery Grameena Bank Chaitanya Grameena Bank Chambal Kshetriya Gramin Bank Champaran Kshetriya Gramin Bank Chhatrasal Gramin Bank ChhindwaraSeoniKshetriyaGraminBank Chitradurga Gramin Bank Cuttack Gramya Bank Damoh Panna Sagar Kshetriya Gramin Bank Devipatan Kshetriya Gramin Bank Dhenkanal Gramya Bank Dungarpur Banswara Kshetriya Gramin Bank Ellaquai Dehati Bank Farrukhabad Gramin Bank Gaur Gramin Bank Gurgaon Gramin Bank Hadoti Kshetriya Gramin Bank Himachal Gramin Bank Hissar-Sirsa Kshetriya Gramin Bank Indore Ujjain Kshetriya Gramin Bank Jaipur Nagaur Aanchalik Gramin Bank Jamnagar Rajkot Gramin Bank Jamuna Gramin Bank Jhabua-Dhar Kshetriya Gramin Bank Kakathiya Grameena Bank Kalpatharu Grameena Bank Kamraz Rural Bank Kanpur Kshetriya Gramin Bank Kapurthala Ferozpur Kshetriya Gramin Bank Kashi Gomti Samyut Gramin Bank 21

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Kisan Gramin Bank,Budaun Kolar Gramin Bank Krishna Grameena Bank Kshetriya Gramin Bank, Hoshangabad Kutch Grameen Bank Malaprabha Grameena Bank Mandla Balaghat Kshetriya Gramin Bank Manjira Grameena Bank Marwar Ganganagar Bikaner Gramin Bank (Previously : Marwar Gramin Bank) Mewar Aanchalik Gramin Bank Nagarjuna Grameena Bank Netravati Grameena Bank Nimar Kshetriya Gramin Bank North Malabar Gramin Bank Panchmahal Vadodara Gramin Bank Pandyan Grama Bank Pinakini Grameena Bank Pragjyotish Gaonlia Bank Prathama Bank Raigarh Kshetriya Gramin Bank Rani Lakshmi Bai Kshetriya Gramin Bank Ratlam Mandsaur Kshetriya Gramin Bank Rayalaseema Grameena Bank Rewa-Sidhi Gramin Bank Sahyadri Gramin Bank Samyut Kshetriya Gramin Bank Sangameshwara Grameena Bank Shahjahanpur Kshetriya Gramin Bank Shivpuri Guna Kshetriya Gramin Bank South Malabar Gramin Bank Sree Anantha Grameena Bank Sri Saraswati Grameena Bank Sri Visakha Grameena Bank Surat Bharuch Gramin Bank 22

• • • •

Thar Aanchalik Gramin Bank Tripura Gramin Bank Tungabhadra Gramin Bank Vidur Gramin Bank

Other Public Sector Bank •

IDBI BANK

Fact File of Banks in India: The first bank in India to be given an ISO Certification

Canara Bank

The first bank in Northern India to get ISO 9002 certification for their selected branches

Punjab and Sind Bank

The first Indian bank to have been started solely with Indian capital

Punjab National Bank

The first among the private sector banks in Kerala to become a scheduled bank in 1946 under the RBI Act

South Indian Bank

India's oldest, largest and most successful commercial bank, offering the widest possible range of domestic, international and NRI products and services, through its vast network in India and overseas

State Bank of India

India's second largest private sector bank and is now the largest scheduled commercial bank in India

The Federal Bank Limited

Bank which started as private shareholders banks, mostly Europeans shareholders

Imperial Bank of India

The first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974

Bank of India, founded in 1906 in Mumbai

The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 132 years

Allahabad Bank

The first Indian commercial bank which was wholly owned and managed by Indians

Central Bank of India

Bank of India was founded in 1906 in Mumbai. It became the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974.

Company Profile

STANDARD CHARTERED BANK Standard Chartered Bank is a British bank headquartered in London with operations in more than seventy countries. It operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people. Despite its British base, it has few customers in the United Kingdom and 90% of its profits come from Asia, Africa, and the Middle East. Because the bank's history is entwined with the development of the British Empire its operations lie predominantly in former British colonies, though over 24

the past two decades it has expanded into countries that have historically had little British influence. It aims to provide a safe regulatory bridge between these developing economies. It now focuses on consumer, corporate, and institutional banking, and on the provision of treasury servicesâ&#x20AC;&#x201D;areas in which the Group had particular strength and expertise. Standard Chartered is listed on the London Stock Exchange and the Hong Kong Stock Exchange and is among the top 25 constituent members of the FTSE 100 Index.

History The name Standard Chartered comes from the two original banks from which it was foundedâ&#x20AC;&#x201D;The Chartered Bank of India, Australia and China, and The Standard Bank of British South Africa. The Chartered Bank was founded by James Wilson following the grant of a Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded in the Cape Province of South Africa in 1862 by John Paterson. Both companies were keen to capitalise on the huge expansion of trade and to earn the handsome profits to be made from financing the movement of goods from Europe to the East and to Africa.

In those early years, both banks prospered. Chartered opened its first branches in Bombay, Calcutta and Shanghai in 1858, followed 25

by Hong Kong and Singapore in 1859. With the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871, Chartered was well placed to expand and develop its business. In South Africa, Standard, having established a considerable number of branches, was prominent in financing the development of the diamond fields of Kimberley from 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885. Half the output of the second largest gold field in the world passed through The Standard Bank on its way to London. Both banks – at that time still quite separate companies – survived the First World War and the Depression, but were directly affected by the wider conflict of the Second World War in terms of loss of business and closure of branches. There were also longer term effects for both banks as countries in Asia and Africa gained their independence in the ‘50s and ‘60s. Each had acquired other small banks along the way and spread their networks further. In 1969, the banks decided to merge, and to counterbalance their existing network by expanding in Europe and the United States, while continuing their expansion in their traditional markets in Asia and Africa. All appeared to be going well, when in 1986 Lloyds Bank of the United Kingdom made a hostile takeover bid for the Group. After having defeated the bid, Standard Chartered entered a period of change. It made provisions against Third World debt exposure and loans to corporations and entrepreneurs who could not meet their commitments. It also began a series of divestments notably in the United States and South Africa, and entered into a number of asset sales.

From the early 1990s, Standard Chartered has focused on developing its strong franchises in Asia, Africa and the Middle East, using its operations in the United Kingdom and North America to provide customers with a bridge between these markets. Secondly, it would focus on consumer, corporate and institutional banking and on the provision of treasury services areas in which the Group had particular strength and expertise. Since 2000, Standard Chartered has achieved several milestones with a number of strategic alliances and acquisitions.

Recent Alliances and Strategic Acquisitions In 2000, Standard Chartered acquired Grindlays Bank from ANZ Bank, increasing its presence in private banking and further expanding its operations in India and Pakistan. Standard Chartered retained Grindlays' private banking operations in London and Luxembourg and the subsidiary in Jersey, all of which it integrated into its own private bank. This now serves high net worth customers in Hong Kong, Dubai, and Johannesburg under the name Standard Chartered Grindlays Offshore Financial Services. In India, Standard Chartered integrated most of Grindlays' operations, making Standard Chartered the largest foreign bank in the country, despite Standard Chartered having cut some branches and having reduced the staff from 5500 to 3500 people. On 15th April 2005, the bank acquired Korea First Bank, beating HSBC in the bid. Since then the bank has rebranded the branches as SC First Bank. Standard Chartered completed the integration of its Bangkok branch and Standard Chartered Nakornthon Bank in October, renaming the new entity Standard Chartered Bank (Thailand). Standard Chartered also formed strategic alliances with Fleming Family & Partners to expand private wealth management in Asia and the Middle East, and acquired stakes in ACB Vietnam, 27

Travelex, American Express Bank in Bangladesh and Bohai Bank in China. On 9th August 2006 Standard Chartered announced that it had acquired an 81% shareholding in the Union Bank of Pakistan in a deal ultimately worth $511 million. This deal represented the first acquisition by a foreign firm of a Pakistani bank and the merged bank, Standard Chartered Bank (Pakistan), is now Pakistan's sixth largest bank. On 22 October, 2006 Standard Chartered announced that it has received tenders for more than 51 per cent of the issued share capital of Hsinchu International Bank (“Hsinchu”), established in 1948 in Hsinchu province in Taiwan. Standard Chartered, which had first entered Taiwan in 1985, acquired majority ownership of the bank, Taiwan’s seventh largest private sector bank by loans and deposits as at 30 June, 2006. Standard Chartered merged its existing three branches with Hsinchu's 83, and then delisted Hsinchu International Bank, changing the bank's name to 渣打國際商業銀行股份有限公司 (Standard Chartered Bank (Taiwan) Limited). Prior to the merger, Hsinchu had suffered extensive losses on defaulted credit card debt. In 2006, Standard Chartered in Bangladesh announced an alliance with Dutch Bangla Bank to share their respective ATM operations. On 23 August, 2007 Standard Chartered entered into an agreement to buy a 49 percent of an Indian brokerage firm (UTI Securities) for $36 million in cash from Securities Trading Corporation of India Ltd., with the option to raise its stake to 75 percent in 2008 and, if both partners agree, to 100 percent by 2010. UTI Securities offers broking, wealth management and investment banking services across 60 Indian cities.

On 29th February 2008, Standard Chartered PLC announced it has received all the required approvals leading to the completion of its acquisition of American Express Bank Ltd (AEB) from the American Express Company (AXP). The total cash consideration for the acquisition is US$ 823 million. The acquisition of AEB provides Standard Chartered with an opportunity to add capability, scale and momentum in the strategically important Financial Institutions and Private Banking businesses. It will add 19 more markets to the Standard Chartered footprint, while deepening presence in some core markets and providing access to several new growth markets.

Position today Today, the bank is a leading player throughout the developing world. Standard Chartered Bank is one of the three banks issuing banknotes for Hong Kong (Standard Chartered Bank (Hong Kong) Limited became a note-issuing bank from 2004), the other two being the Bank of China (Hong Kong) and The Hongkong and Shanghai Banking Corporation. The bank supports marathons in many cities, including London (The City Run), Jersey, Singapore, Dubai, Lahore, Mumbai, Hong Kong, and Nairobi.

Standard Chartered Global Presence

The Americas Africa Asia Middle-East Europe • Argentina • Botswana • Afghanistan • Bahrain • The Falklands • Bahamas • Cameroon • Australia • Jordan (classified as • Brazil • Gambia • Bangladesh • Lebanon "Europe" for • Canada • Ghana • Brunei • Oman Standard Chartered • Colombia • Ivory Coast • Cambodia • Qatar purposes) • Mexico • Kenya • China • Ireland • UAE • Peru • Nigeria • Hong Kong • Jersey • US • Sierra • India • Switzerland Leone • Indonesia • Turkey • Venezuela • South • Japan • UK 30

•

Africa Tanzania Uganda Zambia

•

Zimbabwe

• •

•

Laos Macus Malaysia Mauritius Nepal Pakistan Philippines Singapore South Korea Sri Lanka Taiwan Thailand

•

Vietnam

• • • • • • • • • • •

Standard Chartered Bank Limited India The Standard Chartered Group was formed in 1969 through a merger of two banks: The Standard Bank of British South Africa founded in 1863 and the Chartered Bank of India, Australia and China, founded in 1853. The Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April 1858. In 1969, the decision was made by Chartered and by Standard to undergo a friendly merger. The Grindlays Bank from the ANZ Group and the Chase Consumer Banking operations in Hong Kong were acquired in 2000. Business of the Company:

Listed on both the London Stock Exchange and the Hong Kong Stock Exchange, Standard Chartered PLC is consistently ranked in the top 25 FTSE 100 companies by market capitalization. Personal Banking: Offers personal financial solutions to meet the needs of more than 14 million customers across Asia, Africa and the Middle East through a global network of over 1,700 branches and outlets. SME Banking: The division offers a wide range of products and services to help small and medium-sized enterprises manage the demands of a growing business. Wholesale Banking: Headquartered in Singapore and London, provides corporate and institutional clients with innovative solutions in trade finance, cash management, securities services, foreign exchange and risk management, capital rising, and corporate finance.

Islamic Banking: Standard Chartered Saadiq's dedicated Islamic Banking team provides comprehensive international banking services and a wide range of Shariah compliant financial products that are based on Islamic values. Private Banking: Provides customized solutions to meet the unique needs and aspirations of high net worth clients. Special features:

Besides Economic contribution the bank provides services to protect environment, spread social benefits of economic growth and contributes to better governance.

INTEREST RATES With a wide variety of options to suit different needs, including Short Term Deposit, Reinvestment Deposit, Simple Fixed Deposit and Monthly Income Plan, they can be opened by individuals, proprietors, partnership and limited companies, societies, clubs, associations and HUFs. 33

In case you need to withdraw amounts in excess of what is available in your transaction account, we will break your deposit for the exact amount you require. The rest of the deposit continues earning the original high interest. 1. Tenor ranges from 15 days to 5 years (For deposits of Rs. 15 Lakhs and above, minimum tenor is 7 days) 2. Options of simple interest and compound interest 3. Auto renewal facility 4. Overdraft facility available against deposit 5. Preferential rates given for large value deposits of Rs.15 Lakhs and above

BUSINESS INSIGHTS OF STANDARD CHARTERED

Turnover: Net revenue: US$5.37 billion (2004)

Core Service: Standard Chartered is listed on both the London Stock Exchange and the Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market capitalization. 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 with services in trade finance, cash management, lending, custody, foreign exchange, debt capital markets and corporate finance. Employees: Standard Chartered employs 38,000 people in over 9505 locations in 56 countries and territories in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas. It is one of the world's most international banks, with a management team comprising 70 nationalities. Vision: "Our goal is simple - We want to be 'The World's Best International Bank'.

TRANSFORMATION The Bank clearly states its commitment to making a difference in the communities in which it operates. Evidence of this is demonstrated on the companyâ&#x20AC;&#x2122;s website through the wide array of community projects it is engaged in, across the world. As Chris Smith, Head of Corporate Responsibility explains: â&#x20AC;&#x153;Our work in the community is a major part of our overall approach to Corporate Responsibility. Understanding how we are able to contribute to the sustainable economic development of the communities we operate in is also fundamental to our business.

Community investment in emerging markets This is the area where Standard Chartered has taken a leadership role. “The issue of poverty has a direct economic impact on our business. If we are able to remove people from poverty they potentially become a viable customer of the bank,” says, Chris Smith. The Bank set up the Community Partnership for Africa in 2001 with an annual budget for Africa of US$1million which has subsequently risen to US$1, 5 million. The Partnership is tasked with developing community partnerships, based on donation guidelines of youth, health and education for the economically disadvantaged. Just some of the projects that the Bank has engaged in within this partnership: • • •

Botswana: House-building initiative (Received acclaim from national organization, Habitat for Humanity) Kenya: Community “Clean up” activities, involving staff. Uganda: A community project, which aims to prevent Malaria transmission through donation and awareness campaign on Insecticide Treated Nets (ITN's).

SOCIAL RESPONSIBILITIES The company has historically been very active in its social responsibility activities, such as through its programmes to help blind and partially sighted people, employees suffering from or 36

having to deal with the effects of HIV / AIDS in their communities and other education-focused programmes. The Bank has been recognized for its efforts through awards and external recognition. The company has begun taking a more strategic approach to its activities through more careful measurement and monitoring of activities. This is ensuring it delivers more effectively to its business objectives and to the communities in which it operates. Business in the Community gained input from the Bank on how it felt its programmes had impacted on the business and on the communities it served: • •

•

Strengthened relationships with local Governments and local authorities Improved relationships with customers and suppliers, attracting new customers, including a high amount of donor inflow funds channeled through the Bank as a result of the newly established initiatives Long term sustainable programmes were established that addressed physical needs of local people, including electricity, shelter and water, educational needs including material and equipment and healthcare facilities and equipment Projects set up that were income generating to enable local communities to help themselves

SWOT ANALYSIS: 1. Expansion of Standard Chartered: From the early 90s, Standard Chartered has focused on developing its strong franchises in Asia, the Middle East and Africa using its 37

operations in the United Kingdom and North America to provide customers with a bridge between these markets. Secondly, it would focus on consumer, corporate and institutional banking, and on the provision of treasury services – areas in which the Group had particular strength and expertise. In the new millennium they acquired Grindlays Bank from the ANZ Group and the Chase Consumer Banking operations in Hong Kong in 2000. 2.

Strategic

Alliances

and

Acquisitions:

For extending the customer or geographic reach and broadening the product range standard chartered had done a no. of strategic alliances & acquisitions. • They completed, rebranded and successfully integrated SC First Bank in Korea, which to date is the biggest acquisition in our history. • They completed full integration between Standard Chartered Bank Thailand and Standard Chartered Nakornthon Bank. • They formed strategic alliances with Fleming Family & Partners to expand private wealth management in Asia and the Middle East • They acquired stakes in ACB Vietnam and Travelex • They acquired the business operations of American Express Bank in Bangladesh • They acquired a stake in Bohai Bank in Tianjin, China, making us the first foreign bank to be allowed a stake in a local bank in China.

Problem Statement: To understand the behavior pattern of people of different age groups, incomes and occupations with respect to the investment they make thereby.

Objective: To make a comparison of different investment products discussed above. This will enable the investors to invest 39

in the investment products which are most suited to them. This shall be done with the help of conducting a survey taking a sample size of 44 people.

Investment Strategies of General Public The tasks in hand for us were to understand: • What Investments do people prefer? • How much risk do they want to take? • The Objective of Investments? • The Satisfaction attained from Investments? • Tenure of Investment? Depending Upon Their:  Income,  Age,  Sex, 40

 Occupation. We had to analyze the above mentioned Trends behind people’s Investments depending on the above mentioned Factors so that we can understand which Investments suits which kind of an Investor.

Data collection and Research: For this we made a questionnaire and conducted a survey of people. We took a sample of size 44 through random sampling of different age groups and occupations and by doing the analysis we will be able to find out the pattern on which customers choose respective Investments and also to understand their needs better .

Investment Strategy Questionnaire (Please Mark the appropriate Option)

Name: Age: ( )Below 25, ( )25 to 40, ( )40 to 60, ( )Above 60. Income: ( )Below 1,50,000 ( )Above 6,50,000

( )1,50,000 to 4,00,000

( )4,00,000 to 6,50,000

Occupation: ( )Private Sector Employee, ( )Govt. Employee, Employed, ( )Others…………..

( )Businessman/Self

Your Preferred Area of Investment: ( )Mutual Funds, ( )ULIP, ( )Shares/Debentures, ( )Real Estate, ( )Life Insurance Policies, ( )Bullion, ( )Fixed Deposits, ( )Others………... Risk Level undertook: ( )Low, ( )Medium, ( )High. Objective of Investment: ( )Growth/Return, ( )Savings, ( )Others…………

( )Tax Savings,

( )Child Marriage,

Tenure: ( )Less than 1 yr, ( )1 yr to 3 yrs, ( )3yrs to 5 yrs, ( )More than 5 yrs. Level of Satisfaction with Investments: ( )Low, ( )Medium, ( )High.

Data Profile Gender Profile

36.36% Female Male 63.64%

Income Profile 2.27%

27.27% 29.55%

1.5L to 4L 4L to 6.5L Above 6.5L Below 1.5L

40.91%

Occupation Profile 4.55%

36.36% Business/Self Employed Government Employee 40.91%

Private Sector Employee Retired 18.18%

Preferred Investment Profile 4.55% 4.55% 11.36% 11.36% Bullion 6.82%

Fixed Deposits Kisan Vikas Patra Life Insurance Policies Mutual Funds

9.09%

25.00%

Real Estate Shares/Debentures ULIP

27.27%

Risk Profile

6.82%

45.45%

High Low 47.73%

Medium

Objective Profile

11.36% 22.73% Child Marriage Growth/Returns N/A Safety

9.09%

Savings 50.00%

Tax Savings

2.27% 4.55%

Tenure Profile

27.27% 45.45%

1 to 3 Yrs 3 to 5 Yrs Less than 1 Yr

9.09%

More than 5 Yrs 18.18%

Satisfaction Level Profile

38.64% High 56.82%

Low Medium

4.55%

Findings of the Research: 1. Relationship between Age & Tenure Count Age Age 25 to 40 40 to 60 Above 60 Below 25 Grand Total

of Tenure

More than 5 Yrs 6 3 2 1

Grand Total 18 9 5 12

1 to 3 Yrs 7 4 2 7

3 to 5 Yrs 3 2 1 2

Less than 1 Yr 2

Drop Page Fields Here

Count of Age

18 16 Tenure

14 12

More than 5 Yrs

Less than 1 Yr

3 to 5 Yrs

1 to 3 Yrs

4 2 0 25 to 40

40 to 60

Above 60

Below 25

Age

2. Relation between Income & Risk Count of Income Income 1.5L to 4L 4L to 6.5L Above 6.5L Below 1.5L Grand Total

Risk High 1 2

Low 7 11 3

Medium 4 7 8 1 20

Grand Total 12 18 13 1 44

Drop Page Fields Here Count of Income 20 18 16 14 Risk

Medium

Low

High

6 4 2 0 1.5L to 4L

4L to 6.5L

Above 6.5L

Below 1.5L

Income

3. Relation Satisfaction Count of Preferred Investment Preferred Investment Bullion Fixed Deposits Kisan Vikas Patra Life Insurance Policies Mutual Funds Real Estate Shares/Debentures ULIP Grand Total

between

Satisfaction High

Investment

Low 1

3 1 1 6 5 1 17

1 2

Medium 1 2 2 3 6 6 4 1 25

Grand Total 2 5 3 4 12 11 5 2 44

Drop Page Fields Here Count of Pref ered Investment 14 12 10

Satisfaction

Medium

Low High

ULIP

Shares/Debentures

Real Estate

Mutual Funds

Policies

Life Insurance

Kisan Vikas Patra

Fixed Deposits

Bullion

Pref ered Investment

4. Relation between Age of Investor and Objective of Investment Count Age Age 25 to 40 40 to 60 Above 60 Below 25 Grand Total

of Objective Child Marriage 2 1 2

Growth/Returns 9 6 2 5

N/A 2

Safety

Savings 2

Tax Savings 3 2

Grand Total 18 9 5 12

Drop Page Fields Here

Count of Age

18 Objective

16 14

Tax Savings

Savings

Safety

N/A

Growth/Returns

Child Marriage

2 0 25 to 40

40 to 60

Above 60

Below 25

Age

5. Relation between Investment & Tenure

Count of Investment

Prefered

Prefered Investment Bullion Fixed Deposits Kisan Vikas Patra Life Insurance Policies Mutual Funds Real Estate Shares/Debentures

Tenure 1 to 3 Yrs 2 3 1 1 8 3 2

3 to 5 Yrs

Less than 1 Yr

1 1 3 3

More than 5 Yrs 1 1 3

1 5 3

Grand Total 2 5 3 4 12 11 5

ULIP Grand Total

2 12

2 44

Drop Page Fields Here

Count of Prefered Investment

Tenure

More than 5 Yrs

Less than 1 Yr

3 to 5 Yrs

1 to 3 Yrs

2 ULIP

Shares/Debentures

Real Estate

Mutual Funds

Life Insurance Policies

Kisan Vikas Patra

Fixed Deposits

Bullion

Prefered Investment

6. Relation between Investment and Occupation

Count of Occupation Occupation Business/Self Employed Government Employee Private Sector Employee Retired Grand Total

Prefered Investment Bullion 1

Mutual Funds 2

Real Estate 5 4

1 2

Fixed Deposits 1 1 2 1 5

Kisan Vikas Patra 1 2

Life Insurance Policies 2 1 1

Shares/Debentures 3

ULIP 1

Grand Total 16 8

1 1 11

18 2 44

Drop Page Fields Here

20 18 16 14 12 10 8 6 4 2 0

Count of Occupation Prefered Investment ULIP Shares/Debentures Real Estate Mutual Funds Life Insurance Policies Kisan Vikas Patra Fixed Deposits Bullion Business/Self Employed

Government Employee

Private Sector Employee

Retired

Occupation

7. Relation between Age of Investor & Tenure

Count Age Age 25 to 40 40 to 60 Above 60 Below 25

of Tenure 1 to 3 Yrs 7 4 2 7

3 to 5 Yrs 3 2 1 2

Less than 1 Yr 2

More than 5 Yrs 6 3 2 1

Grand Total 18 9 5 12

Grand Total

Drop Page Fields Here

Count of Age

18 16 Tenure

14 12

More than 5 Yrs

Less than 1 Yr

3 to 5 Yrs

1 to 3 Yrs

4 2 0 25 to 40

40 to 60

Above 60

Below 25

Age

8. Relation between Age of Investor & Objective of Investment

Count Age Age 25 to 40 40 to 60 Above 60 Below 25 Grand Total

of Objective Child Marriage 2 1 2

Growth/Returns 9 6 2 5

N/A 2

Safety

Savings 2

Tax Savings 3 2

Grand Total 18 9 5 12

Drop Page Fields Here Count of Age 20 18 16

Objective

Tax Savings

Savings

Safety

N/A

Grow th/Returns

Child Marriage

2 0 25 to 40

40 to 60

Above 60

Below 25

Age

9. Relation between Objective of Investment

Count

Prefered

Investment

Objective

Investment Child Marriage

Prefered Investment Bullion Fixed Deposits Kisan Vikas Patra Life Insurance Policies Mutual Funds Real Estate Shares/Debentures ULIP Grand Total

Growth/Returns 2

N/A

1 1

Safety

Savings

2 1 5

7 8 5

Tax Savings

3 1 5

1 10

Grand Total 2 5 3 4 12 11 5 2 44

Drop Page Fields Here Objective

Count of Prefered Investment 14 12 10 8 6 4 2 0

Tax Savings Savings Safety N/A ULIP

Shares/Debentur es

Real Estate

Mutual Funds

Life Insurance Policies

Kisan Vikas Patra

Fixed Deposits

Bullion

Grow th/Returns Child Marriage

Prefered Investment

Another one of our Assignments was to compare the services and products offered by different Banks from one another.

Methodology (Problem Definition, Research / Data Collection) Detailed Features Of Savings A/c Average Quarterly Balance(AQB) Quarterly Statement Monthly Statement Pass Book Personalised Cheque Book Multicity Cheque Book ATM Charges Own ATMs within India Other ATMs within India ATMs Outside India Debit Card Charges 1st Year Fee Annual Fee Per Card Reissuance Charges ATM Card 56

Debit Card Charges Branch Transaction Charges Cash Deposit/Withdrawal Demand Draft Outstation Cheque Collection Maximum Withdrawal Limit Unique Feature BANKS ICICI Rs10,000 Free Rs200/yr Free 1st is Free,Rs50 Per Additional C/B NA Free Rs20 Per Transaction NA Rs99 Rs99 Free Rs200 Rs50 Per Transaction at Base Branch, Rs50(Min) If Drawn on ICICI Bank Free Rs50,000/day-Self Rs15,000/day-Third Party 57

Unlimited ATM Transaction

HDFC Rs5,000 Free Free Free NA NA Free Rs20 Per Transaction NA Rs100 NA Rs100 Rs100 NA Rs50 Up to 10,000 at Base Branch Free Rs50,000/day-Self No Balance Required On 1,00,000 F.D

KOTAK Rs10,000 Weekly Report-Rs300/Quarter Daily Report-Rs1500/Quarter Free Free NA Free(Including HDFC) Rs20 Per Transaction Rs90 Free NA Rs100 Rs100 NA Rs50 (Min) or Rs2.50 Per 1000 after that. Foreign Currency D/DRs500 Free Rs25,000-Self Kotak 2-Way Sweep Benefit

ABN-AMRO Rs10000 59

Free Free Free Rs50 NA Free Rs20 Per Transaction Rs120 Rs180 NA NA RS200 NA Rs50 If Drawn on ABN-AMRO Branches. Foreign Currency D/D-Rs200 Rs50(Min) or 0.25% of The Transaction Amount NA

Standard Chartered Rs10,000

HSBC Rs25,000 60

Free Free Free Free Free

Free Free Free Free NA

Free

ATM Cash Withdrawal Limit-Rs25,000 Per Day NA NA

Rs20 Per Transaction Rs140 Rs200 Rs200

Debit Card Purchase Limit-Rs10,000 Per Day NA

Rs100 Rs200

NA NA

Rs50 Rs50 Free NA

NA NA NA NA

Products Offered by Standard Chartered Bank 1. Accounts a) Savings Account: i. aXcess Plus Account: 61

Standard Chartered Bank's aXcess Plus is a revolutionary savings account that provides you with unstinted aXcess to your money. Features Exclusive benefits of an aXcess Plus savings account:  FREE Unlimited Visa ATM transactions* (Cash withdrawal)  FREE Standard Chartered Bank branch access across the country  FREE Doorstep Banking*  FREE Demand Drafts/Pay Orders* (drawn at SCB locations)  FREE Payable at Par Cheque book *Available on maintenance of average quarterly balance of Rs 15,000/Additional Features Get instant cash at over 20,000 ATMs across India and over 10,00,000 ATMs across the world through the Visa network. And get a globally valid Debit Card that lets you shop at over 3,26,000 outlets in India and at over 14 million outlets across the world. And that’s not all, with the aXcess Plus account you also get:  International Debit Card  Phone Banking  Online Banking  Extended Banking Hours *Terms and Conditions apply. Certain features are currently not available in all branches The Standard Chartered aXcessPlus Account comes with a globally valid debit - cum - ATM card which allows customers to

aXcess all Standard Chartered Bank ATMs and provides instant cash at all Visa Network ATMs in India and abroad.  aXcessPlus customers get FREE* aXcess to cash withdrawals at over 20,000 Visa ATMs in India up to four free transactions per month.  This is over and above unlimited free aXcess to all Standard Chartered Bank ATMs.  The Debit Card can be used to make purchases at over 3,26,000 merchant outlets in India.

ii. Super Value Account The unique SuperValue savings account from Standard Chartered is proof that the best things in life come free. With an average quarterly balance of just Rs. 50,000, you get a host of services from Standard Chartered absolutely free.

iii. Parivaar Account Parivaar is a unique Wealth Management Solution from Standard Chartered Bank that offers your family flexibility, convenience and essential tools for wealth accumulation and preservation.

iv. No Frills Account If you want banking made easy, we give simple solutions. The Standard Chartered Bank No Frills Account is designed to meet your basic banking requirements. You need to maintain an average quarterly balance of just Rs. 250 with this account. What’s more – you can avail of Anywhere Banking, by which you can access your account from any branch of Standard Chartered Bank in India.

v. aaSaan Account Introducing the Standard Chartered Bank's aaSaan savings account. It is a no maintenance, hassle free and easy solution to all your banking needs.

vi.

2 in 1 Account

Introducing a unique account that offers you a double advantage â&#x20AC;&#x201C; it lets you earn the high interest rate of a fixed deposit while you enjoy the flexibility of a savings or current account.

b) Current a/c i) Business Plus Account Standard Chartered Bank presents the Business Plus Account. A current account that helps you get more out of your business.

ii) Enhanced Business Plus Account You run your business efficiently, and effectively. That's why you need a current account that does the same. The Enhanced Business Plus Account from Standard Chartered is designed to make better business sense and make your money work most effectively. It's all you have ever wanted from a current account and more. Every business has different needs and complexities. That's why the Enhanced Business Plus Account has been developed to suit your business needs.

2. Credit Cards: 64

It offers a variety of credit cards, each tailored to your lifestyle needs. Examples: a) Executive Card is designed for the professional on the move. Itâ&#x20AC;&#x2122;s a card that travels like you do. b) Gold Card is for special deals at your favorite restaurants, privileged access to exclusive areas when youâ&#x20AC;&#x2122;re traveling, worldwide acceptance.

3. Debit & Prepaid Cards: It offers Debit cards. Examples: a) ShopSmart Card gives unparalleled aXcess to your money. b) Gold Debit Card includes privileges like high spending limits and worldwide acceptance.

4. Loans & Mortgages: It offers wide range of loans: Example a) Personal Loan: Best suited for people requiring loan for any requirement whatsoever that too at competitive interest rates. Loan amount ranges from 50,000 to 15,00,000. No collaterals or securities are required. Any SCB customer can avail of special rates with less documentation and priority processing. Other Loans are Home loans, Loan against property, Loan against securities etc.

5. Insurance & Investment Services 65

Standard Chartered offers you a wide range of Life Insurance Products from Bajaj Allianz Life Insurance Company, one of India's leading Insurance companies. At Standard Chartered, you can avail of the services of trained & certified professional consultants from Bajaj Allianz Insurance company, who can guide you in ascertaining your insurance needs, and assist you in making an insurance plan that is just right for you. Some of the key plans are: a) New SecureFirst:An investment that offers double advantage with flexibility. b) New Unit Gain Plus:Flexible investments never so easy. We offer the range of innovative general Insurance products in association with Royal Sundaram to our customers. Royal Sundaram Alliance Insurance Company Limited is a joint venture between Sundaram Finance and Royal & SunAlliance plc, UK, where the former holds 74% and the latter holds 26% of the equity of the venture. Royal Sundaram currently has over 2.1 million customers in its fold. Its products are distributed in over 150 cities across India. Some key products are:  Health shield: A comprehensive health insurance package designed to offer complete protection to the insured and his family.  Car shield: A comprehensive motorcar insurance package, designed to cover your car in most adverse situations.  Home shield: Provides complete coverage for damage to your building.  Accident shield: Designed to take care of you and your family in the unfortunate event of a fatal accident.



Double protect: “Double Protect” is a 2 years Health Insurance plan. The plan offers reimbursement of Hospitalisation expenses in the event of illness or accident

Investment Services Investments, unlike works of art, cannot afford the luxury of experimenting. Investing is not guesswork. It takes more than just a 'tip' it needs training to plan, instinct to pick and sheer intellect to make it work for you. That extra mile assures you that your hard earned money is with the right people. Standard Chartered Bank, using over 150 years of expertise, promises to guide you through the world of exciting new investment opportunities in India and overseas. From shortest-term deployment of funds to planning your retirement, we pledge to go the extra mile to ensure that you reach your chosen financial goals. When you deal with Standard Chartered, you can expect the best. We are, after all, the leading global bank in Asia, Africa and the Middle East. We look after investments for over 5 million customers across in 57 countries. From world class services to the most sought after talent pool, we provide an unmatched foundation which you can trust. We've invested in professional talent that can provide you with a continuous, thorough and insightful guidance with your money. All this so you can rest easy when you put your money into our hands. We offer a wide range of professional services with a team of trained, experienced professionals. Our team has a Wide capital markets and investment advisory experience and is dedicated to making your investments work for you.  Consolidated portfolio statements of all your mutual fund investments  Online, internet access to PMS portfolios 67

 



Direct credit/debit facilities for all your investments Periodic meetings with leading fund managers and industry experts SCIS Research Edge

6. Other Services: NRI Banking Under this banking SCB offers accounts like NRE, NRO &FCNR accounts. NRE accounts: Funds remitted from abroad and which are of repatriable nature can be credited to NRE accounts. It is best suited to park overseas savings remitted to India by converting to INR. In addition it can open as Savings account, Current account or Fixed deposit. NRO accounts: Local funds which do not qualify, under the exchange control regulations, for remittance outside India can be credited to NRO accounts. These are best suited to park Indian earnings like rent, Indian salary, dividends etc. It can open as Savings account, Current account or Fixed deposit. PRIORITY Banking Designed specifically for those who appreciate only the finest things in life, Priority Banking offers the very highest levels of personalized banking to match unique status. Bank is committed to helping a plan ,build and protect wealth by offering individual attention as well as international banking and investment opportunities to meet current and future needs. Standard Chartered Bank Priority Banking is created specifically for a chosen few individuals, who will settle for nothing but the 68

best and demand the best and demand the highest standards of service in all your banking relationships.

SME Banking One-Stop Financial Solution for Your Growing Business With years of banking experience, Standard Chartered is undoubtedly in a strong position to help growing businesses sail through the complexities they may face. As an international bank with offices in more than 50 countries, we provide the global reach and international recognition that your company deserves. SME Banking offers one of the widest range of banking products and services in the market today. Managing a growing business demands most of your time and energy. Our relationship managers understand your business requirement and help you manage your business better. SCB offers product like FOREX services, Term Loan, International Trade Account, Trade Services & Working Capital etc. 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 organisations to enable us to offer our 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 our services. Electronic Delivery system has been put in place to ensure that transactions are handled speedily. We have our Cash Product Specialists and dedicated Customer Service Centres 69

to provide our customers with effective solutions. The currency of India is the Rupee (SWIFT code: INR). Standard Chartered fully understands the importance of time, convenience and efficiency to the success of your business. We make easy the complex financial world for you and help you maximise every opportunity. With over 140 years of experience in trade finance and an extensive international branch network, Standard Chartered is committed to help you succeed in every competitive environment. To keep pace with your changing needs, we will constantly review our comprehensive cash, trade and treasury products and services, ensuring that a full range of flexible and innovative services is always available for you wherever you trade.

Mutual Fund Concept 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 a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund: 70

A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities. The fund manager, also known as portfolio manager, trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Currently, the worldwide value of all mutual funds totals more than $26 trillion.

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

How Mutual Funds Work Every mutual fund has a goal - either growing its assets (capital gains) and/or generating income (dividends) for its investors. Distributions in the form of capital gains (short-term and longterm) and dividends may be passed on (paid) to shareholders as income or reinvested to purchase more shares. For tax purposes, keep track of your distributions and cost basis of purchased/reinvested shares. Like any business, mutual funds have risks and costs associated with returns. As a shareholder, the risks of a fund and the expenses associated with fund's operation directly impact your return.

FREQUENTLY USED TERMS

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

Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load Is a charge collected by a scheme when it buys back the units from the unit holders.

Returns

As an investor, you want to know the fund's return-its track record over a specified period of time. So what exactly is "return?" A mutual fund's return is the rate of increase or decrease in its value over a specific period of time usually expressed in the following increments: one, three, five, and ten year, year to date, and since the inception of the fund. Since return is a common measure of performance, you can use it to evaluate and compare mutual funds within the same fund category. Generally expressed as an annualized percentage rate, return is calculated assuming that all distributions from the fund are reinvested. Since average returns can sometimes "hide" short-term highs and lows, you should evaluate returns for a time period of several years-not just one year or less. A fund that has a high return in one year may have experienced losses in other yearsthese fluctuations may not be apparent in its average return.

Risk Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. A fund's investment objective and its holdings are influential factors in determining how risky a fund is. Reading the prospectus will help you to understand the risk associated with that particular fund. Generally speaking, risk and potential return are related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. The school of thought when investing in mutual funds suggests that the 74

longer your investment time horizon is the less affected you should be by short-term volatility. Therefore, the shorter your investment time horizon, the more concerned you should be with short-term volatility and higher risk.

Defining Mutual fund risk Different mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. A bond fund with below-average risk, for example, should not be compared to a stock fund with below average risk. Even though both funds have low risk for their respective categories, stock funds overall have a higher risk/return potential than bond funds. Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stability but have yielded the lowest longterm returns. Bonds typically experience more short-term price swings, and in turn have generated higher long-term returns. However, stocks historically have been subject to the greatest short-term price fluctuationsâ&#x20AC;&#x201D;and have provided the highest longterm returns. Investors looking for a fund which incorporates all asset classes may consider a balanced or hybrid mutual fund. These funds can be very conservative or very aggressive. Asset allocation portfolios are mutual funds that invest in other mutual funds with different asset classes. At the discretion of the manager(s), securities are bought, sold, and shifted between funds with different asset classes according to market conditions. Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is 75

also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk. Following is a glossary of some risks to consider when investing in mutual funds. •

•

Call Risk. The possibility that falling interest rates will cause a bond issuer to redeem—or call—its high-yielding bond before the bond's maturity date. Country Risk. The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline.

•

Credit Risk. The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk.

•

Currency Risk. The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk.

•

Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates.

•

Industry Risk. The possibility that a group of stocks in a single industry will decline in price due to developments in that industry.

•

Inflation Risk. The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-adjusted returns.

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Interest Rate Risk. The possibility that a bond fund will decline in value because of an increase in interest rates.

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Manager Risk. The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives.

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Market Risk. The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall.

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Principal Risk. The possibility that an investment will go down in value, or "lose money," from the original or invested amount.

Types of mutual funds 1. Open-end fund The term mutual fund is the common name for an open-end investment company. Being open-ended means that, at the end of every day, the fund issues new shares to investors and buys back shares from investors wishing to leave the fund. Mutual funds may be legally structured as corporations or business trusts but in either instance are classed as open-end investment companies by the SEC. Other funds have a limited number of shares; these are either closed-end funds or unit investment trusts, neither of which a mutual fund is.

2. Close-Ended Funds Redemption can take place only after the period of the scheme is over. However, close-ended funds are listed on the stock exchanges and investors can buy/ sell units in the secondary market (there is no load).

3. Exchange-traded funds A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment company. ETFs combine characteristics of both mutual funds and closedend funds. ETFs are traded throughout the day on a stock exchange, just like closed-end funds, but at prices generally approximating the ETF's net asset value. Most ETFs are index funds and track stock market indexes. Shares are issued or redeemed by institutional investors in large blocks (typically of 50,000). Most investors purchase and sell shares through brokers in market transactions. Because the institutional investors normally purchase and redeem in in kind transactions, ETFs are more efficient than traditional mutual funds (which are continuously issuing and redeeming securities and, to effect such transactions, continually buying and selling securities and maintaining liquidity positions) and therefore tend to have lower expenses. Exchange-traded funds are also valuable for foreign investors who are often able to buy and sell securities traded on a stock market, but who, for regulatory reasons, are limited in their ability to participate in traditional U.S. mutual funds.

4. Equity funds Equity funds, which consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers. 5. Bond funds Bond funds account for 18% of mutual fund assets. Types of bond funds include term funds, which have a fixed set of time (short-, medium-, or long-term) before they mature. Municipal bond funds generally have lower returns, but have tax advantages and lower risk. High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the potential for high yield, these bonds also come with greater risk.

6. Money market funds Money market funds hold 26% of mutual fund assets in the United States. Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time. The interest rate quoted by money market funds is known as the 7 Day SEC Yield.

7. Funds of funds Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds (i.e., they are funds comprised of other funds). The funds at the underlying level are typically funds which an investor can invest in individually. A fund of funds will typically charge a management fee which is smaller than that of a normal fund because it is considered a fee charged for asset allocation services. The fees charged at the underlying fund level do not pass through the statement of operations, but are usually disclosed in the fund's annual report, prospectus, or statement of additional information. The fund should be evaluated on the combination of the fund-level expenses and underlying fund expenses, as these both reduce the return to the investor. Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor), although some invest in funds managed by other (unaffiliated) advisors. The cost associated with investing in an unaffiliated underlying fund is most often higher than investing in an affiliated underlying because of the investment management research involved in investing in fund advised by a different advisor. Recently, FoFs have been classified into those that are actively managed (in which the investment advisor reallocates frequently among the underlying funds in order to adjust to changing market conditions) and those that are passively managed (the investment advisor allocates assets on the basis of on an allocation model which is rebalanced on a regular basis). The design of FoFs is structured in such a way as to provide a ready mix of mutual funds for investors who are unable to or unwilling to determine their own asset allocation model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard, and Fidelity have also entered this market to provide investors with these options and take the "guess work" out of selecting funds. The allocation mixes 81

usually vary by the time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target retirement date, the more aggressive the asset mix.

8. Hedge funds Hedge funds in the United States are pooled investment funds with loose SEC regulation and should not be confused with mutual funds. Some hedge fund managers are required to register with SEC as investment advisers under the Investment Advisers Act. The Act does not require an adviser to follow or avoid any particular investment strategies, nor does it require or prohibit specific investments. Hedge funds typically charge a management fee of 1% or more, plus a “performance fee” of 20% of the hedge fund’s profit. There may be a "lock-up" period, during which an investor cannot cash in shares. A variation of the hedge strategy is the 130-30 fund for individual investors.

Advantages of Mutual Funds 1. Professional Management: The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Mutual funds are managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates the investor of the difficult task of trying to time the market. Furthermore, mutual funds can eliminate the cost an investor would incur when proper due diligence is given to researching securities. This cost of managing numerous securities is dispersed among all the investors according to the amount of shares they own with a fraction of each dollar invested used to cover the expenses of the fund. What does this mean? Fund managers have more money to research more securities more in depth than the average investor. When you buy a mutual fund, you are also choosing a professional money manager. This manager will use the money that you invest to buy and sell stocks that he or she has carefully researched. Therefore, rather than having to thoroughly research every investment before you decide to buy or sell, you have a mutual fund's money manager to handle it for you.

2. Diversification By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing in a single fund, an investor is actually investing in numerous securities. Spreading your investment across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss maybe offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors or categories. This helps to reduce the risk associated with a specific industry or category. Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment.

3. Convenience:

With most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online. Although a fund's shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based on investment goals and risk tolerance before making a purchase decision. Investors should always read the prospectus carefully before investing in any mutual fund.

4. Liquidity Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time. Another advantage of mutual funds is the ability to get in and out with relative ease. In general, you are able to sell your mutual funds in a short period of time without there being much difference between the sale price and the most current market value. However, it is important to watch out for any fees associated with selling, including back-end load fees. Also, unlike stocks and exchange-traded funds (ETFs), which trade any time during market hours, mutual funds mutual funds transact only once per day after the fund's net asset value (NAV) is calculated. Mutual fund shares are liquid and orders to buy or sell are placed during market hours. However, orders are not executed until the close of business when the NAV (Net Average Value) of the fund can be determined. Fees or commissions may or may not be applicable. Fees and commissions are determined by the specific fund and the institution that executes the order.

5. Economies of Scale: The easiest way to understand economies of scale is by thinking about volume discounts; in many stores the more of one product you buy, the cheaper that product becomes. For example, when you buy a dozen donuts, the price per donut is usually cheaper than buying a single one. This occurs also in the purchase and sale of securities. If you buy only one security at a time, the transaction fees will be relatively large. Mutual funds are able to take advantage of their buying and selling size and thereby reduce transaction costs for investors. When you buy a mutual fund, you are able to diversify without the numerous commission charges. Imagine if you had to buy the 10-20 stocks needed for diversification. The commission charges alone would eat up a good chunk of your savings. Add to this the fact that you would have to pay more transaction fees every time you wanted to modify your portfolio - as you can see the costs begin to add up. With mutual funds, you can make transactions on a much larger scale for less money.

6. Divisibility: Many investors don't have the exact sums of money to buy round lots of securities. One to two hundred dollars is usually not enough to buy a round lot of a stock, especially after deducting commissions. Investors can purchase mutual funds in smaller denominations, ranging from $100 to $1,000 minimums. Smaller denominations of mutual funds provide mutual fund investors the 86

ability to make periodic investments through monthly purchase plans while taking advantage of dollar-cost averaging. So, rather than having to wait until you have enough money to buy highercost investments, you can get in right away with mutual funds. This provides an additional advantage liquidity.

7. Minimum Initial Investment: Most funds have a minimum initial purchase of Rs 10,000 but some are as low as Rs 5,000.

8. Simplicity: Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.

Other Advantages are: 9. Tax Benefits. 10. Transparency. 11. Flexibility. 12. Wide Choice of Schemes.

Disadvantages of Mutual Funds 1. Fluctuating Returns: Mutual funds are like many other investments without a guaranteed return: there is always the possibility that the value of your mutual fund will depreciate. Unlike fixed-income products, such as bonds and Treasury bills, mutual funds experience price fluctuations along with the stocks that make up the fund. When deciding on a particular fund to buy, you need to research the risks involved - just because a professional manager is looking after the fund, that doesn't mean the performance will be stellar. Another important thing to know is that mutual funds are not guaranteed by the U.S. government, so in the case of dissolution, you won't get anything back. This is especially important for investors in money market funds.

2. Diversification: Although diversification is one of the keys to successful investing, many mutual fund investors tend to overdiversify. The idea of diversification is to reduce the risks associated with holding a single security; overdiversification (also known as 88

diworsification) occurs when investors acquire many funds that are highly related and, as a result, don't get the risk reducing benefits of diversification. At the other extreme, just because you own mutual funds doesn't mean you are automatically diversified. For example, a fund that invests only in a particular industry or region is still relatively risky.

3. Cash, Cash and More Cash: As you know already, mutual funds pool money from thousands of investors, so everyday investors are putting money into the fund as well as withdrawing investments. To maintain liquidity and the capacity to accommodate withdrawals, funds typically have to keep a large portion of their portfolios as cash. Having ample cash is great for liquidity, but money sitting around as cash is not working for you and thus is not very advantageous.

4. Costs: Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Mutual funds provide investors with professional management, but it comes at a cost. Funds will typically have a range of 89

different fees that reduce the overall payout. In mutual funds, the fees are classified into two categories: shareholder fees and annual operating fees. The shareholder fees, in the forms of loads and redemption fees, are paid directly by shareholders purchasing or selling the funds. The annual fund operating fees are charged as an annual percentage - usually ranging from 1-3%. These fees are assessed to mutual fund investors regardless of the performance of the fund. As you can imagine, in years when the fund doesn't make money, these fees only magnify losses.

5. Misleading Advertisements: The misleading advertisements of different funds can guide investors down the wrong path. Some funds may be incorrectly labeled as growth funds, while others are classified as small cap or income funds. The Securities and Exchange Commission (SEC) requires that funds have at least 80% of assets in the particular type of investment implied in their names. How the remaining assets are invested is up to the fund manager. However, the different categories that qualify for the required 80% of the assets may be vague and wide-ranging. A fund can therefore manipulate prospective investors by using names that are attractive and misleading. Instead of labeling itself a small cap, a fund may be sold as a "growth fund". Or, the "Congo High-Tech Fund" could be sold with the title "International High-Tech Fund". Dilution - It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). 90

Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

6. Evaluating Funds: Another disadvantage of mutual funds is the difficulty they pose for investors interested in researching and evaluating the different funds. Unlike stocks, mutual funds do not offer investors the opportunity to compare the P/E ratio, sales growth, earnings per share, etc. A mutual fund's net asset value gives investors the total value of the fund's portfolio less liabilities, but how do you know if one fund is better than another? Furthermore, advertisements, rankings and ratings issued by fund companies only describe past performance. Always note that mutual fund descriptions/advertisements always include the tagline "past results are not indicative of future returns". Be sure not to pick funds only because they have performed well in the past - yesterday's big winners may be today's big losers.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund is well-established fund house and is sponsored by the Standard Chartered Group Standard Chartered Mutual Fund launched its first scheme Grindlays Super Saver Income Fund in the year July 2000. Since then it focused on debt for 5 years and launched several innovative products that went to become bourgeoning categories in the Indian mutual fund industry. Some of these were The Dynamic Bond Fund, The Short term Fund and the Medium Term Fund. In June 2005 standard chartered launched its first equity fund. Standard Chartered Classic Equity Fund is a truly diversified fund that would not be limited by diktats of investing in either a particular section of the market or a particular style of investing. It also pioneered several service initiatives that helped increase transactional ease. It was the first mutual fund to initiate â&#x20AC;˘ Across the counter redemptions for all classes of investors in liquid funds, â&#x20AC;˘ Next day redemptions for non-liquid funds and lately 92

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One Call Free number 1600226622 accessible across 153 cities

Phone transact service wherein investors can redeem without having any Personal Identification Numbers. Standard Chartered Mutual Fund today has offices in 19 cities and currently manages assets in excess of Rs 8000 crores.

Unit Linked Insurance Plan Unit Linked Insurance Plan (ULIP) provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). As times progressed the plans were also successfully mapped along with life insurance need to do retirement planning. In today's times, ULIP provides solutions for insurance planning, financial needs, financial planning for children's future and retirement planning. For the generation of insurance seekers who thrived on insurance policies with assured returns issued by a single public sector enterprise, unit-linked insurance plans are a revelation. Traditionally insurance products have been associated with attractive returns coupled with tax benefits. The returns part was

often so compelling that insurance products competed with investment products for a place in the investor's portfolio. Perhaps insurance policies then were symbolic of the times when high interest rates and the absence of a rational risk-return trade-off were the norms. The subsequent softening of interest rates introduced a degree a much-needed rationality to insurance products like endowment plans; attractive returns at low risk became a thing of the past. The same period also coincided with an upturn in equity markets and the emergence of a new breed of market-linked insurance products like ULIPs. While in conventional insurance products the insurance component takes precedence over the savings component, the opposite holds true for ULIPs. More importantly ULIPs (powered by the presence of a large number of variants) offer investors the opportunity to select a product which matches their risk profile; for example an individual with a high risk appetite can shun traditional endowment plans (which invest about 85% of their funds in the debt instruments) in favour of a ULIP which invests its entire corpus in equities. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component. 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. Investors have the choice of enhancing their insurance cover, modifying premium payments and even opting for a distinct asset allocation than the one they originally opted for. Also if an unforeseen eventuality were to occur, in case of traditional products, the sum assured is paid along with accumulated bonuses; conversely in ULIPs, the insured is paid either the sum assured or corpus amount whichever is higher.

Insurance seekers have never been exposed to this kind of flexibility in traditional insurance products and it would be fair to say that ULIPs represent the new face of insurance. While few would dispute the value-add that ULIPs can provide to one's insurance portfolio and financial planning; the same is not without its flipside. For the uninitiated, understanding the functioning of ULIPs can be quite a handful! The presence of what seem to be relatively higher expenses, rigidly defined insurance and investment components and the impact of markets on the corpus clearly make ULIPs a complex proposition. Traditionally the insurance seeker's role was a passive one restricted to making premium payments; ULIPs require greater participation from both the insured and the insurance advisor. As is the case with most evolved investment avenues, making informed decisions is the key if investors in ULIPs wish to truly gain from their investments. The various aspects of ULIPs dealt with in this publication will certainly further the ULIP investor's cause. Features of ULIP: ULIP distinguishes itself through the multiple benefits that it provides to the consumer. The plan is a one-stop solution providing: Life Protection Investment and savings Flexibility Adjustable Life cover Investment options Transparency Options to take additional cover against death due to accident Disability 95

Critical Illness Surgeries Liquidity Tax Planning

The Latest IRDA Guidelines dictate Following Requirements for ULIPs:

the

1. Term/Tenure  The ULIP client must have the option to choose a term/tenure.  If no term is defined, then the term will be defined as '70 minus the age of the client'. For example if the client is opting for ULIP at the age of 30 then the policy term would be 40 years.  The ULIP must have a minimum tenure of 5 years. 2. Sum Assured On the same lines, now there is a sum assured that clients can associate with. The minimum sum assured is calculated as: (Term/2 * Annual Premium) or (5 * Annual Premium) whichever is higher. There is no clarity with regards to the maximum sum assured. The sum assured is treated as sacred under the new guidelines; it cannot be reduced at any point during the term of the policy except under certain conditions - like a partial withdrawal within two years of death or all partial withdrawals after 60 years of age. This way the client is at ease with regards to the sum assured at his disposal.

3. Premium payments If less than first 3 years premiums are paid, the life cover will lapse and policy will be terminated by paying the surrender value. However, if at least first 3 years premiums have been paid, then the life cover would have to continue at the option of the client. 4. Surrender value The surrender value would be payable only after completion of 3 policy years. 5. Top-ups Insurance companies can accept top-ups only if the client has paid regular premiums till date. If the top-up amount exceeds 25% of total basic regular premiums paid till date, then the client has to be given a certain percentage of sum assured on the excess amount. Top-ups have a lock-in of 3 years (unless the top-up is made in the last 3 years of the policy). 6.Partial withdrawals The client can make partial withdrawals only after 3 policy years. 7. Settlement The client has the option to claim the amount accumulated in his account after maturity of the term of the policy upto a maximum of 5 years. For instance, if the ULIP matures on January 1, 2007, the client has the option to claim the ULIP monies till as late as December 31, 2012. However, life cover will not be available during the extended period. 8. Loans No loans will be granted under the new ULIP.

9. Charges The insurance company must state the ULIP charges explicitly. They must also give the method of deduction of charges. 10. Benefit Illustrations The client must necessarily sign on the sales benefit illustrations. These illustrations are shown to the client by the agent to give him an idea about the returns on his policy. Agents are bound by guidelines to show illustrations based on an optimistic estimate of 10% and a conservative estimate of 6%. Now clients will have to sign on these illustrations, because agents were violating these guidelines and projecting higher returns.

How to Select the Right ULIP: For a product capable of adding significant value to investors' portfolios, ULIPs have far too many critics. We at Personalfn have interacted with a number of investors who were very disillusioned with their ULIPs investments; often the disappointment stemmed from poor and inappropriate selection. We present a 5-step investment strategy that will guide investors in the selection process and enable them to choose the right ULIP.

1. Understand the Concept of ULIPs: Do as much homework as possible before investing in an ULIP. This way you will be fully aware of what you are getting into and make an informed decision. More importantly, it will ensure that you are not faced with any unpleasant surprises at a later stage. Our experience suggests that investors on most occasions fail to realise what they are 98

getting into and unscrupulous agents should get a lot of 'credit' for the same. Gather information on ULIPs, the various options available and understand their working. Read ULIP-related information available on financial Web sites, newspapers and sales literature circulated by insurance companies.

2. Focus on your Need and Risk Profile: Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). Your risk appetite should be the deciding criterion in choosing the plan. As a result if you have a high risk appetite, then an aggressive investment option with a higher equity component is likely to be more suited. Similarly your existing investment portfolio and the equity-debt allocation therein also need to be given due importance before selecting a plan. Opting for a plan that is lop-sided in favour of equities, only with the objective of clocking attractive returns can and does spell disaster in most cases.

3. Compare ULIP products from various Insurance Companies: Compare products offered by various insurance companies on parameters like expenses, premium payments and performance among others. For example, information on premium payments will help you get a better picture of the minimum outlay since ULIPs work on premium payments as opposed to sum assured in the case of conventional insurance products.

Compare the ULIPs' performance i.e. find out how the debt, equity and balanced schemes are performing; also study the portfolios of various plans. Expenses are a significant factor in ULIPs, hence an assessment on this parameter is warranted as well. Enquire about the top-up facility offered by ULIPs i.e. additional lump sum investments which can be made to enhance the policy's savings portion. This option enables policyholders to increase the premium amounts, thereby providing presenting an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches (i.e. change the asset allocation of your ULIP account) from one investment plan to another. Some insurance companies offer multiple free switches every year while others do so only after the completion of a stipulated period.

4. Go for an Experienced Insurance Advisor: Select an advisor who is not only conversant with the functioning of debt and equity markets, but also independent and unbiased. Ask for references of clients he has serviced earlier and cross-check his service standards. When your agent recommends a ULIP from a given company, put forth some product-related questions to test him and also ask him why the products from other insurers should not be considered. Insurance advice at all times must be unbiased and independent; also your agent must be willing to inform you about the pros and cons of buying a particular plan. His job should not be restricted to doing paper work like filling forms and delivering receipts; instead he should keep track of your plan and offer you advice on a regular basis.

5. Does your ULIP offer a minimum guarantee? 100

In a market-linked product, protecting the investment's downside can be a huge advantage. Find out if the ULIP you are considering offers a minimum guarantee and what costs have to be borne for the same.

Life Insurance Products at Standard Chartered Standard Chartered offers you a wide range of Life Insurance Products from Bajaj Allianz Life Insurance Company, one of India's leading Insurance companies. Some of the key Life Insurance plans* available at Standard Chartered Bank: â&#x20AC;˘ New Secure First: An investment plan which offers double advantage with flexibility o This flexible Unit linked life insurance plan provides you protection and participation in market-linked returns. o Double benefit of Sum Assured + Fund Value in case of demise o Choice of 5 investment options, 3 free switches and premium redirection option

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New Unit Gain Plus: Flexible investments were never so easy. o Guaranteed life cover. Choice of 5 investment funds. 3 free switches allowed every year. 101

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Partial and Full withdrawals after 3 yrs. Unmatched flexibility to meet your changing lifestyle and insurance requirements.

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Bajaj Allianz Care First: A medical insurance plan that allows you to renew till the age of 65 years. Premium guaranteed for the length of the each policy term of 3 years o Generous hospital cover up to 7 Lacs. o Cashless Treatment available across over 2000 leading hospitals in over 200 towns across India. o Specific Day Care treatments requiring less than 24 hrs. Hospitalization is also covered under this plan.

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Protector: A Mortgage Reducing Term Insurance Plan. Make you’re your family home remains with your family for life. o The loan protector plan from Bajaj Allianz Life Insurance is mortgage reducing term assurance plan, which at low premiums helps you to secure your family against home loan. o It is an economical way to protect the family from the burden of repayment of the loan. o Convenient premium payment options - Regular Premium Payment & Single Premium Payment. o Joint Life availability - the option to cover the coapplicant of the loan under this plan.

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New Unit Gain Easy Pension Plus: Unique unit-linked pension plan without life cover 102

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Available in Single Premium and regular Premium payment mode. Option to take a tax-free lump sum up to 33% of Sum Assured. Open Market option: Purchase immediate annuity from Bajaj Allianz Life Insurance or any other life insurer. Choice of 5 investment funds. 3 free switches allowed every year.

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Child Gain: Insure today and secure your child’s education and ambitions. This policy is available in 4 Options o Child Gain 21 and Child Gain 21 Plus  Child's education Plan upto Graduation  105% Guaranteed Payouts + Bonuses o Child Gain 24 and Child Gain 24 Plus  Child's education Plan upto Post Graduation  115% Guaranteed Payouts + Bonuses o Family Income Benefit: In case of death or accidental total permanent disability of insured, all future premiums are waived and 1% of the sum assured is paid monthly o Start of Life Benefit: Enables a smooth start to your child’s professional life, incase of an unfortunate death or disability of the insured parent during the policy term.

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Invest Gain: Invest Gain is a specially designed plan that offers a unique combination of benefits that help you develop a sound financial portfolio for your family. o 4 Times Life Cover at a little extra cost. o Limited premium payment option available. 103

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Available with a host of additional benefits including: Family Income and Waiver of Premium Benefit

Term Care: Term Assurance plan with return of premium o An economic way of providing life cover, this plan also ensures the return of all premiums at the time of maturity. o Dual benefit - Life cover + Return of premiums paid on survival at the end of the term. o Single premium payment option available. o The only pure term plan in the market to provide Hospital Cash Benefit.

Comparative Analysis of Mutual Funds and ULIP Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the case with mutual funds, investors in ULIPs is allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt

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funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component. However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs.

Comparison between the two: 1. Mode of investment/ investment amounts Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house. ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity. This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter. ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts.

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2. Expenses In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India. For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors. Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale. Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings. Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".

3. Portfolio disclosure

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Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio. There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our interactions with leading insurers we came across divergent views on this issue. While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand. Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio disclosures on the other hand can enable investors to make timely investment decisions.

ULIPs vs Mutual Funds

Investment amounts

Expenses Portfolio disclosure Modifying asset allocation

ULIPs Determined by the investor and can be modified as well No upper limits, expenses determined by the insurance company Not mandatory* Generally permitted for free or at a nominal cost

Mutual Funds Minimum investment amounts are determined by the fund house Upper limits for expenses chargeable to investors have been set by the regulator Quarterly disclosures are mandatory Entry/exit loads have to be borne by the investor 107

Tax benefits

Section 80C benefits are available on all ULIP investments

Section 80C benefits are available only on investments in tax-saving funds

* There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that there is no legal obligation to do so.

4. Flexibility in altering the asset allocation As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds. If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load. On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches). Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner. This can prove to be very useful for investors, for example in a bull market when the ULIP investor's equity component has

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appreciated, he can book profits by simply transferring the requisite amount to a debt-oriented plan.

5. Tax benefits ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds good, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits. Maturity proceeds from ULIPs are tax free. In case of equityoriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12month period attract short-term capital gains tax @ 10%. Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor's marginal tax rate. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in both offerings and make informed decisions.

6. Liquidity ULIPs score low on liquidity. According to guidelines of the Insurance Regulatory and Development Authority (IRDA), ULIPs have a minimum term of five years and a minimum lock in of three years. You can make partial withdrawals after three years. The surrender value of a ULIP is low in the initial years, since the insurer deducts a large part of your premium as

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marketing and distribution costs. ULIPs are essentially longterm products that make sense only if your time horizon is 10 to 20 years. Mutual fund investments, on the other hand, can be redeemed at any time, barring ELSS (equity-linked savings schemes). Exit loads, if applicable, are generally for six months to a year in equity funds. So mutual funds score substantially higher on liquidity.

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