factoring in life's uncertainties is - icici...

Shilpa KumarMD & CEO

ICICI Securities Ltd.

Factoring in life's uncertainties is

a vital part of financial planning.

Still, many of us do not pay

e n o u g h a t t e n t i o n t o l i f e

insurance while managing

p e r s o n a l f i n a n c e . I n d i a

continues to remain an under-

penetrated market with life

i n s u r a n c e p e n e t r a t i o n

(insurance penetration refers to

premiums as a percentage of

GDP) at 2.7 per cent in FY16

compared to other developed

a n d e m e r g i n g m a r k e t

economies. One of the main

reasons behind this is lack of

a w a r e n e s s . T h e i d e a o f

mainta in ing the f inanc ia l

stability of the household after an earning member's sudden

demise, through life insurance is still unknown to a majority of the

Indian population. Further, out of those who are aware about

insurance, not many can calculate the right amount of life cover

one should have.

Insurance is nothing but a risk-management technique to ensure

that the family does not face financial crisis in the absence of an

earning member's income. When there are financially dependent

members in the family, their monthly expenses are borne by

earning individual in the family. If, due to untimely death of the

earner, his income is no longer a part of family's budget, can rest

of the members meet their ends as efficiently as earlier?

Replacing that amount to get household expenses back on track

is one way to calculate adequate life insurance cover.

1ICICIdirect Money Manager November 2017

However, with inflation eroding value of money, focusing on

current income to assessinsurance need is not sufficient. Future

value of your income should play part in these calculations. This

is how we reach to human life value (HLV) where suitable

insurance amount is evaluated considering individual's age, time

to retirement, expected earnings, occupation, gross income,

dependents' details, overall financial background, spouse's

financial state and other necessary personal or financial factors.

Another way to look at insurance is - providing monetary value to

fulfil family needs &financial goals. Focus should be on providing

enough money to support the family to maintain their standard of

living in insured person's absence. Moreover, goals like child's

education, marriage, emergency fund cannot be left unattended.

Such goal-oriented insurance can take care of these goals along

with outstanding liabilities or loans, fully or partially, if the

unfortunate event occurs.

Determining the exact life insurance cover is not easy, as income

and goals are likely to change over years, under changing

circumstances. It is thus, advised to review your insurance

amountfrequently and to match your current and future life

insurance needs.An adequate cover for your family can easily be

figured out with professional guidance and financial

planners.The need for insurance is the highest when there are

responsibilities and more to come going forward. A liability in

terms of a loan and family makes it essential to start insuring

oneself adequately. More importantly, insurance should not be

misinterpreted as an investment.

Our message remains the same - 'Keep investing and stay

invested for your life goals'. Through this magazine and our

website www.icicidirect.com we want to make an earnest

attempt to help investors know more on investing, make them

aware of the options they have and to partner with them in setting

and achieving their financial goals. We welcome you to write to

us or visit our branches to assist you.

2

A sound financial plan is a combination of savings, investments and protection. Amongst them, protection is one of the most ignored component. Insuring ourselves against odd and rare unfortunate events like death, accidents, medical emergencies, thefts etc. doesn't come natural to all. It is against our own deep hardwiring of reducing drastically the probability of such event impacting us.

Insuring ourselves and keeping our investments and savings on is a must. Some insurance products offer saving and investing benefit. It is however essential to treat these three individually or at least account for them separately. That at times makes choosing insurance products more difficult.

Buying the right insurance policy, out of multiple options available today, may seem difficult at first. But once the need of insurance and ability to pay is figured out, suitable cover can be easily determined. That's not it. Just like investments, insurance policies also require periodic review. Changes in our or family's income, lifestyle, health & debt obligations make significant difference to our financial plan, thus, changing the need of protection against risks in life. So, timely insurance reviews make perfect sense if we want an intact balance between finances and circumstances.

We believe, understanding all aspects of the product before taking any financial decision is a thumb rule of money management. And since insurance plays an integral part of our personal finance, our November issue is a brief guide on insurance planning. The cover story puts forth different types of insurance policies, their significance and methods of analysis.

In our guest column, Mr. Amitabh Jain, Head- Customer Service Motor and Health, ICICI Lombard, educates us about health insurance. He emphasizes on purchasing health insurance at a young age, considering erratic lifestyle and poor eating habits of young population. He also guides us through a checklist to consider before buying a health insurance cover.

From the research reports, 'incremental macroeconomic indicators have been stable to positive, providing a base for equity as an asset class to deliver durable and strong growth over the medium to long term'. Under this background, our research team recommends three top-performing equity linked savings schemes (ELSS) to be part of your mutual fund portfolio. The equity model portfolio and stock picks of the month continue to give good performance. So stay updated, and keep reading to stay financially fit. Do write us back at [email protected]

Your magazine is now also available on www.magzter.com, a digital newsstand.

ICICIdirect Money Manager November 2017

Editor & Publisher : Abhishake Mathur, CFA

Editorial Board : Sameer Chavan, CWM®, Pankaj Pandey

CMEditorial Team : Nithyakumar VP CFP , Sachin Jain, Research Team

Coordinating Editor : Namrata Lonkar

mailto:[email protected]


MD Desk ........................................................................................1

Editorial ..........................................................................................2

Contents .........................................................................................3

News .............................................................................................4

Stock ideas: Cochin Shipyard &Majesco Ltd. ......................................5

Flavour of the Month: A key to financial security: insurance planning

Protecting our assets and our loved ones with insurance is one

basic form of risk management. We bring you different aspects

associated with insurance planning and which options are

available in the market today in our cover story……............... 15

Tête-à-tête: Choosing the right health insurance policy

Mr. Amitabh Jain from ICICI Lombard educates us about health

insurance. Read this exclusive interview where he guides

readers through a checklist to consider before buying a health

insurance cover...........................................................................30

Ask Our Planner

Our financial expert answers your personal finance queries...34

Mutual Fund Analysis

Which are the top performing mutual funds in current market

scenario? Check these top three infrastructure funds

recommended by our research team........................................37

This month on iCommunity

Take a look at the latest activities on our unique information

platform- iCommunity (for November 2017).............................47

Equity Model Portfolio.....................................................................48

Quiz Time.......................................................................................52

Prime Numbers.............................................................................. 53

4

BSE warns trading members, investors against unsolicited messages

Unhappy with the price hike introduced by restaurants after a steep reduction in the goods and services tax (GST) , the government is looking to invoke anti-profiteering provisions.

While restaurants are free to alter prices on account of higher costs, most have said the latest hike was the result of the GST Council's decision to do away with input tax credit while lowering the levy from 18% to 5%.

A host of chains, from McDonalds, and Starbucks+ to Domino's Pizza, have already hiked the base price, while others such as KFC are planning to follow suit by next week.

Courtesy: Economic Times

Eateries may land in soup for profiteering post GST

Retail inflation expected to rise further: Experts

Retailinflation, which touched a seven-month high in October, is expected to rise further and cross the 4 per cent mark this month, driven by rise in vegetable and oil prices, experts say. According to global financial services majors like Nomura, BofAML and Morgan Stanley, price pressures are likely to build further in the coming months following a cyclical recovery in the economy and rise in vegetable and oil prices.

“We expect CPI inflation to rise above 4 per cent in November and stay above the RBI's target of 4 per cent through 2018,” Nomura said in a research note. Stronger food and fuel inflation pushed up headline CPI inflation in October to a 7-month high of 3.58 per cent.

Courtesy: The Hindu


Lower taxes and higher public expenditure could widen budget deficit in 2017-18, but steps taken by the government to broaden the tax base and improve spending efficiency would help in narrowing it going forward, US-based rating agency Moody's said. In an interview to PTI, Moody's Investors Service V-P (Sovereign Risk Group) William Foster said the agency believes that the government's commitment to fiscal consolidation remains and sustained growth would help it reduce debt burden.India's debt-to-GDP ratio stood at 68.6 per cent and a government-appointed panel has recommended lowering it to 60 per cent by 2023. They said, while GST and demonetization have undermined growth over the near term, growth will rise to 7.5 per cent in 2018-19 as the disruption fades.

Courtesy: Indian Express

Budget deficit may rise in FY18, but will improve in years ahead: Moody's

Leading exchange BSE has cautioned traders and investors against unsolicited messages being circulated by unregistered entities to induce investment and sale of shares.

The direction has come after BSE and markets regulator Securities and Exchange Board of India (Sebi) noticed that "unsolicited messages are being sent to induce investment or sale of the stock of certain listed companies, indicating target prices by unregistered or unauthorised entities".

"Trading members are requested to advise their clients to remain cautious on such unsolicited messages being circulated by unregistered or unauthorised entities," BSE said in a notice dated November 17.

Courtesy: Business Standard

5

STOCK IDEAS


Cochin Shipyard – Quality play, accelerating on fast lane…

Company Background

Cochin Shipyard (CSL), a

public sector enterprise, is

one of the most stable

companies in the Indian

shipbuilding and ship repair

sector. Over the years, the

company has emerged as a

premier player in the Indian

shipbuilding segment with

e x p e r t i s e i n d e s i g n ,

engineering and project

implementation. CSL is also a

market leader in the Indian

ship repair segment with a

market share of ~39% and

has undertaken repairs of

most complex ships of the

c o u n t r y. A s o n F y 1 7 ,

shipbuilding constitutes 74%

of the topline while ship

r e p a i r c o m p r i s e s t h e

remaining 26%. We believe

CSL's strong order book ( `

2,856 crore) plus L1 status of

` 5400 crore, bidding pipeline

(~ 11900 crore) , core `

c o m p e t e n c y i n b o t h

shipbuilding & ship repair

(especially defence), debt-

free status, best-in-class

w o r k i n g c a p i t a l c y c l e ,

reliability in execution and

being a natural beneficiary of

large & critical government

projects place it in a sweet

spot.

Investment Rationale

Better business mix, strong order

visibility and healthy B/S...

CSL is consciously improving

its business mix by increasing

the share of ship-repairs

orders (2x profitable than

shipbuilding business) in its

order book. Better business

mix coupled with strong

bidding pipeline of over ~ `

11,900 crore augur well for

the company. Currently, CSL

has a healthy order book of `

2,856 crore plus L1 status of `

5400 crore. It is also likely to

receive order for phase III of

IAC, which is likely to be ~ `

10,900 crore. We believe

these orders give strong

revenue visibility to CSL till


STOCK IDEAS

FY23. Even during turbulent

t i m e s i n t h e g l o b a l

shipbuilding history, it has

delivered topline, bottomline

growth of 11.1%, 18.7%

CAGR, respectively, in FY07-

17. CSL has a strong balance

sheet with debt of 123 crore `

and cash of 1,600 crore. `

With capex of 2,800 crore `

over the next three years

(FY18-21E) and superior

return profile (average RoEs,

RoCEs of 15.5%, 16.5%,

respectively, in FY12-17), we

believe CSL is a quality play.

Strong moat, capacity additions

through capex to boost growth

C S L e n j o y s s t r o n g

competitive advantage due to

its large dry dock capacity.

This leads to large defence

vessels like aircraft carriers

coming only to CSL for its

repairs/ refits. CSL is also

building a new larger size

shipbuilding and ship repair

facility at a cost of 2,768 `

crore. This new capacity is

likely to enable the company

to build larger ships and

repair more vessels. With

newer capacity, healthy order

pipeline and strong execution

capabilities, we believe CSL

will clock revenue, EBITDA

and PAT CAGR of 17.5%,

1 3 . 8 % a n d 8 . 1 % ,

respectively, in F17 20E. We

value CSL at 25x FY19E

earnings for existing business

( 655/share) plus 0.2x ( ` `

2 6 / s h a r e ) a n d 0 . 6 x ( `

44/share) for its planned

capex in shipbuilding and

s h i p r e p a i r s e g m e n t ,

respectively, to arrive at SOTP

value of 725/ share.`


STOCK IDEAS

Stock Data

Average Volumes (shares) 2.3 lakh

Market Capitalization ` 7476 Crore

Total Debt (FY17E) ` 123 Crore

Cash and Investments (FY17) ` 1927 crore

EV (FY17) ` 5673 Crore

52 week H/L (`) 575 / 435

Equity capital ` 135.9 Crore

Face value ` 10

MF Holding (%) 2.0

FII Holding (%) 2.5

Promoter Holding (%) 75.0

Key Financials

Valuations Summary

` crore FY16 FY17 FY18E FY19E FY20E

Net Sales 2107 2222 2415 2799 3606

EBITDA 355 379 387 433 559

EBITDA (%) 17.8 18.4 17.3 16.5 16.1

Net Profit 273 322 334 357 407

EPS 20.1 23.7 24.6 26.2 29.9

FY16 FY17 FY18E FY19E FY20E

P/E 22.8 19.3 22.4 21.0 18.4

Target P/E 30.1 25.5 29.5 27.6 24.2

EV / EBITDA 16.5 14.9 12.7 12.7 10.7

P/BV 4.3 3.8 2.4 2.2 2.0

RoNW 15.6 16.5 10.5 10.5 11.1

RoCE 16.8 18.7 13.3 13.1 13.0


STOCK IDEAS

Key risks include:

Competition from other shipyards (especially private sector) in India

CSL currently receives primarily from government organisations like Indian Navy & Indian Coast Guard, DGLL, DCI, etc. CSL receives orders for DGLL for dry docks repairs of their vessels on a nomination basis. It also receives repair of DCI's dredgers on a nomination basis. Also, in the large vessels category, it receives vessel repairs & building orders on a nomination basis. We believe ordering on nomination is likely to decline, going forward, and is l i ke ly to be rep laced on a competitive bidding basis. In some cases, large orders may also be exclusively opened for private players. A case in point is the order for landing platform docks (~` 20,000 crore) and P75I submarine order (~` 60,000 crore) where the Government of India has short listed private shipyards for awarding the contract.

Delay or cost overruns in building new dry dock and ISRF

T h e a n t i c i p a t e d c o s t o f construction of the proposed dry dock and ISRF will be ̀ 1,798 crore and 969 crore, respectively` (based on a $/ conversion rate of`

67.83). These costs are based on the detailed project report (DPR) prepared by project consultants based on their estimates, budgets and numerous assumptions. H o w e v e r, a c t u a l c o s t s o f construction of facilities may exceed such budgeted amounts due to a variety of factors such as construction delays, adverse changes in raw material costs, interest rates, labour costs, f o r e i g n e x c h a n g e r a t e s , regulatory and environmental factors, weather conditions and CSL's financing needs, which may eventually lead to an adverse impact on the profitability of the company.

Loss of business from key clients – Indian Navy & Indian Coast Guard

C S L ' s t o p t w o c u s t o m e r s accounted for 87.7%, 82.5%, 89.9% and 73.2% of its revenue from operations in FY14, Fy15, FY16 and H1FY17, respectively. Further, the company is currently building India's first indigenous aircraft carrier for the Indian Navy. This forms a significant part of its current order book. As there are no contractual arrangements with these key customers or GoI, CSL faces uncertainty on loss of orders to other shipyards.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts, authors and the names subscribed to this report,

hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or

securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific

recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.


STOCK IDEAS

Majesco Ltd –Play on cloud based model…

Company Background

Majesco, the demerged

entity of Mastek, underwent a

reorgan isa t ion in 2015

wherein Mastek's insurance

p r o d u c t s a n d s o l u t i o n

business were consolidated

under Majesco. Majesco has

over a decade of experience

in providing technology

solutions, products and

services for the insurance

industry across l ines of

b u s i n e s s – P r o p e r t y &

Casualty (General Insurance),

L i f e , A n n u i t y, H e a l t h ,

Pens ions, and Group &

Worksite Benefits insurance.

The company has a global

footprint with a presence in–

US, Canada, UK, Malaysia,

Thailand and India. Strong

customer relationships are a

key component of Majesco's

success given the long-term

nature of its contracts and the

importance of customer

references for new sales.

Investment Rationale

IBM partnership to benefit for

Majesco…

In partnership with IBM,

Majesco has won a 10-year

cloud subscription deal with

potential of US$35 million in

Q1FY18 with MetLife as the

first joint customer on the IBM

insurance industry platform.

During Q2FY18, the company

begun implementation of this

deal and expects it to be a

significant growth driver,

going ahead. Also, cloud

revenues, which now form a

larger part of revenue mix

( 3 0 . 5 % o f r e v e n u e s i n

Q2FY18 vs. 20.2% in Q2FY17)

clocked healthy growth of

42.3% YoY to 60.7 crore on `

the back o f dea l w ins .

Transition from on premise to

cloud driven model would be

beneficial for the company.

Majesco total client base


STOCK IDEAS

stands at 168, of which, 32

clients are on the cloud,

pointing to significant scope

for build-up. Thus, we expect

dollar revenue to grow at

8.5% CAGR to $143.3 million

in FY17-19E.

Strong deal pipeline with ~80%

on cloud positions company

well…

Orders to be executed over

the next 12-month witnessed

growth of 0.5% QoQ, 19.9%

YoY to US$79.4 million. Total

order booking was at $286.9

million (TTM) as at the end of

S e p t e m b e r 2 0 1 7 . T h e

pipeline remains strong with

~80% of the deal pipeline on

cloud. Transition towards

cloud driven model would

continue in FY18E. Thus,

benefits from deal ramp ups

in the cloud space would be

visible in FY19E.

Transition towards cloud & IBM

partnership bodes well; BUY!

Transition towards cloud

driven model with ~80%

deals on cloud in the potential

deal pipeline positions the

company strategically well.

M o r e o v e r , t h e I B M

partnership is promising to

be a significant deal for

Majesco in the cloud space

and provides good revenue

visibility for the coming years.

Consequently, we expect

Majesco's rupee revenue to

grow at CAGR of 6.9% in

FY17-19E. We value Majesco

US (Majesco India holds 70%

stake) at 4x EV/sales, which is

at ~50% discount to global

peers such as Guidewire to

a c c o u n t f o r m o d e s t

growth/margin profile. After

c o n s i d e r i n g a h o l d i n g

company discount of 30%,

Majesco's 70% stake in

Majesco works out to |

7 2 5 / s h a r e p r o v i d i n g

s igni f icant upside f rom

current levels. We have a BUY

rating on the stock.


STOCK IDEAS

Key Financials

Valuations Summary

Stock Data

` Crore FY16 FY17 FY18E FY19E

Net Sales 757.2 827.5 818.6 945.8

EBITDA 9.9 44.9 7.9 47.3

EBITDA (%) 1.3 5.4 1.0 5.0

Net Profit 6.9 14.3 5.8 13.6

EPS (`) 2.8 5.8 2.3 5.5

FY16 FY17 FY18E FY19E

P/E 172.5 90.0 223.4 94.8

Target P/E 240.5 125.4 311.5 132.2

EV / EBITDA 118.8 24.7 144.3 24.0

P/BV 4.3 4.2 4.2 4.0

RoNW 2.5 5.0 2.0 4.5

RoCE 0.2 5.7 -0.4 5.4

Market Capitalization (`crore) 1212.1

Debt (` crore) 72.2

Cash and Cash Equivalent (` crore) 158.1

EV (` crore) 1109.1

52 Week High / Low (`) 591 / 300

Equity Capital 11.7

Face Value 5.0

FII Holding (%) 0.9

DII Holding (%) 8.0


STOCK IDEAS

Key risks include:

H i g h e r d e p e n d e n c e o n U S geography…

PSL derives ~89% of its revenues from the US. A significant slowdown could impact the business. Also, any change in US visa regulations, if any could impact margins.

Significant currency volatility may impact operating margins

T h e a v e r a g e r u p e e h a s appreciated ~3% in FY17 vs.

FY16 while the same number s tands at ~3.9% YoY at Q2FY18 end. This could impact marg ins by ~30 -50 bps assuming 30 bps impact for every 100 bps change in rupee. That said, tailwinds in form of operational efficiency may be available, going forward, however, significant currency v o l a t i l i t y f r o m c u r r e n t levelscould have a material impact on operating margins.


STOCK IDEAS

ANALYST CERTIFICATION We /I, Deepak Purswani, CFA MBA (Finance), Deepti Tayal, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India's largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

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15

FLAVOUR OF THE MONTH

A key to financial security: insurance planning


When we work hard to build a strong financial foundation for ourselves and our family, sustaining its security becomes a vital task. But as accidents and uncertainties are inevitable in life, the best way to prepare for them is through sound insurance planning. Protecting our assets and our loved ones with insurance is one basic form of risk management. What are potential risks? Which insurance options are available in the market todayto mitigate them? How much insurance cover is enough? We answer allthese questions in our cover story. Read on to know moreabout insurance related topics…..

Why we need insurance?

The simple reason is: to avoid financial crisis. Insurance is a protection to make up for financial losses occurred due to unpredicted events. For instance, if a person in good health encounters unexpected illness or injury, the cost of his t rea tment can be eas i ly managed if he has adequate health insurance. However, bearing the expense of surgery or critical treatment in the absence of health insurance p o l i c y o r o t h e r p r i o r arrangement can adversely affec this finance, as he would have to use his savings or investments to pay at the hospital.

Loss of income in the sudden event of a family earner's death disturbs finances of the entire family. In such a case, had the d e c e a s e d p e r s o n b e e n

covered under life insurance, it would help his family to overcome outstanding debts, household bills, short-term or even long-term goals and other essential expenses. Life cover reduces the financial risk b y p r o v i d i n g e c o n o m i c support to his dependents.

Then there are assets such as property and car which are subject to damage by natural or man-made accidents. It's easier to deal with such repairs when they are insured, since replacing these belongings can be very costly.

So, simply put, in the absence of insurance, the loss arising out of an unpredicted event would have to be borne by the person who would have otherwise enjoyed the benefit from his funds.

How insurance works?

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Insurance basically is a pool of people who agree to share the risk. When a person buys insurance he joins other insurance holders sharing same risk characteristics. This group of people pay regular share, known as 'premium', as a token of their participation. The insurance company functions on the principal of shared risk. They calculate the premiums in such a way that total premiums received from all the policy holders can cover damages claimed by a few others. This is possible simply because the number of people suffering from mishaps or unfortunate losses is relatively lower than the number of people paying premiums.

But there are certain limitations to insurance covers. Not all t y p e s o f l o s s e s c a n b e redeemed through insurance. Your insurance policy is a legal contract specifically stating which conditions are insurable and which are not. It is thus, advised to read policy details thoroughly before paying for the policy. Here's a list of requirements that makes a certain risks insurable:

Ø Common risk

A s m e n t i o n e d a b o v e , insurance providers perform on the basis of 'risk pooling'. So unless a large number of people shares same problem, the risk is not taken as an insurable peril. For eg: the risk of road accident is common among car owners. And since it is more affordable to pay premiums on car insurance than to pay for major damages, a lot of people choose to buy car insurance. But out of total holders of the insurance scheme only a few may run into an accident, making it possible for the company to pay for their losses from the pool. This also brings down the cost of premiums for insurance holders.

If the risk is exposed to a very small number of population, premium payable would be m u c h h i g h e r a n d q u i t e unviable for both the parties.

Ø Measurable and calculable

The loss to be claimed should be countable. Meaning, the insurance company should be able to calculate the extent and severity of possible losses with some accuracy. For eg: catastrophic events, where the loss is inevitable and cannot be

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stated in advance, is an uninsurable risk.

Ø Accidental

The risk is insurable only when the loss caused by i t is unintentional or accidental. The loss that is out of insured's capacity and uncertain in nature is covered under insurance. In case of life insurance, where death is certain, it is still an insurable risk, as the time of death is not certain.

Role of insurance in personal finance

Let's understand this with help of an example.

Consider potential risks in Mohan's life:

1. H e ' s a c o m p u t e r programmer who goes through a critical surgery after a vehicle accident and is now advised against sitting for long hours in one place.

2. His vehicle caught in an accident needs some major repairs.

3. His dependent mother suffers from arthritis and has to take physiotherapy each month

4. His house gets robbed and a good amount of cash, jewelry and valuables is stolen.

5. Mohan dies in his early thirties leaving his wife and child without economic support.

In all the incidents mentioned here, Mohan andhis family face either loss or reduction of income. Overlooking them while managing personal finance can put disturb their f inancial balance. This is applicable to every one of us w h o i s s u b j e c t t o l i f e ' s uncertainties and better off with some precautions. This is where insurance becomes essential part of our personal finance.

It is important that every indiv idual , especia l ly an earning person, prepares against the risks to his life, so that his family does not suffer any drastic financial changes in c a s e o f a n u n f o r t u n a t e situation.

Types of insurance

I n s u r a n c e i s b r o a d l y categorized into two types: life i n s u r a n c e a n d n o n - l i f e insurance (general insurance)

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Life insurance

Life Insurance is a contract between the policy holder and policy provider, where the insurance provider is obliged to pay a certain amount upon the death of an insured person or after a specified period.

Life insurance plans are usually of following two types or combination of two-

1. Pure Protect ion: I t 's a protection for your family's future in your absence.

2. Protection and Savings: It's a protection plan for your financial goals like property purchase, funding your children's future etc. In add i t ion to l i f e cover benefit.

Let's also understand few important terms related to life insurance

Ø Sum assured: It is the guaranteed amount that an insured person will receive on occurrence of the event, in this case policy holder's death. It is also known as the cover or the coverage amount . Accord ing to Insurance Regulatory and Development Authority Regulations (IRDA) rules, all

life insurance products with terms of more than 10 years to provide a minimum sum assured of 10 times the a n n u a l p r e m i u m f o r individuals below 45 years of age and seven times the annual premium if age is above 45 years. If the term is less than 10 years the minimum sum assured shall be five times the annual premium for all individuals.

Ø Maturity amount: This is the amount payable by the insurance provider when the pol icy matures . I t includes the sum assured and the bonuses. Maturity benefits are offered only in protection and savings p l a n s , n o t f o r p u r e protection schemes. These benefits can be availed by policy holder if he survives through insurance term or by benef ic iar ies i f the insured passes away.

Ø Premium amount: It is the amount the insured pays to the insurer for receiving the benefits of the insurance p o l i c y. T h e m o d e o f payment can be monthly, quarterly, half-yearly or annually or even one time,

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a s m e n t i o n e d i n t h e contract. The premium payable depends upon the sum assured and the term of the policy.

Ø Beneficiary or nominee: While purchasing a policy the insured appoints a person whom he wants to receive the benefits in his absence. The insured can se lec t more than one beneficiary as well.

Life insurance products

Ø Whole life insurance

This product covers insured person for the entire life or till certain age. Its validity is not defined so the individual enjoys life cover throughout his life. The insured person pays premiums until his death, upon which the sum assured is paid out to the beneficiary. Another distinctive feature of this type of insurance is the fixed premium throughout the term period, although they are higher than other life insurance products.

Whole life insurance policy is suitable for individuals who wish to create an estate/ inheritance for their heirs or those who have built strong

post-retirement corpus and want other avenues to invest.

The primary advantages of w h o l e l i f e p o l i c i e s a r e guaranteed death benefits; guaranteed cash values, fixed annual premiums, loan against surrender value and tax break under section 80C. However, on the negative side, the internal rate of return in the policy may not be competitive with other savings alternatives.

Ø Term life plans

Term life insurance is a pure risk cover offered forspecific period of time. This is the most common and a f fo rdab le i n s u r a n c e p r o d u c t a s premiums are least expensive as compared to other plans. It only covers the risk of death and there is no investment component nor cash value in it. Premiums can vary during the insurance term. If the policy holder dies before the term ends pay-out is offered to beneficiaries. But if he survives the term, there is no maturity benefit.

Ø Endowment policy

This product is linked with saving quotient. These policies come with maturity and death

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benefits. Meaning, in the event o f s u d d e n d e m i s e o r permanent disability of the policy holder, during tenure of the policy; the sum assured w i l l b e p r o v i d e d t o beneficiaries and even if the insured survives through the term, the agreed maturity benefits become payable. The key difference between term and endowment plan is this survival benefit.

Liquidity is another distinctive characteristic of endowment life insurance scheme. In other words, insured person is allowed to withdraw money (up to a certain limit) from the c o r p u s a c c u m u l a t e d . However, such withdrawals will reduce the sum assured amount, thereby, lower returns on maturity.

Ø Money back endowment schemes

This type of insurance has dual advantage of life cover and investment as it assures return of a certain per cent of the sum assured as cash payment at regular intervals. It is a savings plan with the added advantage of life cover and regular cash inflow. Since this is generally a participating plan the sum

assured is paid along with the accrued bonuses. The rate of return on the pol icies is quitelow.

Ø Unit Linked Insurance Plans (ULIP)

This is a combination of insurance and investment. A small portion of the premium goes towards life insurance and rest is invested in any n u m b e r o f q u a l i f i e d investments such as stocks, bonds or mutual funds; based o n h i s p r e f e r r e d a s s e t allocation. Risk associated with these investments are, of course, borne by the policy holder. This type of insurance is ideal for people who are ready to stay invested for relatively long periods of time.

T h e i n s u r e d h a s s i n g l e payment as well as timely payment option available. U L I P s a l l o w p a r t i a l withdrawals, subject to penalty charges. While they offer market related returns, In the event the policy holder dies during the policy term, the beneficiary will receive either the sum assured, the higher of the fund value & the sum assured or the sum assured

21



and the value of the fund, depending on the termsin the contract.

Apart from above mentioned p r o d u c t s , i n s u r a n c e companies provide plans to meet specific life stage goals of the insured such as:

• Protection Needs• Saving Needs• Children's Education• Investment Planning• Retirement Planning

These are either money back endowment plans or ULIPs which disburse timely pay-outs to help the insured a c h i e v e h i s g o a l s a n d securinghis lifeat the same time.

Choosing life insurance

- Who needs it?

Every individual who wishes to give financial support to his family or loved ones in his absence. Life insurance is essential if you are an earning member of the family and have m e m b e r s f i n a n c i a l l y depending on you.

- When should you buy it?

The earlier you buy, the more you might save on premiums.

Many choose to buy l i fe insurance in their young age, while they are in good health and starting a family.

- Which is the most suitable plan?

T h i s d e p e n d s u p o n t h e person's objective behind buying an insurance. Those seeking pure protection cover without specified time (until death) should opt for whole life insurance, while those with specific term in mind and w i l l i n g t o p a y s m a l l e r premiums can go for term plans. Individuals looking for additional savings in the form of bonuses along with the sum a s s u r e d a r e g o o d w i t h endowment plans and those with investment objective should buy ULIPs. The most appropriate insurance policy depends on the cover amount required and term. Once that is decided it is easy to finalize the product.

Calculating life insurance need

We can calculate the adequate life cover amount in following three methods:

1. Human life value (HLV)

This is the value that will be

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compensated if the insured passes away, resulting into reduction of income. This method takes into account three components: age of the insured, his current & future

For example:

expense and earnings. In simple words, it is the present value of future earnings that you could expect to earn till your desired retirement age.

Name Arjun Sharma

Current age 28

Retirement age 55

Current annual income 8 lakhs

Expected rate on interest 8 %

Human Life Value Rs. 65,61,000 Source: LIC India a

1. I n c o m e r e p l a c e m e n t

method

The purpose of this method is

to calculate the amount the

policy holder would have

contributed to the household

during his working life. Here,

the insured's current age,

re t i r ement age , gender,

occupation and employee

benefits are factored in among

other things.

Example: Siddhartha earns Rs.8 lakhs p.a. He is 28 years old and

would like to retire at age 55. Calculate the insurance he needs as per

the income replacement method if we assume that his income would

have gone up each year by 5% and investment would have earned a

return of 8%.

Method of calculationThe amount of insurance required is that sum of money which if

invested today at a return of 8% would replace the income that

Siddhartha would have earned each year, taking into consideration

the annual increment.

The amount required has to take into account two rates that work

here: the rate at which the income is expected to rise each year and

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the rate of return which the corpus will earn during the given period.

The rate used in the calculation will be adjusted to reflect the effect of

both these rates on the corpus required. Then the PV function can be

used to calculate the present value of the corpus required. This will

be the amount of insurance taken.

Steps to calculate HLV

1. Calculate the adjusted rate to be used in the calculation of the

corpus.

A. ((1+Investment rate)/(1+Increment rate))-1 is the formula to be

used

B. Investment rate given is 8% and increment rate is 5%. The

adjusted rate thereforeis ((1+8%)/(1+5%))-1= 2.86%.

2. Use the PV function in excel to calculate the corpus required by

giving the following data

A. Rate: This is the adjusted rate calculated i.e. 2.86%

B. Nper: This is the number of earning years. Here it is 27 years.

(Retirement age-Current age)

C. PMT: This is the income in each year starting with Rs.8 lakhs in

the first year in thisexample.

D. The amount calculated is the corpus required to generate the

income thatSiddhartha would have earned over 27 years. In this

case it is Rs. 1,53,39,470.

Note: The calculation looks at income replacement from a

combination the interest earnedon the corpus plus drawdown for

each year. At the end of the period the corpus would beused up too.

Calculation of Insurance NeedFormula

Current income to be replaced Rs.800000

Adjusted rate 2.86% ((1+8%)/(1+5%))-1

Period of earning years 27 years Corpus required

Rs.1,53,39,470

PV(2.86%,27,-

800000,,1)*

*The calculation considers payment at the beginning of each year. This is indicated in

excel by putting in '1' in the PV function for the argument 'Type'

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The illustration is published with permission from National Institute of

Securities Markets(NISM). Further reproduction without the prior written

permission from NISM is strictly prohibited.

3. Need based analysis

This approach is used to

determine the total amount

required to cover family's

financial needsand goals in

case of sudden demise of the

earning member. These can be

routine needs such as food,

clothing, transportation, rent

etc. or debt obligations such as

outstanding loans & credit card

bills or even long term goals

such as child's future, business

expansion etc. Under this

method, existing investments

are also taken into account.

Example: Anil currently has a monthly income of Rs. 1,50,000. He pays an insurance premium of Rs. 25,000 per month and an EMI of Rs. 32,000 on a loan of Rs. 40 lakhs that he has taken for this house. His personal expenses are Rs. 10,000. He wants to provide insurance protection for his wife who is currently 49 years old and is expected to live till 80. If the expected inflation is 6% and return on investment is 8%, what is the insurance cover he should take? His current insurance cover is for Rs.1 Cr and he has other investments amounting to Rs.50 lakhs. His house isworth about Rs.50 lakhs.

Method of CalculationThe first step is to calculate the current value of the income required to be provided for Anil's wife. The next step will calculate the corpus required that will generate the income required. For this the applicable rate will be the rate adjusted for inflation and expected rate of return from the investment of the corpus. To this, the values of any other obligationsor needs are added to come to the total funds required to meet needs. The values of the existing investments are deducted to arrive at the corpus that needs to be created. This will be the insurance amount.

Steps for Calculation1. Calculate the current value of the income required to be provided.A. Total income- (Portion of income used by Anil for personal needs+ EMI payments+Insurance Premium)B. = Rs. 1,50,000- (Rs. 10,000 + Rs. 32,000 + Rs. 25,000)C. = Rs. 1,50,000 - Rs. 67,000 = Rs. 83,000 per monthD. =Rs. 9,96,000 per annum

2. Calculate the applicable rate after adjusting for inflation and

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investment returnA. Inflation rate =6%B. Investment rate= 8%C. Adjusted rate= ((1+8%)/(1+6%))-1= 1.87%

3. Use the PV function in excel to calculate the corpusA. Rate is the adjusted rate of 1.87%B. Nper is the number of years for which the income has to be provided. In this caseIt is 31 years (80 years – 49 years)C. PMT is the income that has to be provided, starting at Rs. 9,96,000D. The value calculated is the corpus that will generate the income required when invested at a rate of 8%. This is Rs. 2,36,54,044.

4. To this corpus value calculated, the loan outstanding of Rs. 40,00,000 has to be added. The total sum required is Rs. 2,76,54,044.

5. From the total amount required, the existing insurance cover of Rs.1,00,00,000 and Rs. 50,00,000 of investments is deducted to arrive at the amount of insurance cover that will be required for Anil so that all the needs are met. This amount is Rs. 1,26,54,044.

Calculation of Insurance NeedFormula

Current income to be replaced Rs. 9,96,000 Rs. 83,000 x 12

Adjusted rate 1.87%

((1+8%)/(1+6%))-1

Period over which income has

to be provided

31 years

(80 years-

49 years)

Corpus required Rs. 2,36,54,044

PV(1.87%, 31,-996000,,1)*

Add loan outstanding of Rs. 40

lakhs

Rs. 2,76,54,044

Deduct insurance available of

Rs. 1 Crand investments of Rs.

50 lakhs

Rs.

1,26,54,044

Additional insurance cover

required

Rs. 1,26,54,044

*The calculation considers payment at the beginning of each year. This is indicated in excelby putting in '1' in the PV function for the argument 'Type’

Note: The amount of additional insurance taken along with the existing insurance cover andinvestment will be adequate to take care of the needs and the value of the corpus createdwill be drawn down completely by the end of the period.

The illustration is published with permission from National Institute of Securities Markets(NISM). Further reproduction without the prior written permission from NISM is strictly prohibited.

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Non- l i fe insurance/ general insurance

As the name suggests, this category covers almost all forms of insurance except life. It can be personal insurance covering health, motor, travel, accident or insurance covering assets like property. Most general insurance policies are annual contract or in few cases extended term.

Health Insurance

Health insurance of a person ensures that his medical expenses are covered when he is ill.Health insurance provider either reimburses the incurred expenses or provide cashless t r e a t m e n t a t a n e t w o r k hospi ta l . L ike any other insurance policy, this is a contract where terms and conditions are already set. The policy holder is covered only for the hospital costs that are termed in the contract. One can also extend insurance benefits to his family members by taking family floater policy

The cost of healthcare in India is increasing by the day. A health insurance takes care of one's essential health needs without having them compromise there savings, in return of periodic premiums.

There are number of plans available today to include different medical emergencies. There are individual covers, family cover plans, senior citizen healthcare, critical i l lness , matern i ty p lans, personal accident. Unit-linked health plans (ULHPs) are a combination of insurance and investment which help you build corpus to meet treatment costs excluded under policy, along with health protection.

With so many health insurance options available in the market, picking the right policy can be a difficult task. Here are some features you should look out for while comparing your choices.

Ø Network hospitals

Insurance companies have tie ups with various hospitals across the country. Selecting a po l i cy tha t has ne twork hosp i ta l s in your eas i l y accessible locations is both convenient and essential. Treatment at these hospitals are usually cashless, which a l so resu l t s i n to hass le -free claim settlement process.

Ø Claim process

The settlement ratio of the insurance provider is an

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i m p o r t a n t f a c t o r t o b e considered. An insurance company with a posit ive record of bill processing is likely to settle your claims faster.

Ø No claim bonus

This feature is beneficial for policy subscribers who have not filed claim for any treatments in the previous year. It is availed at the time of renewal of the policy. The benefit can be in the form of bonus on sum assured or premium discount.

Ø Pre and post hospitalization

Check if your insurance policy covers both costs incurred b e f o r e a n d a f t e r hospitalization. Details of such expenses are specifically mentioned in the pol icy. Medical tests, vaccinations, doctor's fees are few of pre hospitalization costs, while follow-up visits and course medicines are post-hospitalization expenses.

Ø Co-payment This feature mandates that the insured will bear a certain percentage of the claim amount and the rest will be taken care by the insurance company. This option is available in the

organizations where employer is keen on providing health facilities to its employees. This feature does not affect sum assured, and in fact, is a way to pay lower premiums.

Ø Renewability

Most health insurance policies are annual contracts. At the end of the term, the policyholder has to renew this contract, as any break in continuation will lose him the benefit amassed so far.

Ø Floater size

Every insurance company has its set rule of policy coverage. This is one factor to consider if you want to include your parents, spouse or children under your health protection plan. There is acertain limit to cost and size of the family as stated by the insurer. Check this floater clause before buying an insurance policy.

Ø Portability

As more companies are c o m i n g w i t h a d d i t i o n a l features of health insurance plans, it makes sense to have flexibility of switching from the current insurance provider to a better one. Some companies offer this portability free of costs, while some may charge

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portability charges.

Ø Top-up plans

These are back up plans when you exhaust the sum insured limit. A top-up plans comes in only when a certain amount is crossed. It is an advantage to claim the cost over and above your base insurance plan.

Ø Riders

R i d e r i s a n a d d i t i o n a l advantage to an existing insurance cover to suit the policyholder's needs. Cash, room rent waiver, maternity waiver are some of the riders that can be added if you do not want to buy a new insurance altogether. These are different than top-up plans as riders are specific need related, whereas top-up plans cover same benefits as the base plan, but only after a certain limit.

Apart from above features, one should consider ambulance fees, room rent limits, waiting period, restore benefits, premium loading, caps, sub-limits & tax benefits before buying a health insurance policy.

Including health insurance in your personal finance management plan has become essential now more than ever.

As the cost of healthcare in our county is skyrocketing, absence of health insurance may adversely affect your savings and investments. Calculating how much health cover one needs depends upon factors like age, family history, income and ability as well as willingness to pay.

Motor Insurance

This is a coverage to bear cost of physical damage or other form of loss due to accidents. Common types of motor insurance are car insurance, two-wheeler insurance and third party insurance.

A car insurance provides protection against loss or damage to own car or third party. One should compare premium payable before selecting the suitable policy. It usually depends upon make and value of car, manufacturing year&place of r e g i s t r a t i o n . S i m i l a r parameters are applied to two wheeler insurance. Conditions and process of settlement can also be deciding factors while choosing a motor insurance.

Third party insurance protects third party who has been af fected by the accident involving your vehicle. Every

29



vehicle in public space in India has to have th i rd pa r ty i n s u r a n c e a s p e r I R D A gu ide l ines . I t can cover property damage, bodi ly injuries and personal accident cover for driver.

Damages occurred due to fire, burglary, riots, earthquake, land slide, flood, cyclones etc. Are usually included under motor insurance. However, accidents caused while the driver has consumed drugs, d r i v e n w i t h o u t v a l i d documents, during illegal activities or accidents outside of India are excluded.

Property/ home insurance

A property insurance is a protection against damage to your property in an unforeseen event – natural or accidental. It is a shield to secure content and structure of the house. Common perils covered under most property insurances are f i r e , t h e f t , e a r t h q u a k e , lightening, loss or damage to property during riots or strikes. Wilful destruction of property, d a m a g e d u r i n g w a r , depreciation due to wear and tear, loss of cash and art and antiques are not covered

under this category. Property i n s u r a n c e i s m e a n t f o r everyone who own or rents a p r o p e r t y. T h i s t y p e o f insurance usually covers long term.

Travel insurance

Travel insurance safeguards you from medical& financial emergencies while travelling to foreign country. It typically includes cancellation of delay of flights, baggage loss or delay in its clearance, loss of passport, trip cancelation, health issues during the trip etc. Some foreign countries even ask for valid medical t r a v e l i n s u r a n c e b e f o r e allowing a person to enter their country. Check insurance company's credibility, claim records, solvency ratio, sum insured before buying a travel insurance.

Bottom line

Insurance is a crucial factor of our personal finance plan. Whi le i t i s impor tant to strategize investments to accomplish our life stage goals, it is also important to consider risk management while thinking about this journey.

The views expressed in the article are personal views of the author and do not necessarily represent the views of ICICI Securities

30

Tête-à-tête


‘Buy a suitable health insurance cover at an early age'

Gone are the days when medical emergencies would happen only in the later years of life. With the erratic lifestyle and poor eating habits, lifestyle diseases such as hypertension and diabetes occur even in the younger population, says Amitabh Jain - Head- Customer Service Motor and Health, ICICI Lombard.Unlike a term insurance plan a health insurance plan can be customized to fit your needs and budget, he adds. Excerpt:

Amitabh Jain ,

Head- Customer Service Motor and

Health, ICICI Lombard

Q. What should be the ideal sum assured while choosing a health insurance policy?

A. Several factors that affect healthcare expenditure and hence must be considered before choosing a health insurance policy. Factors such as age and location matter the most since a cover of 5 lakh may be sufficient for a person in his 20s living in a metro city

whereas a person in his 50s would require a higher sum insured. Medical costs not only increase with age but also from a non-metro to a metro city. A l s o , e x i s t i n g m e d i c a l c o v e r a g e p r o v i d e d b y employer or government scheme should also be taken into considerat ion. Most indemnity plans offer no claim bonus or renewal bonus which gives annual increase in sum insured, such features should also be kept in mind.

Health exigencies can happen anytime and with increase in age, the premiums for health insurance also increase. But m o r e i m p o r t a n t l y, t h e probability of contracting conditions like diabetes and hypertension also increase. This may make it difficult to buy a medical plan at that time given the sub optimal health condition. Hence, it is highly r e c o m m e n d e d t o b u y a suitable health insurance cover

31

Tête-à-tête


at an early age with adequate sum insured keeping in mind these factors.

The more vital aspect to consider before purchasing a health insurance is the various features and covers within the policy. Depending up on the needs, one must consider covers such as outpatient cover, maternity, hospital cash, free health checkups and cost sharing features such as co pay a n d d e d u c t i b l e s . Acomprehensive plan should be optedto manage all your h e a l t h c a r e n e e d s i n c l u d i n g i n p a t i e n t hospitalization cover and outpatient care.

Q. Can you tell us the risks of depending on the insurance provided by the employer?

A. “There is a popular saying about health insurance: “Buy health insurance when you don't need it, because you may not get it when you want it.”

Unlike a Group Cover, an individual or family health insurance policy is tailored to your needs. Unfortunately, the general belief is that such a health cover is redundant when you are covered by your employer's group insurance product. It's a common belief

that an employer's insurance is enough to take care of an individual's medical needs. A group health cover will usually have a set of terms and conditions that may not match individual requirements. Most health insurance plans offered by employers have room rent restrictions, sub-limits for s p e c i f i c c o n d i t i o n s a n d typically offer low sum insured.

Another major reason why one must not entirely depend on the health policy provided by the employer is that the validity of an employer's insurance product only applies till one is e m p l o y e d w i t h t h e organization. The cover lapses as soon as you quit the company. Hence in the event of a job loss, job change or retirement, one can be left without a health insurance policy for cover. This can significantly impact and can derail a family's budget and expenses.

Lastly, buying an individual h e a l t h c o v e r g i v e s a n individual the opportunity to reduce income tax liability. Payments made towards health insurance premiums are eligible for tax deductions under section 80D of the Indian

32

Tête-à-tête


Income Tax Act.

Q . What factors should one consider while comparing two health policies?

A. While purchasing a health insurance plan may seem like a daunting task due its vast and complex nature, it is essential to compare and understand what suits your requirement the bes t . Un l i ke a te rm insurance p lan a hea l th i n s u r a n c e p l a n c a n b e customized to fit your needs and budget. The general tendency while comparing two health plans is to check for the cheapest option for the highest sum insured, however there is more to what meets the eye. In any given health policy there will be several cappings on claim payment or sub limits and co-pays applied due to which the net premium may look cheaper but at the time of claim the customer ends up paying more out of his pocket. A few parameters that one must bare in mind before deciding which plan to buy are:

• Claim Settlement ratio: It is very important to study and know the claim settlement ratio of the company the customer chooses to buy

from, even with the cheapest premium if the claims are settled the entire purpose of having a health insurance plan may get defeated.

• W a i t i n g p e r i o d s & Exclusions: One must be aware of what exactly the insurance will not cover and the duration till which he is not covered.

• Room rent restr ict ions: Minute features like room rent capping is something that should not be ignored while comparing two plans. Some plans offer room rent up to a fixed % of the sum insured while others might have a flat rate, based on the needs one must decide on what suits better.

• Co-pay and deductibles: Co pay and deductibles are features that will reduce the premium of the po l icy however, the cover for such policies will not be entirely borne by the insurer and a part of the claim will have to be paid by the insured. It is important to know these limits before purchasing the policy instead of merely going for the cheaper option.

• Hassel free servicing: At the time of claim what matter the

33

Tête-à-tête


most is the quality of service you get. Having a plan from a company who has smooth and quick servicing becomes very crucial at the point of claims. Hence, before buying a policy there must be a thorough check on who will be able to service you best.

Q. Which one is preferable? Top-up policy or another health cover?

A. A top-up plan helps you get a higher cover at a lesser cost. Top-up or super top-up plans get triggered once a threshold amount is reached. The only difference between a top-up and super top-up plan is that in a top-up plan the insured has to meet the deductible amount for every claim while in super top-up annual cumulative claim amount should exceed the deductible amount.

It is always better to have a base plan cover with an additional cover such as top-up or super top-up to meet unforeseen circumstances w i t h o u t b e i n g a f f e c t e d financially. The customers can opt for either top-up or super top-up plans depending upon t h e i r f i n a n c i a l v i a b i l i t y. Additionally, customers who are already covered under corporate plans can look for

top up/super top up covers. Splitting cover in two policies also gives the customer two get health-check-up, no claim bonus, and etc. under two policies.

Q. Why should one buy a policy at younger age?

A. Gone are the days when medical emergencies would happen only in the later years of life. With the erratic lifestyle and poor eating habits, lifestyle diseases such as hypertension and diabetes occur even in the younger population.

Moreover, purchasing a health insurance is an integral part of f i nanc ia l p l ann ing. I t i s essential to have a cover for all t h e u n c e r t a i n t i e s a n d emergenc ies . I nsu rance should be purchased as soon as possible to ensure you are adequately covered in case a medical emergency were to occur. Other reasons as to why one must buy a policy at a younger age:

• Higher likelihood of policy getting accepted

• Lower premium rates

• Tax savings

• Accumulation of benefits such as No Claim Bonus

34

ASK OUR PLANNER


Using disciplined investments to strengthen your personal finance

Q. I am 32 and have a 3-year old

daughter. I want to invest Rs. 5,000

every month to provide for her

higher education. Can you tell me

where I should park thefunds?- Mandeep Pagi

A. As your requirement for

funds is after 14-15 years from

now, you can consider taking

higher risk and invest into

equity mutual funds. You can

look at diversified equity funds

and some portion into mid-cap

equity funds as well. You can

v i s i t I C I C I d i r e c t . c o m >

Research > Mutual Funds to

know our recommended

funds.

Q. I had understanding that my

below policy can be withdrawn

fully now (rather than 1/3 cash and

2/3rd pension). ICICI Pol icy

00299620 life time pension. I need

some money so would like to

withdraw fully....I think there is 1%

tax on withdrawn amount and I

may need to pay tax while filing my

returns. Correct. Can you let me

k n o w t h e p r o c e d u r e f o r

withdrawal?

- Sanjiv Rastogi

A. In any pension policy, if you

are surrendering the policy

before completion of the policy

period, then you would be able

to withdraw the amount in a

lumpsum; however, such

amount withdrawn would be

taxed. If you have claimed

deduction of premium paid

under Section 80CCC(1), then

the entire surrender value

would be added to your

income in the year of receipt

and taxed as per your income

slab. You should pay the tax as

per the due dates of advance

tax and not while filing your

returns, as it may attract

penalty otherwise. Please

contact your insurer for

knowing the procedure of

withdrawal.

Q. We, a family of five, have

planned a trip to Europe for 10 days.

Is it necessary to take travel

insurance policy while traveling? If

yes, how much will it cost and how

does it work?- Nisha Ghedia

34

ASK OUR PLANNER


bank/post office where PPF

account is held

• The exist ing bank/Post

office will arrange to send

the original documents such

as a certified copy of the

a c c o u n t , t h e a c c o u n t

o p e n i n g a p p l i c a t i o n ,

nomination form, specimen

signature etc. along with

c h e q u e / D D o f t h e

outstanding balance in the

PPF account to ICICI Bank

branch address provided by

the customer

• O n c e P P F t r a n s f e r - i n

documents are received at

ICICI Bank, branch official

will intimate customer about

the receipt of documents.

Then customer is required

to submit fresh PPF account

opening form (Form A),

Nomination form (Form E /

Form F in case of change of

nomination), along with the

original PPF passbook. A

fresh set of KYC documents

are also required to be

submitted by the customer.

You will be able to set up a

standing instruction to debit a

fixed amount from your ICICI

A . F o r s o m e E u r o p e a n

countries, travel insurance is

manda to ry. The cos t o f

insurance will be around

Rs.2,000 to Rs.3,000. Travel

insurance generally covers

medical expenses incurred

abroad, personal accident

cover, loss of passport, loss of

baggage, etc. You can buy

travel insurance policy online

as well.

Q. Can I transfer my PPF Account

with Post Office Account to ICICI

Bank & have the monthly ECS? If

yes, what is the process, what are

the pros & cons of the same?- Varad Chavan

A . P P F a c c o u n t c a n b e

t r a n s f e r r e d f r o m o n e

authorised bank or Post office

to another. In such case, the

PPF account will be considered

as a continuing account. To

enable customers to transfer

their existing PPF accounts

from the other bank/post office

to IC IC I Bank , fo l lowing

p r o c e s s i s f o l l o w e d b y

ICICIBank:

• Customer has to submit PPF

transfer request in the

36

ASK OUR PLANNER


Bank savings bank account to

PPF account. ICICI Bank offers

you the conven ience o f

viewing your Public Provident

Fund (PPF) Account balance,

transferring funds from linked

savings account online and

viewing your PPF account

statement online in your ICICI

B a n k I n t e r n e t B a n k i n g

Account.

Q. I'm 48 years old and earn about

Rs. 60,000 per month. I have no idea

of how to prepare for retirement.

My current total expenses are Rs.

40,000 a month. I intend to retire in

t h e n e x t 1 0 y e a r s . I h a v e

accumulated around Rs.30 lakh in

my Employees' Provident Fund

(EPF) account t i l l now and

contribute Rs. 5,000 a month

currently (including employer's

contribution). Please help.- Rewa Mandavgane

A. If you are looking to spend

around the same amount post-

retirement too, then you would

require an approximate corpus

of around Rs.1.90 crore,

assuming you would need the

monthly amount for a period of

20 years post retirement.

You will be able to accumulate

around Rs.80 lakh through

your EPF, if your monthly

contribution increases by

around 8% every year. After

deducting the same, there

would be shortfall of Rs.1.10

crore. You might have made

any other investments for

retirement, whose growth can

be estimated. If not, then to

build up the shortfall amount

from now, you would have to

invest close to Rs.40,000 p.m.,

and increase the amount by

8% every year.

We suggest you to draw up a

customized retirement plan for

yourself, through a financial

planner / investment advisor,

by providing all your details of

investments. ICICIdirect also

provides such customized

retirement plan at a nominal

f e e . P l e a s e w r i t e t o

[email protected] to

know more.

Do you also have similar queries to ask our experts? Write to us at: [email protected].

MUTUAL FUND ANALYSIS

37

Investing in ELSS funds


Equity linked savings schemes (ELSS) are equity diversified schemes that are eligible for tax benefits under Section 80C of the Income Tax Act. The investment limit for individuals to invest in financial instruments under the section 80 C is | 1.5 lakh which we believe can be invested in ELSS as it is the only tax saving instrument that invests purely in equities (an asset class that can potentially earn higher return). The lock-in period of three years is also among the lowest among other investment options available under Section 80C of the Income Tax Act.

Advantages of ELSS

§ Investment in ELSS is eligible for tax benefits u n d e r s e c t i o n 8 0 C . Maximum tax saved can be up to 46,350`

§ ELSS invests in equity stocks, which leads to capital appreciation over the long term

§ Capital gains at the end of the lock- in per iod a re completely tax free

§ The lock-in period of three years curtails panic selling in case of interim volatility in equity markets. Hence, investments reap the benefit of long term investing in equities

§ Highly professional and experienced fund managers handle the equity exposure of one's overall portfolio allocation

§ S y s t e m a t i c m o d e o f

investment (regular monthly investment) available

Equity market outlook

The outlook for the Indian eq u i t y m ar k e t s r em a i ns positive over the next 3-5 y e a r s . I n c r e m e n t a l macroeconomic indicators have been stable to positive, providing a base for equity as an asset class to deliver durable and strong growth over the medium to long term. Further, implementation of several structural reforms such as GST, demonet isat ion, digitisation, infrastructure r e f o r m s , b a n k i n g a n d insolvency reforms and the p r e s e n c e o f a s t a b l e government are big positives.

Under this background, we recommend the following funds: L&T Tax Advantage Fund, Franklin India Taxshield Fund and Reliance Tax Saver Fund

38



L&T Tax Advantage Fund

Fund Objective:To generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities.

Key Information:

Product Label:

NAV as on October 31, 2017 (`) 55.3

Inception Date February 27, 2006

Fund Manager Soumendra Nath Lahiri

Minimum Investment (`)

Lumpsum 500

SIP 500

Expense Ratio (%) 2.07

Exit Load Nil

Benchmark S&P BSE 200

Last declared QuarterlyAAUM(` cr) 2730

Investors understand that their principal will be at moderately high risk

This product is suitable for investors who are seeking:• Long term capital growth• Investment predominantly in equity and equity related securities

Performance:The fund has been a top-quartile performer over the last one and three year periods (as of November 20). It has managed to outperformed the category and the benchmark over the last one-year, three year and five year time frame (as of October 31). It has generated CAGR of 16.3% and 19.8% in the last three years and five years vs. 10.2% and 14.8% returns by benchmark, respectively (as of October 31, 2017.

Fund Benchmark

Performance vs. Benchmark

27.1

16.3 19.8

15.820.8

10.2 14.8

11.4

0

10

20

30

1 Year 3 Year 5 Year Since Inception

Portfolio:The out performance of the fund in recent times fund is on the back of its bet on the

financial and consumption themes. Additionally, the fund manager has demonstrated good stock picking ability in the

%25.7

16.3

14.2

10.0

7.4

5.9

3.8

3.4

3.0

2.2

Top 10 Sectors Asset TypeFinancials Domestic Equities

Industrials Domestic Equities

Consumer Discretionary Domestic Equities

Materials Domestic Equities

Others Domestic Equities

Consumer Staples Domestic Equities

Health Care Domestic Equities

Information Technology Domestic Equities

Telecommunication Services Domestic Equities

Others Domestic Equities

39



commodities space as well as s o m e t u r n a r o u n d opportunities by identifying gainers quite early on. The s c h e m e i s s i g n i f i c a n t l y overweight consumption stocks when compared to its benchmark although exposure has reduced recently in favour of telecom and financials. There are more than 60 stocks

in the portfolio with not more than ~4% exposure to a single stock as a strategy to avoid concentration risk. However the top four picks in terms of sectors contribute ~66% of the portfolio. The fund is slightly tilted towards large cap stocks but sti l l holds significant amount of midcap stocks.

%

4.2

4.1

3.8

3.7

3.1

3.1

3.0

2.8

2.6

2.4

Top 10 Holdings Asset Type

Domestic Equities

Larsen & Toubro Ltd. Domestic Equities

ICICI Bank Ltd. Domestic Equities

ITC Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Net Current Asset Cash & Cash Equivalents and Net Assets

Graphite India Ltd. Domestic Equities

Housing Development Finance Corporation Ltd.

Axis Bank Ltd. Domestic Equities

Future Lifestyle Fashions Ltd. Domestic Equities

Kotak Mahindra Bank Ltd. Domestic Equities

%

0.9

0.9

0.9Bharti Airtel Ltd.

Whats In

Bharat Forge Ltd.

IndusInd Bank Ltd.

%

1

Whats out

NMDC Ltd.

40



Our View:Investors with a slightly higher risk appetite can consider the fund f r o m a t h r e e - f i v e y e a r perspective.

Data as on October 31,2017 ;Portfolio details as on Sep-2017Source: ACE MF, ICICI Direct Research

You can view performance of other schemes being managed by the fund manager of this scheme on the following link:

Https://www.ltfs.com/content/dam/lnt-financial-services/lnt-mutual-fund/downloads/factsheets/2017-18/LT%20Factsheet%20October %202017.pdf

41



Franklin India Taxshield Fund

Fund Objective:To provide medium to long term growth of capital along with income tax rebate.

Key Information:

This product is suitable for investors who are seeking*:

• Long term capital appreciation

• An ELSS fund offering tax benefits under Section 80C of the Income Tax Act

Product Label:

Performance:The fund has outperformed its benchmark over most periods, however the performance has suffered over the last year. It has beaten the benchmark Nifty 500 Index by ~2% CAGR (three years) and ~4% CAGR (five years) (as of October 31, 2017).

Fund Benchmark


NAV as on October 31, 2017 (`) 543.4

Inception Date April 10, 1999

Fund Manager Lakshmikanth Reddy


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark NIFTY 500

Last declared Quarterly AAUM(` cr) 3367

Investors under-stand that their principal will be at moderately high risk

15.7

12.8 1

9.2 24

22

11 1

5.5

0

0

10

20

30


Portfolio:The portfolio has undergone a significant change in character over the last year, cutting exposure to hea l thcare , financials and technology sectors while increasing

exposure to energy and utility stocks. In terms of portfolio construction, the fund has a significant large cap bias, with ~70% of the portfolio invested in such stocks with midcap stocks making up the rest. This

42



has contributed to the recent underperformance to some ex ten t , espec ia l l y when compared to peers which are more multicap in nature. Currently there are ~60 stocks

in the portfolio with some of the top picks being fairly concentrated positions. The fund currently has ~9% cash in the portfolio as well.

%

9.4

9.4

6.1

4.4

3.5

3.1

3.1

2.9

2.9

2.8


Mahindra & Mahindra Ltd. Domestic Equities

State Bank Of India Domestic Equities

Bharti Airtel Ltd. Domestic Equities

Yes Bank Ltd. Domestic Equities

HDFC Bank Ltd. Domestic Equities

Call Money Cash & Cash Equivalents and Net Assets

Axis Bank Ltd. Domestic Equities

NTPC Ltd. Domestic Equities

Hindustan Unilever Ltd. Domestic Equities

IndusInd Bank Ltd. Domestic Equities

%23.7

5.8

5.3

4.8

3.9

3.9

3.6

3.5

3.3

3.1

Power Generation/Distribution Domestic Equities

Automobiles - Passenger Cars

Bank - Private Domestic Equities

IT - Software Domestic Equities

Refineries Domestic Equities

Household & Personal Products Domestic Equities

Top 10 Sectors Asset Type

Bank - Public Domestic Equities

Automobile Two & Three Wheelers Domestic Equities

Telecommunication - Service Provider Domestic Equities

Domestic Equities

Pharmaceuticals & Drugs Domestic Equities


Our View:Putt ing as ide the recent u n d e r p e r f o r m a n c e , t h e scheme is one of the few ELSS offerings with a long term track record of performance. We

der ive comfort f rom the presence of an experienced and pedigreed fund manager. Investors with a slightly longer term horizon can consider this fund within the ELSS category.


Https://www.franklintempletonindia.com/investor/resources

43



Reliance Tax Saver Fund

Fund Objective:To generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments.

Key Information:

Product Label:

This product is suitable for investors who are seeking*:

• Long term capital growth

* Investment in equity and equity related securities.

Performance:The fund has been a consistent outperformer when compared to peers or its benchmark over various time frames. The one year, three years and five-year performance (as of October 31) is 28.5%, 13.8% CAGR and 23.1% CAGR, respectively, as compared to BSE Sensex's 18.9%, 6% CAGR and 12.4% CAGR.


Fund Benchmark

NAV as on October 31, 2017 (`) 65.5

Inception Date September 21, 2005

Fund Manager Ashwani Kumar


Lumpsum 500

SIP 500


Exit Load Nil

Benchmark S&P BSE SENSEX

Last declared Quarterly AAUM (` cr) 9983

Investors under-stand that their principal will be at moderately high risk

28.5

13.8

23.1

16.8

18.9

6

12.4

11.9

0

10

20

30


PortfolioThe fund demonstrates a bias towards high growth and scalable businesses, which has helped it deliver well during the

good run for equity markets beginning from mid-2013. The portfolio is almost evenly split b e t w e e n l a r g e c a p a n d mid/small cap stocks, giving

44



t h e s c h e m e a m u l t i c a p character. When compared to its benchmark, the scheme is underweight on financials and significantly overweight on automobiles. While some of the top stock picks have fairly

healthy allocations, at the overall portfolio level the scheme seeks to mitigate concentration risk with a fairly large number of holdings (60+ currently).

%

7.8

6.9

5.4

5.1

4.6

4.3

3.2

3.2

3.0

2.9


TVS Motor Company Ltd. Domestic Equities

State Bank Of India Domestic Equities

ICICI Bank Ltd. Domestic Equities

Tata Steel Ltd. Domestic Equities

Infosys Ltd. Domestic Equities

Tata Motors Ltd. Domestic Equities

ABB India Ltd. Domestic Equities

Honeywell Automation India Ltd. Domestic Equities

Bharat Forge Ltd. Domestic Equities

Ambuja Cements Ltd. Domestic Equities

%10.3

7.8

7.2

6.8

6.0

5.5

5.1

4.3

3.9

3.8

Bank - Private Domestic Equities

Electric Equipment

Top 10 Sectors Asset TypeBank - Public Domestic Equities

Automobile Two & Three Wheelers Domestic Equities

Automobiles-Trucks/Lcv Domestic Equities

Forgings Domestic Equities

Cement & Construction Materials Domestic Equities

Domestic Equities

IT - Software Domestic Equities

Auto Ancillary Domestic Equities

Steel & Iron Products Domestic Equities

%

0

0.2

2.4

Whats In

ITD Cementation India Ltd.

Ashoka Buildcon Ltd.

SBI Life Insurance Company Ltd.

%

1.4

0.50.1

Whats out

ITC Ltd.

Shriram Transport Finance Company Ltd.Vijaya Bank

45



Our View:The fund is slightly on the a g g r e s s i v e s i d e w i t h significant midcap holdings.

However, the portfolio is well constructed in terms of sector-l e v e l a n d s t o c k - l e v e l diversification.


Https://www.reliancemutual.com/InvestorServices/FactsheetsDocuments/Fundamentals-November-2017.pdf

Performance of other schemes managed by these fund managers:

56.27 26.07 --49.53 16.10 20.4856.09 21.04 23.8329.54 2.50 7.2347.33 22.20 29.5737.84 17.32 20.73

29.57 10.50 17.4430.75 9.61 14.9425.10 13.44 19.17

6.52 8.57 8.8410.90 5.89 14.576.52 8.57 8.84

Performance of other schemes managed by the fund manager - Soumendra Nath Lahiri

L&T Infrastructure Fund-Reg(G)NIFTY INFRAL&T Midcap Fund-Reg(G)Nifty Free Float Midcap 100

Fund Name 1 Year 3 Years 5 Years

Top 3 Performing Schemes L&T Emerging Businesses Fund-Reg(G)S&P BSE Small-Cap

Crisil Short Term Bond Fund Index

Bottom 3 Performing SchemesL&T Equity Fund-Reg(G)S&P BSE 200L&T India Prudence Fund-Reg(G)Crisil Short Term Bond Fund IndexL&T Dynamic Equity Fund-Reg(G)

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote : The concerned Fund Manager manages 8 other schemes of the concerned Mutual Fund

26.40 11.41 18.8427.27 6.84 13.0224.21 11.91 19.3327.27 6.84 13.0217.45 11.29 17.2427.27 6.84 13.02

10.42 9.74 13.041.14 8.72 7.586.65 8.70 10.85

1.14 8.72 7.58


Top 3 Performing Schemes Franklin India Flexi Cap Fund(G)NIFTY 50

Performance of other schemes managed by the fund manager - Lakshmikanth Reddy

Bottom 3 Performing SchemesFranklin India Pension Plan(G)Crisil 10 Yr Gilt IndexFranklin India MIP(G)Crisil 10 Yr Gilt Index

Franklin India Taxshield(G)NIFTY 50Franklin India Balanced Fund(G)NIFTY 50

2. Franklin India Taxshield Fund

1. L&T Tax Advantage Fund

Note : The schemes may or may not have been managed by the same Fund Manager since its inceptionNote: The concerned Fund Manager manages 5 other schemes of the concerned Mutual Fund

46




33.91 19.11 29.8527.27 6.84 13.0230.96 17.02 25.7927.27 6.84 13.0228.58 12.14 19.1127.27 6.84 13.02

26.40 11.41 18.8427.27 6.84 13.0226.21 12.61 19.5727.27 6.84 13.02

24.21 11.91 19.3327.27 6.84 13.02NIFTY 50

NIFTY 50

Bottom 3 Performing SchemesFranklin India Flexi Cap Fund(G)NIFTY 50Franklin India Prima Plus Fund(G)NIFTY 50

Top 3 Performing Schemes Franklin India Smaller Cos Fund(G)NIFTY 50Franklin India Prima Fund(G)NIFTY 50

Franklin India Taxshield(G)

Franklin India Opportunities Fund(G)

Performance of other schemes managed by the fund manager - R. Janakiraman



3. aReliance Tax Saver Fund

38.45 13.21 23.2529.36 8.07 13.8637.19 11.93 18.7929.36 8.07 13.8633.08 11.93 18.8930.41 9.43 14.77

-- -- --30.41 9.43 14.77

Performance of other schemes managed by the fund manager - Ashwani Kumar

Reliance Vision Fund(G)S&P BSE 100Reliance Top 200 Fund(G)S&P BSE 200

S&P BSE 200


Top 3 Performing Schemes Reliance Tax Saver (ELSS) Fund(G)S&P BSE 100

Bottom 3 Performing SchemesReliance Capital Builder Fund-IV-B(G)



What is iCommunity?iCommunity is ICICIdirect's interactive platform where one can answer and get answered as well. With extensive range of forums, events & discussions iCommunity serves as an opportunity to learn more about financial world.

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48

EQUITY MODEL PORTFOLIO


Our indicative large-cap equity model portfolio has continued to deliver an impressive return (inclusive of dividends) of 118.05% till date (as on November 21, 2017) since its inception (June 21, 2011) vis-à-vis the benchmark index (S&P BSE Sensex) return of 95.58% during the same period, an outperformance of 22.47. This validates our thesis of selecting companies with sound business fundamentals that forms the core theme of our portfolio. Our midcap portfolio of 16 stocks continues to outperform well, delivering 382.12% (inclusive of dividends) till date (as on November 21, 2017) vis-à-vis the benchmark index (CNX Midcap) return of 155.16%, outperformance of 226.96%. Our consistent outperformance demonstrates our superior stock picking ability as markets aligned to our view of favourable risk reward, good franchisee vs. reward-at-any-risk businesses.

We have always suggested the SIP mode of investment and still find a lot of merit in it as the preferred mode of deployment given the market conditions and volatility associated since the inception of the portfolio. We highlight that the SIP return of our portfolio has consistently outperformed the indices.

Following the same pace and opportunities in the market, our portfolio (large caps) remain overweight on BFSI sector – HDFC Bank (10%), HDFC (9%), Bajaj Finance (6%) and SBI (6%). Affirming our view on consumption demand, Dabur (5%) and Asian Paints (5%) continue to be part of our large cap portfolio. However, there's an addition of metal sector- Hindustan Zinc (6%) in the revised portfolio.

We remain positive on auto, IT and pharma. We remain overweight to neutral on pure play defensives (IT, FMCG) as secular earnings coupled with sector rotation could lead to consolidation in near term valuations and offer stock specific opportunities.

Among individual names, we continue to recommend TCS in the IT space. A revival in the capex cycle coupled with lower interest rate scenario would benefit the BFSI and construction space (UltraTech, L&T, SBI, Asian Paints).

49



Name of the company

Largecap Stocks

Model Portfolio

Largecap(%)

Midcap(%)

Diversified(%)

Auto 16.0 11.2

Tata Motor DVR 4.0 2.8

Maruti 5.0 3.5

EICHER Motors 3.0 2.1

Mahindra & Mahindra (M&M) 4.0 2.8

BFSI 37.0 25.9

HDFC Bank 10.0 7.0

Axis Bank 6.0 4.2

HDFC 9.0 6.3

Bajaj Finance 6.0 4.2

SBI 6.0 4.2

Capital Goods 4.0 2.8

L & T 4.0 2.8

Cement 4.0 2.8

UltraTech Cement 4.0 2.8

FMCG/Consumer 18.0 12.6

Dabur 5.0 3.5

Marico 4.0 2.8

Asian Paints 5.0 3.5

Nestle 4.0 2.8

IT 6.0 4.2

TCS 6.0 4.2

Media 4.0 2.8

Zee Entertainment 4.0 2.8

Metals 6.0 4.2

Hindustan Zinc 6.0 4.2

Oil and Gas 5.0 3.5

GAIL Ltd. 5.0 3.5

Largecap share in diversified 100.0 70.0

50



ICICI Securities has received a mandate from Indian Bank'.

Auto 6.0 1.8

Bharat Forge 6.0 1.8

BFSI 20.0 6.0

Bajaj Finserve 8.0 2.4

J&K Bank 6.0 1.8

Indian Bank 6.0 1.8

Capital Goods 6.0 1.8

Bharat Electronics 6.0 1.8

Cement 6.0 1.8

Ramco Cement 6.0 1.8

Consumer 36.0 10.8

Symphony 6.0 1.8

Supreme Ind 6.0 1.8

Kansai Nerolac 6.0 1.8

Pidilite 6.0 1.8

Tata Chemicals 6.0 1.8

Bata 6.0 1.8

Metals 6.0 1.8

Graphite India 6.0 1.8

Infrastructure 8.0 2.4

NBCC 8.0 2.4

Logistics 6.0 1.8

Container Corporation of India 6.0 1.8

Textile 6.0 1.8

Arvind 6.0 1.8

Total 100.0 30.0

Midcap share in diversified 30

TOTAL 100 0 100.0

51

Performance* so far since inception

*Returns (in %) as on Nov 21, 2017

Large-cap Portfolio Benchmark: BSE Sensex; Mid-cap Portfolio

Benchmark: CNX Midcap; Diversified Portfolio Benchmark: Combination

of BSE Sensex and CNX Midcap

Value of 1,00,000 invested via SIP at the end of every month `

Portfolio Benchmark

Investment Value of Investment in Portfolio Value if invested in Benchmark

Start date of SIP: June 30, 2011; *Value as on Nov 21, 2017



118.0504429

382.1201873

175.3173073

95.5837882

155.1633206110.7247928

0255075

100125150175200225250275300325350375400425

Large Cap Midcap Diversified

%

7900000

7900000

7900000

11516546.6

3

13471263.6

9

10452679.3

13079040.9

6

11625060.0

5

3500000

4500000

5500000

6500000

7500000

8500000

Largecap Midcap Divesified

|

QUIZ TIME

1. The smaller the exposure of risk, the _______________ insurance premium payable.

2. The benefit of no claim bonus can only be availed in the form of bonus on sum assured. True/False

3. __________ are the unique insurance products offering market-linked returnsa long with life cover.

4. The facility where the insured bears a certain percentage of the claim amount and the rest is paid by the insurance company is called as _______________ .

5. Every vehicle in public space in India has to have ___________

as per IRDA guidelines.

Note: All the answers are in the stories that have appeared in this edition of ICICIdirect Money Manager. You may send in your answers at: [email protected]. The answers will be published in our next edition. The names of the earliest all correct entries will be published too. So jog your grey cells and be quick to send in your entries.

Correct answers for the October2017 quiz are:

1. Historically, __________ markets tend to undergo periodic phases of secondary correction.A. Bull

2. If US bond yields rise slower than expected, non-interest bearing assets like ________ could attract investment demand.A. Gold

3. Major sectors like oil & gas and metal & miningwill benefitfrom higher commodity prices. True/ falseA. True

4. “With India expected to be a $5 trillion economy by 2025, _________ markets would be a big beneficiary.”A. Equity

5. The upward revision in inflation outlook was largely ____________.A. Unexpected


53

PRIME NUMBERS

Equity Markets


Domestic Equity Indices

Global Equity Indices

Sectoral Indices

31-Oct-17 30-Sep-17 Change (%)

CNX Nifty 10335.0 9789.0 5.6%

CNX Midcap 19578.4 18108.0 8.1%

S&P BSE Sensex 33213.1 31284.0 6.2%

S&P BSE 100 10776.5 10173.0 5.9%

S&P BSE 200 4541.3 4281.0 6.1%

S&P BSE 500 14,485.6 13611.0 6.4%


Dow Jones 23,377.2 22,405.1 4.3%

S&P 500 2,575.3 2,519.4 2.2%

Nasdaq 6,727.7 6,496.0 3.6%

FTSE 7,493.1 7,372.8 1.6%

DAX 13,229.6 12,828.9 3.1%

CAC 40 5,503.3 5,329.8 3.3%

Nikkei 22,011.6 20,356.3 8.1%

Hang Seng 28,245.5 27,554.3 2.5%

Shanghai Composite 3,393.3 3,348.9 1.3%

Taiwan Weighted 10,793.8 10,383.9 3.9%

Straits Times 3,374.1 3,219.9 4.8%


S&P BSE Auto 25,414.8 24,180.0 5.1%

S&P BSE Bankex 28,284.0 27,025.0 4.7%

S&P BSE FMCG 10,263.7 9,772.7 5.0%

S&P BSE Healthcare 14,281.6 13,487.8 5.9%

S&P BSE Metals 14,730.3 13,563.9 8.6%

S&P BSE Oil & Gas 16,552.4 14,842.5 11.5%

S&P BSE Power 2,349.2 2,206.2 6.5%

S&P BSE Realty 2,301.3 2,065.4 11.4%

S&P BSE Teck 5,974.7 5,607.6 6.5%

54

PRIME NUMBERS


Debt Markets

Government Securities (G-Sec) Yields (in %) Oct-17 Sep-17 Change (bps)

Corporate Bond Yields (in %) Oct-17 Sep-17 Change (bps)

Commercial Paper (CP) Rates (in %) Oct-17 Sep-17 Change (bps)

Treasury Bill (T-Bills) Yields (in %) Oct-17 Sep-17 Change (bps)

Volatility Index (VIX)


VIX 12.44 12.49 0%

10 year 6.86 6.66 20

5 year 6.75 6.64 11

3 year 6.48 6.41 7

1 year 6.17 6.28 -11

AAA 10 year 7.79 7.67 12

AAA 5 year 7.18 7.08 11

AAA 3 year 7.24 7.15 9

AAA 1 year 6.92 6.95 -3

AA 10 year 8.21 8.08 13

AA 5 year 7.93 7.87 6

AA 3 year 7.63 7.62 1

AA 1 year 7.32 7.31 0

12 Months 7.13 7.04 9

6 Months 6.97 6.84 13

3 Months 6.79 6.64 15

1 Month 6.55 6.56 -1

91D TB 6.10 6.08 2

182D TB 6.19 6.18 1

364D TB 6.23 6.23 0

55

PRIME NUMBERS

10-year benchmark yields (%) across countries


Macro-economic Indicators

Consumer price index (CPI)

Wholesale price index (WPI)Month

*WPI numbers are based on new series with 2011-12 as the base year'

Countries 30-Oct-17 30-Sep-17 Change in bps

US 2.379 2.334 5

UK 1.332 1.365 (3)

Japan 0.071 0.068 0

Spain 1.453 1.597 (14)

Germany 0.363 0.464 (10)

France 0.753 0.742 1

Italy 1.827 2.111 (28)

Brazil 9.877 9.734 14

China 3.894 3.623 27

India 6.862 6.663 20

MF Investment Oct-17 Sep-17 YTD

Equity 9067 17456 95411

Debt 30060 31855 326314

FII Investment Oct-17 Sep-17 YTD

Equity 1923 -10758 38452

Debt 17961 992 147476

Items Weights(%) Aug-17 Sep-17 Oct-17

Food&bev. 45.86 1.96 1.76 2.26

Pan,tob& intox. 2.38 6.85 6.95 6.84

Cloth & Foot 6.53 4.58 4.63 4.76

Housing 10.07 5.58 6.10 6.68

Fuel & light 6.84 5.02 5.56 6.44

Misc. 28.31 3.85 3.83 3.57

CPI 100 3.28 3.36 3.58

Weights Aug-17 Sep-17 Oct-17WPI 100.0 3.24 2.60 3.59 Primary Articles 22.6 2.66 0.15 3.33 Fuel & Power 13.2 9.99 9.01 10.52 Manufactured Goods 64.2 2.45 2.72 2.62

56

PRIME NUMBERS

Commodities

Sources for above data: Bloomberg, Reuters, CRISIL, MOSPI, ICICIdirect.com Research


Mutual Funds: Category Average Returns

Equity Funds Returns (in %)Tenure Diversified Funds Mid-cap &

Small-cap Funds

Large-capFunds

ELSS (Tax-

savingfunds)

Returns as on October 31, 2017

Debt Funds Returns (in %)

Returns as on October 31, 2017

Tenure Liquid Funds

Index of industrial production (IIP) Sector-wise growth rate (%)

Currencies and CommoditiesCurrencies

*IIP numbers are based on new series with 2011-12 as the base year'

Debt ST Ultra ST Debt LT

Categories 30-Aug-17 30-Jul-17 30-Jun-17 Weight(%)Mining 0.1 -6.5 -2.8 14.4Manufacturing 3.9 -1.2 -4.1 77.6Electricity 2.3 3.1 -6.8 8.0Overall 3.2 -1.3 -4.2 100.0

30-Oct-17 30-Sep-17 Change (%) StatusUSDINR 64.6 65.1 -0.8% AppreciatedEURINR 75.3 77.4 -2.7% AppreciatedGBPINR 85.3 87.8 -2.8% AppreciatedAUDINR 49.7 51.8 -4.0% AppreciatedCHFINR 64.7 66.9 -3.3% AppreciatedJPYINR 0.6 0.6 -2.5% AppreciatedCNYINR 9.8 9.8 -0.6% Appreciated

30-Oct-17 30-Sep-17 Change (%)Crude ($/barrel) 60.9 56.5 7.8%Gold ($/ounce) 1276.35 1,280.2 -0.3%

6 months 10.96 10.97 10.14 11.141 year 21.06 23.23 19.07 20.913 year 13.67 19.45 10.60 13.395 year 18.85 25.72 15.90 18.54

6 months 6.25 7.78 7.14 7.71

1 year 6.22 7.20 6.94 6.48

3 year 7.29 8.41 7.95 8.83

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