icici pru investment

8/14/2019 Icici Pru Investment

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INVESTMENT PHILOSOPHY

AT

ICICI PRUDENTIAL LIFE

Submitted for partial fulfillment of B.com 2nd

(professional) degree in theDeptt. Of Commerce

GURU NANAK DEV UNIVERSITY, AMRITSAR

SESSION (2008-2009)

Submitted To: Prepared By:

GEETA MONEY VISHVJEET SINGH

(Deptt. Of Commerce) B. Com(p) 2nd

College Roll No:-

Uni. Roll No:-

Submitted through the principal:

Saint Soldier College,Hadiabad

Phagwara.


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CONTENTS

Acknowledgement

Preface

1. Introduction to the Company

2. Introduction to the Topic

3. Research Methodology

4. SWOT Analysis

5. Recommendations & Suggestions

6. Conclusion

Bibliography

INTRODUCTION

ICICI Prudential Life Insurance Company Limited has grown in leaps and

bounds in the past four years. They have consistently been the No. 1

Private Life Insurer in the country and have sold more than a million


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policies till date. And this position has been ensured because of the trust

and faith people have put in them.

This trust and faith is based on solid foundation of providing customers

with a peace of mind and promise that their money is absolutely safe withthem. As a company, they ensure the safety of investors money by:

1. Adhering to IRDA regulations

2. Maintaining Reserves

3. Adhering to investment norms laid down by IRDA

4. Maintaining solvency margin

5. Infusing capital put by the shareholders

The Company

ICICI Prudent Life Insurance Company is

A joint venture between one of Indias leading financial institutions

and one of worlds largest life insurance companies.

Today they are the No.1 private life insurance company in India.

Professional, highly trained and competent advisors.

Need based solution.

Excellent range of customized solutions to suit every need.


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ICICI Bank

One of the largest financial institutions in India.

Broad spectrum of financial solutions for corporate and retail

customers. Assets in excess of Rs. 100000 crores.

Better than sovereign rating (Moodys)

First Indian company to be listed on New York Stock exchange.

Trusted by millions of Indians over the years.

Prudential

Started operations in 1848 and is now over of the largest Life

Insurance Companies in the world.

Presence in U.K, Europe, US & throughout Asia.

Insurance & Investment funds under management exceeds Rs.

11,00,000 crores.

Already established as one of the biggest mutual fund company in

India (Prudential, ICICI, AMC)

A truly global brand.ICICI Prudential was amongst the first private sector insurance companies

to begin operations in December 2000 after receiving approval from

Insurance Regulatory development authority (IRDA).

ICICI Prudential equity base stands at Rs.925 crore with ICICI Bank and

Prudential Plc holding 74% & 26% stake respectively. In the period April

December 2004, the company governed Rs. 860 crore of new business

premium for a total sum assured of over Rs. 7360 crore and wrote nearly

3,45,000 policies. Today the company is the No. I private Life Insurance in

the country.


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FINANCIAL MARKETS

A market is a place where buyers and sellers come together to execute

trades and satisfy their needs. In simple terms a financial market is a

market where financial instruments are bought and sold

The financial instruments can be in the form of cash or other assets, that

represent a form of cash. For e.g. fixed deposits, shares, bonds, etc.

These markets are further categorized into

1. Primary Market

2. Secondary Market

Primary Market

In this the manufacturer or the person directly holding the asset, sells or

transacts with the end user.

Secondary Market

In this there are a number of transactions that take place before the end

user get the good that is required.

To get clarity of the above let is see the following example:

Now let us take the example of the vegetable market. Let us say that a

farmer who grows vegetable takes his produce early in the morning to the

wholesale market Vashi/Azadpur. Now when he goes there, there are few

buyers who buy his produce from him and stocks it with themselves.

The buyer might have bought it from him because he required it for his

own consumption or he intended to profit from reselling the vegetables at a

profit. However the farmer has sold his entire produce and has taken the

money for it and gone home. Now one of the buyers takes the produce andgoes and sells it in Chembur/Greater Kailash. While doing so the reseller

makes a profit. However, the original farmer knows nothing of this retail

transaction and is not concerned either. Now there is another buyer who

also takes the vegetables to be resold in Lajpat Nagar / Andheri. When he


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does so, he finds himself unable to sell the entire produce and very soon

the vegetables start rotting. Not wanting to be stuck with rotten vegetables,

this person offloads his entire stock to the local customers. But in the

process, he actually makes a loss.This same mechanism operates in the case of primary and secondary

markets. When the farmer when and sold his produce in the wholesale

market the wholesale market acted as the primary market. It was like an

IPO where the corporate itself come and collected money from people

directly. Once the stock is listed on the exchange (just as the produce

reaches Chembur or Andhari, the promoter is no longer involved in trades.

The trades generally happen without his knowledge/consent and generallyhe does not get any additional inflow from these trades. At the same time

the retail market allows the buyers of the initial stock to have continued

liquidity. Otherwise since equity is an investment having perennial term, a

person who bought in the primary market will be stuck with his investment

forever.

The above is one way to classify but the more often the financial markets

are classified on the basis of

Money Market

Capital Market

The basic distinction between the two is based on the difference in the

period of maturity of the financial assets (instrument) that is issued in these

markets.

Money markets deals with all transactions in short term instruments which

have a maturity period of one year or less. E.g. treasury bills, bills of

exchange, commercial papers etc.


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Capital market deals with transaction related to long term instruments,

which have a period of maturity above one year. E.g. Government

securities, Shares, debentures etc.

Instruments covered in these marketsMONEY MARKETS

Call money

The call money market forms a part of the national money market, where

day-to-day surplus funds, mostly of banks is traded. The call money loans

are of very short terms in nature and the maturity periods of these loans

vary from 1 to 15 days. The money that is lent for one day is called as call

money and the money which is lent for more than one day but less than 15days is called as notice money.

These markets are based mainly in Mumbai, Kolkata, Chennai, Delhi and

Ahemdabad, but Mumbai plays a dominant role in determining the call

money market and their movements.

Participants in this market are traditionally scheduled banks, but since

1997, RBI has broad-based the market. The other players now are the

primary dealers (16 in all ICICI securities known as I-sec is one of the

primary dealer), mutual funds approved by SEBI (as lenders), GIC, IDBI,

NABARD & DFHI. Currently the average daily turnover in the call/notice

money market is around Rs.50000 crores Call money rates are currently

range bound at 4-5%.

But the highest ever was on 16th January 1998; when call money rates

shot-up to 140% because of the currency crisis in South East Asia.

Term money

Money borrowed or lent for more than 14 days. Current average daily

trading is around 150 crores. Term money market is range bound at 5-6%.

Treasury bills

These are short term borrowing instruments issued by the Govt. of India.


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91-day

364-day

Treasury bills have been issued ever since the inception of Reserve Bank

of India in the year 1935. Treasury bills, also called T-bills, are negotiablesecurities and since they can be rediscounted with RBI, they are highly

liquid. The other features are zero default risk, easy availability, assured

yield, low transaction cost and negligible capital depreciation.

T-bill are not issued in physical form. The purchases and sales are

effected through the SGL or Subsidiary General Ledger Account of the

participant. SGL is conceptually similar to a demat account. Current yield

for a 91 day T-bill is 7.2%.Dated government securities

These are long term debt instruments issued by the government with fixed

coupon rates (rate of interest at the time the security was issued). These

are absolutely risk free since the sovereign guarantees them.

Certificates of Deposits (CDs)

These are negotiable short-term deposit certificates issued by a

bank/financial institution with maturity ranging from three months to one

year. They are bank deposits, which are transferable from one party to

another.

Banks are issuing CDs in India since 1989, either directly to the investors

or through the dealers.

CDs are marketable or negotiable short-term instruments in bearer form

and are also known as Negotiable certificates of Deposit (NCD). The

minimum issue of CDs to a single investor is Rs. 10 lacs and additional

amount in multiples of Rs. 5 lacs each. CDs are technically a part of bank

deposits. But because they are in bearer form, they can be traded in the

secondary market. But the secondary market for CDs is not developed


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because of lack homogeneity in the market. Mostly the financial bodies

keep the CD till full maturity.


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Commercial Paper (CP)

These were introduced in January 1990, to enable highly rated corporate

borrowers to diversify their sources of short-term, unsecured borrowings

and to provide an additional instrument to the investor.CPs are issued in the form of promissory notes, redeemable at par by the

holder on maturity. CPs can be issued only by corporates who have a

minimum net worth of 5 crores and an investment grade rating from credit

rating agencies. This translates into P2 from CRISIL or A2 from ICRA.

CPs can be issued for tenors ranging from 15 days to 364 days. The

general tenor is 9 days. Minimum issues size of CPs is 25 lacs and further

amounts in multiples of 5 lacs.A CP allows a highly rated corporate to get money at a cheaper rate than

what the bank otherwise would have given it.

Corporate Bonds

Bonds issued by corporates which are generally unsecured and are

evidenced by a certificate issued by the company acknowledging the debt.

Generally has a fixed coupon rate. The bases for investment generally is

the track record of the issuer coupled with the credit rating it has.

Repo

Repurchase agreement or repos or buyback deals are transactions in

which two parties agree to sell and repurchase the same security.

Repo auctions are conducted for absorption of excess liquidity from the

money markets. It is conducted on a daily bases (except on Saturdays).

The tenor of repos is one day except for repos done on Fridays where the

tenor is stretched to three days by default. The funds from this instrument

are expected to be used by banks for their day to day mismatches in

liquidity. The participants of this market are scheduled commercial banks

and Primary Dealers. The minimum amount is Rs. 10 crores and further


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amounts will be tendered in multiples of Rs. 5 crores. The securities

eligible for repos are transferable dated govt. securities and treasury bills.

Commercial bills

Bills of exchange are negotiable instruments drawn by the seller on thebuyer for the value of goods delivered to him. When such type of bills are

accepted by commercial bank, they can called CBs.

CAPITAL MARKETS

This market has a tenor of more than 1 year. This is the place where

corporates (which have credibility in the market) can raise money to fund

new/existing businesses. The capital markets can be distinctively classified

into primary and secondary markets.The primary market creates long term instruments through which

corporates entities borrow. It also has two components that we must

understand before proceeding further:

Debt

Equity

To study this we will take the help of the following illustration:

Let us say you wish to start a new business (say for setting up shop as a

service center) for which Rs. 1 lakh is required. You go to your bank that

decided to lend you Rs. 50000 @ 12% p.a. However, it requires some sort

of security for lending this money and so it gets you car hypothecated onto

its name. Now you still require another 50,000/- for which you go to your

father. Your father gives you the remaining 50,000 and you make him a

partner in your company to that extent.

The money that you got from the bank is what we call DEBT. The money

that your father gave to you is what we could called EQUITY. Now based

on this let us look the critical features of debt an equity.


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Debt essentially means

A loan given to the company for which it will have to pay a fixed rate of

interest. There will be fixed term say 8 years or 10 years after which the

company has to repay the debt.The obligation to repay debt, interest and then principal, is there

irrespective of profitability.

Equity essentially means

Ownership of the company to the extent of your investments. So if a

company has a share capital of 1 lac rupees and you own 50000 worth of

equity, you are the half owner of the company. But if the share capital was

Rs. 1 crore rupees and you own 50000 worth of equity, you are 1/200th

owner of the company. If you want to be half owner in the second case,

you need to buy shares worth 50 lacs.

There is no fixed term for equities (preference shares might be redeemable

after a term, but a preference share is not pure equity instrument).

The obligation and extent of repayment is directly related to profitability.

Instruments of debt market:

Fixed deposits

Debentures/bonds

Dated Govt. securities-issued at Face value.

Zero coupon bonds-issued at discount and no coupon charges.

Floating rate bonds-is an instrument whose periodic interest or dividend

are indexed to some reference index such as treasury bill.

Capital indexed bonds: Issued at face value, and is indexed with WPI

(wholesale Prince Index)

In the Indian Debt Market the share of Govt. security is 70%. The

percentage of debt as a percentage of the total market is low because the

secondary market of debt trading is not as robust as compared to equity.


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INVESTMENT PHILOSOPHY

One of the key drivers of profitability for a life insurer is its investment

expertise. To understand more about the investment function let us start by

establishing the objectives the investment management function fulfills for

the company.

Funds under management

The status of funds under management at ICICI Prudential as of 20th

October 2004 stands at

Life Funds : Rs. 7545 Million ($168 Million)

Pension Funds : Rs. 1373 Million ($31 Million)

Linked Funds : Rs. 12762 Million ($ 284 Million)

Management Structure

Boards of Directors

Risk Management & Audit Board Investment Governance

Committee Committee Committee

Executive Investmetn

Committee

The first level (The Board Investment Committee)

Approve investment strategy

Decide guidelines

Comprises of Broad Members, ECO, CFO, Chief Actuary, Head-

Investments.

At the most macro level is the Board investment Committee which

sets the broad policy framework for the companys investments. It meetsquarterly to discuss any performance or policy issues. This is a mandatory

requirement for IRDA.

The second level (The Executive Investment Committee)

Set Performance benchmarks & limits


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Monitors investment performance

Provides support on regulatory and tax issues

Comprises CEO, CFO, Chief Actuary, Investments team, Investment

Ops.The second tier is the Executive Investment Committee . This body

meets monthly to monitor investment performance vis a vis performance

benchmarks. They also assess the portfolio risk and based on the

recommendations of the financial risk management group (FRMG), agree

on the strategic asset allocation. Finally they also discuss any regulatory

issues.

The Third Level (The Investments Team)

Tactical Portfolio Allocation

Research & Portfolio Selection

Market Timing & Deal execution

The third tier or the operational tier is the investments team.

We have an in-house 2 member team that manages all our funds. This is

the team which takes the actual investment buy and sell decision and

executes them. This is unlike some other companies who are using their

mutual fund to help them in them investment.


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INVESTMENT PROCESS

The investment philosophy flows from the objectives we have set. This is

followed by investment management which takes care of the asset

allocation and security selection, while adhering to our risk and

performance management parameters. This is obviously subject to the

market and regulatory constraints we work under.

The investment process is as depicted in the chart.

Investment Objective

Investment Philosophy

Investment Management

Asset Allocation Risk managementPerformance management Security selection(Market Constraints) (Regulatory constraints)

INVESTMENT OBJECTIVESFund Benefit Support desiredObligations to risk return profilePolicy holders of the company

Investment Philosophy

Maximize Target superior

Discretionary Risk-adjustedBenefits to returns in the longPolicy holders term


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The investment function operates with multiple objectives. All of these

objectives need to be reflected in the investment philosophy of the

company.

In non-par products it is the net spread between investment

income and return guaranteed to policyholder and accrues to

shareholders. It is vital that you earn enough investment income to

meet all these payouts as otherwise the shareholders will have to bring

in more capital.

In par products 10% of profit and 100% of loses belongs to

shareholders, hence you should try and maximize the return earned to

get more profit for the shareholders. However you should also ensurethat you meet any base guarantees given.

Finally in case oflinked products the investment returns and risk is

with the policy holder and the company earns a fee on the total fund

size or assets under management (AUM). However as more often that

not the AUM will be a function of how well the fund performs and

maximizing returns should be the objective.

However trying to maximize returns has associated risks and if one takes

disproportionate risk one may do well for some time but the performance

wont be sustainable or replicable. Hence the idea is to ensure adequate

risk-adjusted returns that are sustainable.

Finally and perhaps the most important objective of the function is to

support the risk-return appetite of the company. Every company needs

to decide what kind of risk it want on its balance sheet. This would be a

function of the industry in which the company operates, the stage of

lifecycle of the company and how stable/volatile it wants its performance to

be. The investment team helps in ensuring that the balance sheet risks are

within the parameters desired by the management and as articulated in

asset liability management (ALM) framework of the company.


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PORTFOLIO CONSTRUCTION

GlobalTrends

MacroEconomicObserve & Analyse

Sector/ Industry

Company

We do not have any dedicated in house research. This is not warranted

given our size and the number of options available in the market. In

research one would have all the inputs, one would get information from a

number of sources but the final view is still ours.

Investment Deal Flow

Investments Team Deal Execution

Investment Operations Segregates control and Execution

Custodian Deal settlement Fund Accounting / NAV Calculation

Investments are very critical part of the companys operations and as has

been seen internationally, it is fraught with various operational risks to

moral hazard issues. Hence it is very important to segregate the control

and execution mechanisms of the investment process. We have

segregated the investment deal flow between three different independent

teams with clearly defined responsibilities. Infact we adopt best practicesfor investment related activities.

. The core of this strategy is to follow

both top-down and bottom up approach


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Prudent Investment Norms

Life fund

Minimum 50% Government securities

Minimum 15% infrastructure

Pension Fund

Minimum 40% Government securities

Exposure limits for Sector, Group &

Industry

The exposure limit is based on Sector, Group & Industry so that the

investments have sufficient diversification to minimize risk factors. It gives

enough flexibility to mange investments based on company philosophy.


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RISK MANAGEMENT FRAMEWORK

We group the products into certain categories based on associated risk

and the tools available to manage the risks. For e.g. Cashbak & Smart kid

have similar risks and so are clubbed while Reassure and Assure Invest

differ and so are kept separate for deciding the portfolio.

We create a separate portfolio for each category. This is very important to

ensure fair treatment to all policy holders. This also allows us to actually

monitor the efficacy of the investment and risk strategy.

What are basic kinds of Risk?

Actuarial Risk It arises because of pricing assumption and models.

As discussed, in the financial services industry and specially the

insurance industry, profit is realized only over the life of the contract.

Hence if the assumptions made are not in sync with reality, the

companys financial risk might arise. So we should have a Competent

Actuarial Team, working in close coordination with the investment

Team.

Forex Risk:This is not applicable to us, as IRDA doesnt allow us to

invest abroad.

Liquidity Risk : This is not a very significant for us. This is because

most of our liabilities are not payable on demand unlike bank liabilities.

Even if a policy is surrendered the surrender penalty would compensate

for loss if any in liquidating investments for payout.

Credit Risk : This is managed by ensuring two things:

We take only a reasonable amount of risk. We get sufficient return to compensate for the risk.

We have restricted our credit portfolio to AA and above ratings. We have

taken data available with ICICI and CRISIL, which gives the probability that

if a company has certain credit rating, what is the probability that it will


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default. Based on this probability we can decide what kind of minimum

return we should get to compensate us for the risk taken.

Interest Rate Risk: It is the risk of changing interest

rates and theimpact that it has on the value of our assets and liabilities. This is one of

the most critical risks to manage for insurance companies. Numerous

insurance companies worldwide have collapsed due to mismanagement of

interest rate risk. Equitable life is a prominent example. It guaranteed 6%

to its customers when interest rates in UK were in the range of 10-12%.

They are today not in a position to meet the guarantees and are in state of

limbo closed for new business.Why does Interest Rate Risk arise?

The basic reason for interest rate risk on the balance

sheet of any company is the mismatch between their assets and

liabilities. For an insurance company it is even higher, as most of its

liabilities payable along with all accumulated benefits at the end of the

term, is usually more than 20 years. In India there are very few assets

with that maturity, and even if they are available they all pay periodical

interest, which means that all those interest inflow needs to be

reinvested and the rate would depend on market at that point. Hence at

best they can minimize the mismatch between asset and liability

maturity profile.

One of the most unique features about managing

interest rate risk of a life insurer is the uncertainty of cash flow. The

manager has to deal with probabilities regarding timing and quantum of

lapsation and claims.

Frequency of Repricing There is always a time gap

between pricing of the product and actual selling of the product. Given

the market volatility, the assumptions used to price the product may not


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hold at the time of actual sales, especially in case of guaranteed

products. The difference would have to be borne by shareholders. Even

in case of endowment plans that have a bonus element or for non

investment products like term the pricing rate needs to be revised ifthere is a significant shift in long term view. Hence to minimize the risk

you need to reprise your products frequently.

Premium available Upfront is the amount you can invest

but your guarantee is usually on the sum assured. Hence this crease a

mismatch as even on the future premiums the guarantee is valid

though the market conditions when you receive the premium may

be significantly different. Hence we minimize the guarantees paid onregular premium products.

Insurance products traditionally have several options

embedded in the products that allow a policy holder to choose against

the company. We have dealt with the various options in the following

manner.

Settlement option

Policy loan given at fixed rates

Surrender options exercised

Investment based on product groups

The strategic allocation has two broad approaches. One that we use for

single premium guaranteed products and the other that we use for regular

premium with bonus plans. These generic approaches are divided for

various product categories.Safety, Stability & Returns

Investment Strategy Target superior risk adjusted returns

Long term focus

Proactive fund management


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Disciplined process based on research

For ULIP plans the objectives remain similar. The idea is to target returns

in the long run and objectives of SAFETY, STABILITY & RETURNS

remain the same. The key differences between managing funds fortraditional and linked plans are :

The investment pattern depends on the objectives of the schemes

The fund performance and investment pattern is transparent

The investment risk is borne by the policy holder

This necessitates having a different investment strategy for linked plans. In

these plans the investment team has lot more freedom and they strive to

achieve superior risk adjusted returns.

Fixed income strategy

In case of linked plans there are no minimum investment norms by IRDA

or any ALM strategy to match liability duration. Hence most of the

investment decisions is based on market views.

One major decision is the mix of government securities and

corporate securities.

The second major decision is to decided the average matuity of

the bond portfolio.

Cash is used pro-actively as an asset class.

Equity strategy

The equity strategy is based on the following points

To create a portfolio of stocks, which will outperform the

benchmark over the medium to long term.

Minimize volatility with an aim to maximize risk adjusted

returns

Investment style: Value oriented

Portfolio of blue-chip stocks


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Diversification across companies and sectors

Liquidity consideration

Quantifiable valuation parameters like P/E (Price / Earning Multiple),

PEG (Price Earning Growth), P/B (Price / Book value), DCF(Discount Cash Flow) amongst others.

Ownership pattern

Invest in medium to large size companies

Superior management quality

Financial strength & key earning divers

Distinct and sustainable competitive advantage

Leadership position in the category

Internal risk control

Ensure diversification by being invested in 15-25 stock at all times

Universe primarily limited to blue chip stock no undue concentration

to any single stock/sector

Weight of any individual stock to be within +/- 5% of benchmark

Weight of any sector to be within +/- 10% of Benchmark

Sector/Stock deviation based on market outlook.

The idea is to concentrate on the large cap stock and blue chip companies.

The benchmark is the BSE 100 with allowable deviation of 5% for

company and 10% for sector. The implies that any stock not in the index

can be at max be 5% of the portfolio. This stock / sector bets allows the

team enough leeway to outperform the index while retaining a high degree

of control over performance so that the performance volatility vis a vis the

index is not very high. Similar structures are used by most professional

fund managers abroad.


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FUNDS PHILOSOPHY

The team funds has been defined in a number of ways.

a) In a narrow sense, it means cash only.

b) In a broader sense, the term funds refers to money values in

whatever form it may exist. Here funds means all financial

resources used in business whether in the form of men, material,

money, machinery and others.

c) In a popular sense, the term funds means working capital i.e. the

excess of current assets over current liabilities.

MUTUAL FUNDS

Introduction

Not all people understand the dynamic and the complexities of the financial

markets whether it is the share market or any other financial market. The

retail investor goes on the sentiments of the market without actually

studying the fundamental of the security in which investment is being

made. Moreover the retail investor usually does not have large sums of

money at disposal and mutual funds is an instrument in which the retail

investor is able to put in small amounts of money and this can be done on

a regular basis.

A Mutual fund is a trust that pools the savings of a number of investors

who share a common financial goal. The money thus collected is invested

by a fund manager in different type of securities / financial instruments

depending upon the objectives of the scheme.

These investments could range from shares to debentures to money

market instruments. The income earned through these investments and

the capital appreciation (increase in capital) realized by the scheme are

shared by its unit holders in proportion to the number of units owned by

them.


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Thus a Mutual Fund is the most suitable investment for the common man

as it offers an opportunity to invest in a diversified professionally managed

portfolio at a relatively low cost. The small savings of all the investors are

put together to increase the buying power and hire a professional managerto invest and monitor the money.

Anybody with an investible surplus of as little as a few thousand rupees

can invest in Mutual Funds.

Concept of Mutual Funds

In order to get a clear understanding as to what is the underlying concept

of the mutual fund let us see the following example.

In a cooperative housing society that has 100 apartments, a security guardis to be appointed. You find out that a good security guard cost Rs. 2000

per month. Now for a single household to pay Rs. 2000/- every month, it

would be a heavy burden.

Now if all the household got together and shared the costs then it would

make a better economic decision. Because all the residents of the housing

society have the same need and therefore it makes sense to pool together.

For this act of pooling together you approach the residents welfare

association (RWA). All the 100 flat owners contribute Rs. 20 per month

and ask (RWA) to appoint a security guard. Now it is the RWAs

responsibility to ensure that the security guard is doing his job effectively.

They also monitor his performance. If the RWA is unhappy with the

security guard they can change the guard. The members keep

contributing. If one flat owner sells has flat and moves out of the society,

another flat owner takes his place and starts contributing.

Now in a Mutual fund structure there is a trust, which is like the members

of the co-operative society. The Asset management company is something

like the RWA, who is responsible for getting the right kind of security guard


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and monitoring whether he is doing the right kind of job or not. Any lastly

the security guard is the investment.

Review of the Mutual Fund Industry

A lone UTI with just one scheme in 1964 now competes with as many as400 odd products and 34 players in the market. In spite of the stiff

competition and losing market share, UTI still remains a formidable force to

reckon with.

Last six years have been the most turbulent as well as existing ones for

the industry. New players have come in, while others have decided to

close shop by either selling off on merging with others. The industry is also

having a profound impact on financial markets. While UTI has always beena dominant player on the bourses as well as the debt markets, the new

generation of private funds which have gained substantial mass are now

seen flexing their muscles.

Funds have shifted their focus to the recession free sectors like

pharmaceuticals, FMCG and technology sector. Funds performances are

improving. Funds collection, which averaged at less than Rs. 100bn per

annum over five-year period spanning 1993-98 doubled to Rs 210bn in

1998-99.

In the current year mobilization till now have exceeded Rs300bn. Total

collection for the current financial year ending March 2000 is expected to

reach Rs450bn.

What is particularly noteworthy is that bulk of the mobilization has been by

the private sector mutual funds rather than public sector mutual funds.

Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first

nine months of the year as against a net inflow of Rs. 604.40 crore in the

case of public sector funds.

Mutual funds are now also competing with commercial banks in the race

for retail investors savings and corporate float money. The power shift


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towards mutual funds has become obvious. The coming few years will

show that the traditional saving avenues are losing out in the current

scenario. Many investors are realizing that investments is saving avenues

are losing out in the current scenario. Many investors are realizing thatinvestments in savings accounts are as good as locking up their deposits

in a closet. The fund mobilization trend by mutual funds in the current year

indicates that money is going to mutual funds in a big way.

International scenario

Mutual funds gained popularity only after the 2nd world war and are also

known as the 21st century phenomenon.

U.S., FRANCE and Luxembourg dominate the global mutual fund industry.India is at the first stage of a revolution that has already peaked in the U.S.

the U.S. the boasts of an Asset base that is much higher than its bank

deposits, but this trend is beginning to change. Recent figures indicate that

the mutual fund assets went up by 115% whereas bank deposits rose by

only 17%. (Source: Thinktank, The Financial Express September, 99) This

is forcing a large number of banks to adopt the concept of narrow banking

wherein the deposits are kept in Gilts and some other assets which

improves liquidity and reduces risk. The basic fact lies that banks cannot

be ignored and they will not close down completely. Their role as

intermediaries cannot be ignored. It is just that Mutual Funds are going to

change the way banks do business in the future. Some basic facts of

mutual Funds iNdustry worldwide:

The money market mutual funds segment has a total corpus of $

1.48 trillion in the U.S. against a corpus of $ 100 million in India.

Out of the top 10 mutual funds worldwide, eight are bank

sponsored. Only Fidelity and Capital are non-bank mutual funds in

this group.


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In the U.S. the total number of schemes is higher than that of the

listed companies while in India.

In the U.S. about 9.7 million household will manage their assets on-

line by the year 2005, such a facility is still at its nascent stage inIndia.

Indian Mutual Fund Industry

A Mutual Fund scheme itself is a trust registered under the Indian Trust

Act.

1986-1993 is termed as the period of public sector mutual funds. From one

player it become 8 in 1993. It was in 1993 that international players such

as Morgan Stanley, Jardine Fleming entered.

Total

No. of Schemes Amount

Income 126 10347Growth 132 1804Balanced 36 255Liquid / Money Market 37 56379Gilt 32 880

ELSS 39 -Total 402 69665Total of all schemes (Rs. In crores)

There are today 28 Asset Management Companies in India holding Total

Assets under Management worth Rs. 157747 crore. Out of this 78% of all

the AUM come from the Private Sector.

**This data is collated from AMFI website as on 1 Sept 2004

Structure of Mutual Funds

There are a number of bodies that are a part of the mutual fund let us

see what they are.

Sponsor


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A mutual fund is initiated by a sponsor, which organizes and markets the

fund. It specifies the investment objectives of the fund, the risk associated,

the cost involved in the process and the broad rules for entry into and exit

from the fund and the other areas of operation. In India the sponsorrequires an approval from the Securities Exchange Board of India SEBI.

A sponsor then hires an asset management company to invest the funds

according to the investment objective. It also hires another entity to be the

custodian of assets of the fund and perhaps a third one to handle registry

work for the unit holders of the fund.

Asset Management Company

The asset Management Company is formally appointed by the trustees ofthe trust to mange money on their behalf.

Based on the rules of the land a sponsor can also hold 100% stake in the

A.M.C for e.g. DSP Merrill Lynch Equity funds is a mutual benefit trust

registered under the Indian Trust Act. The trustees have appointed DSP

Merill Lynch Asset Management Company Pvt. Ltd. to manage the funds in

the trust.

The AMC receives a fee for its services. Currently SEBI permits a fee of

1.2% p.a. of the asset value of the fund for a fund less than 10 crores. This

AMC reports to the trustees who have to safeguard the interests of the

investors in the mutual funds.

Trustee company

The sponsor promoters the Trustee Company or the trust. The trustees

include experienced and eminent people representing a cross section of

the industry and the society. They not only monitor performance of the

AMC but also oversee operations of the custodian and transfer agent.

Custodian

The A.M.C has to hire an outside custodian, which is responsible for the

custody of the assets of the fund. The custodian is also responsible for


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receipt of all kinds of cash and non-cash benefits such as bonus, dividends

and rights. It is usually a bank or any other financially sound institution.

Registrar and transfer agents

The AMC hires this agency for taking care of purchase and sale of theunits of the funds, issue certificates / account statements to investors,

make dividend payments etc. E.g. Karvy Consultants.

MUTUAL FUNDS RISK RETURN MATRIX

Equity Fund

Balanced Fund

Debt Fund

Liquid Fund

Returns

Risk


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Shareholders

Board of Trustees

Oversees the Funds Activities, including approval of the contract with theAMC and the other services providers

Mutual Fund

Investment Advisor/ DistributorAMC Sells Fund shares eitherManages the Funds directly or through other portfolio according to firms.the objectives and thepolicies described in

Custodian Independent Transfer agentsHolds the fund public Processesassets, maintaining accountants orders to buythem separately to Certify the and redeemprotect shareholder funds financial Fund shares.interest statements.


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Classification of Mutual Funds by investment objective

Mutual funds in the retail market are known by the fund into which they are

invested. We have some idea about the financial markets by now, and the

learnings gained from there will be helpful in understanding the followingGrowth / Equity Funds

These funds are invested only in equity shares of companies. Investors

buy these funds with the hope of earning high returns. It has been proved

that over the long term, return from stock outperform most other kind of

investment.

Industry specific funds

The investment decisions are taken only in the industries specified in theoffer document. Eg. Fast moving Consumer Goods, I.T. or

Pharmaceuticals etc. The performance is linked with the fortunes of the

sector.

Index Funds

These invest in stocks that comprise market indices such as BSE or the

NSE 50 (NIFTY) and rise or fall with these indices.

Sectoral Funds

Investments are exclusively in a specified sector. This could be an industry

or a group of industries or various segments such as A group shares on

Initial Public Offering.

Target Markets of the equity / share market related funds can be

segmented as under:

Growth schemes are ideal for investor having a long term perspective

speculative outlook The equity cult, who would like to make gains in the

shortest period of time and investors in their prime earning years

specifically the young who have a decent earning and can take some kind

of risk.


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Top Schemes in this category are

1. HSBC Equity Fund

2. UTI Dynamic Fund

3. Frankline India Prime FundFor the quarter ended Aug 30, 2004. Rankings based on one year %

return

Excerpts of an investment strategy from an AMC in equity funds as

mentioned in the offer.

Type Approx. Allocation

Equity & Equity Related securities 95%Debt, Money Market Securities & Cash

(including money at call)

5%

The AMC selects scripts which focus on the fundamentals of the

business, the industry structure, the quality of management, sensitivity to

economic factors, the financial strength of the company and the key

earning drivers.

For e.g. a corpus of size of Rs. 100 crores the AMC tends to invest in

about 20-30 scripts. Diversification will also be achieved by spreading the

investments over a diverse range of industries / sectors. The scheme may

however invest in unlisted and / or privately placed and / or unrated debt

securities subjects to the limits indicated. If investment is made in unrated

securities, the approval of the Board of the AMC shall be obtained as per

the regulations.

Investment in the Debt Markets

Debt / Income Funds

These are related to steady income bearing instruments like bonds,

corporate debentures with high and consistent dividend payout. These

funds give decent returns but the capital does not appreciate much.



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1. HDFC Child Gilt Fund

2. UTI Mahila Unit Scheme

3. Pru ICICI Child Care Plan

For the quarter ended Aug 30, 2004. Rankings based on one year %return

Target Market for Debt market funds are:

Retired people and others with a need for capital stability and regular

income. Investors who need some income to supplement their earnings.

Excerpts of an investment strategy from an AMC in income fund as

mentioned in the offer.

Type Approx. AllocationDebt Securities 75%Money Market Securities & Cash 25%

Balanced Funds

Its a mix of equity and debt market instruments. Such schemes invest in

both equities and fixed income securities. In a rising stock market, the NAV

of these schemes may not normally keep pace with the Sensex or fall

when the market falls.

Target market

These are ideal for investors looking for a combination of income and

moderate growth.

E.g. Alliance 95, J.M. Balance fund GIC Balanced funds


1. Magnum Balanced Fund

2. HDFC Prudence Fund

3. Escorts Balanced Fund

For the quarter ended Aug 30, 2004. Ranking based on one year % return

Excerpts of an investment strategy from in balanced funds as mentioned in

the offer..


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Stock Picking: In a balance fund and approach to taking stocks is

different. A example of the objective that can be there for an AMC that has

a balanced fund to manage will be as

Type Risk Profile Approx.Allocation

Equity and Equity Related securities Medium to High 80%Debt Securities & Money Market

instruments & Cash (including

money at call)

Low to Medium 20%

Money Market / Liquid Funds

The aim of the money market funds is to provide easy liquidity,preservation of capital and moderate income. These schemes generally

invest in safer short-term instruments such as Government securities,

certificates of deposit, commercial paper and inter bank call money.

Returns on these schemes depend on the interest rates prevailing in the

market.

Target market

They provide a good place to park surplus funds for a short period. Meant

for people who look for completely secured investments. Ideal for both the

corporate and the small investor.


1. LIC MF Liquid Fund

2. Birla Sweep Plan

3. Tata Liquid Super High Investment Plan

For the quarter ended Aug 30, 2004. Ranking based on one year % return

Type Appox. Allocation

Money Market Securities 80%Debt Securities 20%


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Classification by Constitution

Close ended Funds

These types of funds are open for subscription only once and have a

stipulated maturity period that generally ranges from 3 to 15 years.

Investors can invest in the scheme at the time of the initial public issue and

thereafter they can buy or sell the units of the scheme on the stock

exchanges where such funds are listed.

To provide an exist option to the investors, some close-ended funds give

an option of selling back units to the funds through periodic repurchase at

NAV related prices. SEBI regulations stipulate that at least one of the two

exit routes is given to the investor.

E.g. Morgan Stanley Growth Fund

Open ended Funds

In this category the fund is available for subscription all through the year. It

does not have a fixed maturity. Investors can buy and sell units at a price

related to the funds NAV (net asset value). Highly liquid from investors

point of view. Most of the funds offered today are in this category.

Net Asset Value

The investment is denoted as NAV Net Asset Value

Net Asset Value is defined as the total value of the asset in the underlying

fund minus the expenses paid or to be paid divided by the number of units

issued. The issued value of a unit is usually 10/-.

The Net Asset value of a fund is the indicator of the value of the fund.

The NAV is listed on a daily basis in all the national newspaper. This in

most cases the value of the policy is just newspaper away.

Since there are more than a single fund in a Unit Linked Plan each fund

will have an NAV.

Example:


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If 20000/- have been accumulated in the equity fund. And the number of

units issued is 10000/- then the NAV of the equity fund is

200000 / 10000 = 20/-

As the equity markets develop fund grows from 200000/- to 220000/-Now the NAV is 220000 / 10000 = 22/-

If among these 10000 units the policy holder has 5000 units then the value

of investment as of now is 110000/-

Thus a unit linked plan actually tells me what is the value of my fund is.

Sale price: Is the price the investor requires while investing in a scheme. It

is also called as Offer Price.

Repurchase Price: Is the price at which a close ended schemerepurchases it units.

Redemption price: is the price at which an open-ended scheme

repurchase the units.

Sale Load: is a charge collected by a scheme when it sells the units. Its is

also called as front end load. Scheme that do not charge a load are called

No Load schemes.


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ANALYSIS OF INVESTMENT PRODUCTS

Investment Return Safety Volatility Liquidity

Equity High

moderate

Low High High or low

FI bonds Moderate

high

High Moderate Moderate

Corporate

debenture

Moderate

low

Moderate Moderate Low

Bank

deposits

Low high High Low High

Company

fixed

deposits

Moderate Low Low Low

PPF Moderate

high

High Low Moderate

Life

insurance

Low

moderate

High Low Low

Mutual

funds

High High Moderate High

Gold Moderate

low

High Moderate Moderate

Real estate High / low Moderate High Low


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BASICS OF ULIP

What is a Unit Linked Insurance Plan?

Unit Linked Insurance Plan: A policy which provides for life insurance

where the policy value at any time varies according to the value of the

underlying assets at the time.

Unit Linked Insurance Plans (ULIP) is life insurance solution that provides

the client with the benefits of protection and flexibility in investment.

The investment is denoted as units and is represented by the value that it

has attained called as Net Asset Value (NAV)

Unit Linked Units in UnderlyingInsurance funds InvestmentPolicies

ULIP came into play in the 1960s and became very popular in Western

Europe and Americas. The reason that is attributed to the wide spread

popularity of ULIP is because of the transparency and the flexibility which it

offers to the clients.

As times progressed the plans were also successfully mapped along with

life insurance need to retirement planning.

In todays time ULIP provides solutions for all the needs of a client like

insurance planning, financial needs, financial planning for childrens future

and retirement planning.

An ULIP structure looks like as follows:

Contribution

Less Charge

Investment represented Life Coveras units


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Features of a Unit Linked Plan

ULIP distinguishes itself through the multiple benefits that it provides tot eh

consumer. The plan is a one stop solution providing

1. Life Protection

2. Investment and Savings

3. Flexibility

b) Adjustable Life cover

c) Investment Options

4. Transparency

5. Options to take additional cover against

a) Death due to accident

b) Disability

c) Critical Illness

d) Surgeries

6. Liquidity

7. Tax planning

In todays fast paced world, the clients need change equally fast. Taking

the above benefits lets see how each gets morphed with situation

changing for the client.

LIFE PROTECTION

Can any of us deny that we do not need life protection? Honestly none can

especially when we see the fatal events that occur so frequently around

us.However the need may vary and ULIP provides the benefit of adjusting

according to the varying need of the client.

The life insurance needs keep changing throughout the life stage of an

individual


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When we start working

When we start a family

When our children start a career

When we retireThis when mapped to life insurance needs gives us a graph:

Therefore as our responsibilities grow the need for life protection grows

and when these responsibilities are successfully executed the need

reduces.ULIP allows a client to change the varying life protection needs that makes

it

Easier for the client to manage

Hassle free

Economically effective

The death benefit is usually a multiple of the Contribution being paid which

ensures that the contribution is adequate enough to provide life protection

and is also able to maintain a semblance between protection and savings.

In a ULIP the client pays yearly mortality charges, which makes it more

cost effective for the client.


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The charge is deducted each year as per the age of the client therefore

at the age of 30, mortality for the age of 30 is charged and at the age of 31

mortality for the age of 31 is charged.

Investment and SavingsUndoubtedly all of us look for saving the money that we have and to

ensure that the investment that we make should create value for us and

more the better.

Many life insurance plans present in the market do not provide justice to

this important need of the client. ULIP on the other hand has all the

composition of satisfying investment and savings needs of the clients.

ULIP provides the client with the option of investing as per personal riskprofile and get returns accordingly. There are options of funds where in the

client can put money in

1. Equity Markets

2. Debt Markets

3. Balanced funds with a mix of the above two

4. Short-term debt market

This also helps the client in saving in accordance to the age as a younger

person can afford to take some risk however a senior citizen might not be

in a position to make investment in comparatively high risk investments.

With the option of four funds to invest in the client always has the option to

change shift as the risk and return orientation changes. Subsequent

contributions and contribution can also be allocated in different fund. Such

features ensures that the client is able to use quality fund management for

optimum benefit.

Net Asset Value

In traditional Plans the policyholder is not aware of the value of the policy

is accruing.


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In a Unit Linked plan the investment, which is denoted through a NAV, is

the real time indicator of the value of the fund. Therefore a policyholder

can easily find out that what is the value that the policy has accrued as of

now.Transparency

Every client has the right to know about the manner in which the

Contribution being given by him is being allocated. The biggest concern

that is raised is about the charges.

ULIP are completely transparent and the client knows as how every paisa

being charges is allocated.

There are various kind of expenses that are involved in any insuranceplan. These expense may be related to the sales and distribution cost, or

the operational costs, the costs related to the life insurance cover or the

costs related to the management of expense. Since all unit-linked plans

have a transparent structure, they have to exhibit all the charges. It may be

worthwhile to know about the various kind of expenses related to a unit-

linked plan.

The various kinds of expenses are detailed below:

Contribution Related Charges : These are charges that are represented

as a percentage of the regular or single contribution paid. In case of a

regular contribution plan, it is usually high in the first year to pay for the

distribution cost. This charge pays for the issuance and for distribution

commissions.

This is a charge to cover the running expenses of the policy. For single

Contribution plans this is levied once at the start of the policy. For regular

Contribution plan this will be charged on a regular uniform basis depending

upon the frequency of payments.


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Normally these charges are shown as percentage of the contribution.

Allocation is another terminology used by the company in actually

representing costs.

Allocations are mathematically reverse of the charges. Thismathematically;

Allocation = 1- Charges. This for example is a product has a 70%

allocation in the first year, it means 1- 0.7 = 0.3 or 30% charge.

Administrative Charges: These are charges that are levied for the

administration of the policy and the related costs of administration of the

insurance company, itself. These costs are different from the issuance and

the distribution related costs of the product they are more related to thecosts like the IT, operational, etc. cost of continuing the policy.

i) They can be levied as the percentage of the value of the

investments (funds) in hat account of the policy holder. So for

example, as Baja Allianz levy a charge of 1.25% of the fund for the

administration of the policy, every year. These kinds of charges get

adjusted in the Unit Value (NAV), as the NAV is declared after

adjusting these costs.

ii) They can be levied as a flat charge with an option of increasing it

by a certain percentage over years. For example, Birla levies a flat

charge of Rs. 28 per month on its policy. HDFC SL unit linked plan

levies Rs.180 annually as the administration charges.

Fund Management Fee : All unit linked plans have underlying funds,

which the policy holders choose for their investments. These funds

constitute of various financial instruments such as equity, bonds, money

market instruments.

The fund management fees is levied to pay for the charges of managing

the investments, which basically involve the cost of buying and selling the

various financial instruments for the various funds.


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These charges are expressed as a percentage of the Asset Under

Management of the insurance company. So for example, Birla in its create

fund charges 1.25% annually of the AUM, HDFC charges 0.80% for the its

equity fund.Interesting thing to know here is the factor on which the charges

depend The main factor being the fund composition

For example, the cost of managing equity. Thus normally, the fund option,

which has higher percentage of equity, would have higher charges

comparatively to other funds.

So for example, where as Birla charges 1.25% of the AUM as the charge

for their Creator fund which has 50% equity (Max) and 50% debt, AvivasEquity Fund with 100% equity option charges 2.00%. Similarly, the debt

fund of Birla, which has 90% debt, charges 1.00% of the AUM as the

annual charge.

Morality charges : This covers the cost of providing life protection for the

insured and may be paid once at the start of the policy or a recurrent

manner (for example). This charge is levied to provide the insurance cover

under the plan. Normally these charges are 1-year charges and keep

changing as per the age of the policy holder.

These are normally expressed as as thousand of the Sum Assured

and depend on the age of the policyholder. So, for example one would

have the morality charge as Rs. 1.50 per thousand of SA for a 30 year-old

and Rs. 1.55 for the age of 35 years. This means that the cost of insurance

of Rs. 1000 at the age of 30 is 1.50, where the same insurance cover costs

Rs. 1.55 at the age of 35 years.

All unit linked products have a morality charge table that is used to

calculate the life insurance cover chare on a yearly basis.

Rider Charges : Rider charges are similar in nature to the morality

charges as they are levied to pay for the other protection benefits that the


47/80

policy holder has chosen for like the critical illness benefit or the accident

benefit, etc.

Surrender charges : When the policy decides to surrender the policy or

partially withdraw some of the units for cash, a surrender charge may beapply. Usually the surrender charges only apply in the first few years after

the units are invested and are usually on the decreasing scale. Surrender

charges are used to cover initial expenses that have been incurred by the

company but not yet covered from the policy holder yet.

These charges can either be expressed as a percentage of the value

of investments or as a fixed flat charge, depending on the structure

of the product.

So, the policy holder may be charge of 2% of the unit value as the

surrender charge or Rs. 1000 as the surrender penalty.

Surrender charges usually apply to policy with high allocation especially in

the first few years.

Bid offer charges : In ULIP specifically certain insurers might create a

difference in the price at which they sell the unit and the price at which they

buy the units.

Investors Contributions are used to buy units in the investment fund at the

offer price and are sold when benefits are required at the bid price. The

difference between the offer and bid prices is known as the bid offer

spread, this is used to cover expenses when setting up the policy.

Bid-offer spread is expressed as a percentage of the NAVs and hence

also becomes a percentage of the value of units.

So for example a company has bid-offer spread of 5% and has an offer

price of Rs. 10 per unit. This means that the bid price would be 5% less

and hence 95% of the offer price, i.e. 95%*10 = Rs. 9.50.

Hence, a policyholder having 100 units in his investment would get Rs.

9.5100 = Rs. 950 as his value and if he has to but another 100 units he will


48/80

have to pay Rs. 10100 = RS. 1000. This Rs. 50 difference is the bid-offer

spread.

Any fund which has a bid-offer spread would have 2 NAVs buying and

selling, where as a fund which does not have bid-offer spread is a 1 NAVfund same for buying and selling.

Transactional Specific charges : These charges are levied when the

client does some specific transaction like changing funds, topping up the

investment component or withdrawals.

Liquidity

This facility makes the ULIP a very practical insurance in current times.

Most Life Insurance plans do not provide the policyholder the facility ofwithdrawing money incase the need arises.

Unit Linked Plans provide you easy access to your money as and when

you may require. One can redeem the units after a particular period of time

as defined by the plan, as per the need. ULIP allows either partial and

complete withdrawal, without penalizing the policyholder.

For example in the 6th year of your plan, you require 15000/- for certain

medical expenses that came up.

Your investment has been made in the balance fund. If the current NAV of

the balanced fund is 15/-, then all you need to do is to sell 1000 units

which will give you 15000/-. The rest of the fund and the policy will

continue normally as this is partial withdrawal.

If need be, the policyholder can withdraw all the monies in the funds by

redeeming all the units.

Liquidity thus provided to the policyholder is immense value in servicing

the ever-changing needs of the client.


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Tax planning

Regulation in India allow tax benefits in the Contribution paid under section

88. contribution paid for health riders (critical illness and major surgical) is

allowed tax benefit under section 80 D, as per the prevailing tax-laws.Maturity benefits are tax free under section 10(10) d, provided the life

cover is at least 5 times of the annual Contribution paid.

Death benefit is tax free under section 10 (10) d.

With so many tax benefits available in one instrument ULIP tends to be

an intelligent tax-planning tool.

Working of a Unit Linked Plan

For example

A client puts in a regular contribution of 20000/-. From this amount a

percentage is deducted as a contribution.

Therefore if the contribution related expense is 20% - Rs. 4000/- will be

deduced as contribution related charges.

The amount that is now available is 20000 4000 16000/-

Now, it the client who is aged 30 years were to take a life cover of

500000/- then mortality (1.50/- per thousand at the age of 30) charge of

750/- will be deducted.

This amount will provide life cover to the policyholder. The remaining

amount of 15250/- will be invested in any of the underlying funds i.e.

debt, equity or mix of both the two. The client can invest in any one of them

or all of them.

The investment is showed in terms of units. Thus if the client invests in

debt fund and the NAV of the debt fund is 16/- (market price) then the

number of units that the client will get is 15250/16=953.125 for the

investment fund management fee will be charged and the for maintaining

the policy an administrative charge is levied.


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CHOICE OF FUND

There are four fund options available to the policyholders. The policyholder

has the flexibility of investing in all the four funds in the proportion the

wishes under our single policy. Following are the fund options.

Plan Plan objective Risk Investment patterns

Protector(Income)

Steady returns over along-term

Moderate

Debt Instruments :Max 100% Moneymarket & cash : Max25%

Balancer(Balanced)

Balance of Capitalappreciation andsteady returns over a

long-term

Average

Debt, money market &cash : Min 60% equity& equity related

security : Max 40%

Maximiser(Growth)

High growth andcapital appreciationover a long term High

Equity & Equityrelated security :Max100% debt, moneymarket & Cash : Max25%

Preserver(Liquid)

Capital preservationLow

Debt market : max50% money market &cash : min 50%

Switch between the funds

The policyholder would have the control to direct his investment depending

upon the market conditions by switching the money between the funds.


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UNIT LINKED LIFE FUNDS PERFORMANCE

Maximiser Plan DetailsPortfolio Allocation as on December 31, 2004

Name Industry % Net Assets

EQUITY

OIL & GAS 16.48%

ONGC CORPORATION LTD. 5.42%BHARAT PETROLEUM CORP LTD. 3.05%GAS AUTHORITY OF INDIA 3.36%HPCL 2.41%INDIAN OILCORPORATION LIMITED 1.44%CHENNAI PETROLEUM CORPORATION LTD. 0.80%

FINANCE 14.96%STATE BANK OF INDIA 4.18%HDFC BANK 4.19%HDFC LIMITED 3.88%UTI BANK 2.30%ORIENTAL BANK OF COMMERCE 0.41%

METALS 9.45%

HINDALCO INDUSTRIES LIMITED 4.84%TATA IRON & STEEL COPANY LIMITEED 3.73%NATIONAL ALLUMINIUM COMPANY LIMITED 0.88%

CHEMICALS 9.21%

RELIANCE INDUSTRIES LIMITED 9.21%CEMENT & CONGLOMERATES 7.80%

GUJRAT AMBUJA CEMENTS LIMITED 3.27%ASSOCIATED CEMENT COMPANIES LIMITED 2.43%GRASIM INDUSTRIES LTD. 2.10%

CAPITAL GOODS 7.14%BHARAT HEAVY ELECTRICALS LIMITED 4.70%LARSEN AND TUBRO LIMITED 1.00%ASEA BROWN BOVERI LIMITED 1.44%

SOFTWARE 6.47%INFOSYS TECHNOLOGIES LTD 4.40%WIPRO LIMITED 1.16%TATA CONSULTANCY SERVICES LTD. 0.91%

FMCG 6.93%ITC LTD 5.93%COLGATE PALMOLIVE INDIA LIMITED 0.57%MARICO INDUSTRIES LTD 0.44%

DRUGS & PHARMACEUTICALS 5.12%CIPLA LTD 2.29%SUN PHARMA LTD 1.74%RANBAXY LABORATORIES LTD. 1.09%

TELECOM & MEDIA 4.98%BHARTI TELE VENTURES LTD. 4.98%

AUTO 3.35%MAHINDRA & MAHINDRA LTD. 1.8%TATA MOTORS 0.64%PUNJAB TRACTORS LTD. 0.91%

MISCELLANEOUS 2.22%G.D. SHIPPING 1.50%CENTURY TEXTILE LIMITED 0.72%TOTAL 94.11%

ACCRUED INTEREST/CASH/CALL/MONEY AT SHORT NOTICE/OTHERNET CURRENT ASSETS 5.89%


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94%

6%

Equity

Call / Current

Assets

Portfolio Classification by Asset Class

Period ICICI Pru Benchmark1 year

3 yrs (annualized)

Since Inception(16 Nov, 01) annualised

17.02%

39.13%

42.31%

14.41%

26.13%

N.A

Benchmark : BSE 100


53/80

Balancer Plan Details

Portfolio Allocation as on December 31, 2004


EQUITY

OIL & GAS 6.78%ONGC CORPORATION LTD. 2.26%BHARAT PETROLEUM CORP LTD. 1.28%GAS AUTHORITY OF INDIA 1.26%HPCL 0.95%INDIAN OILCORPORATION LIMITED 0.68%CHENNAI PETROLEUM CORPORATION LTD. 0.35%


METALS 3.97%HINDALCO INDUSTRIES LIMITED 1.80%TATA IRON & STEEL COPANY LIMITEED 1.73%NATIONAL ALLUMINIUM COMPANY LIMITED 0.44%

CHEMICALS 3.86%



CAPITAL GOODS 2.73%%BHARAT HEAVY ELECTRICALS LIMITED 1.80%%LARSEN AND TUBRO LIMITED 0.46%%ASEA BROWN BOVERI LIMITED 0.46%








54/80

38%

32%

18%

4%

5%

3%

Equity

Government

Securities

Corp Bonds - AAA& eq.

Corp Bonds - AA +

& eq.

Call / Current

Assets

FD with Banks

Name Rating % Net Assets

DEBENTURES / BONDS

RELIANCE INDUSTRIES AAA 2.59%INDIAN RAILWAY FINANCE CORPORATION AAA 2.43%HINDUSTAN PETROLEUM CORPRATION AAA 2.07%

RURAL ELECTRIFICATION CORPORATION AAA 1.96%NABARD AAA 1.95%HINDALCO AAA 1.41%G CAPITAL AAA 1.13%CITIFINANCIALCONSUMER AAA 0.91%EXIM BANK AAA 0.83%GRASIM INDUSTIRES AAA 0.75%POWER FINANCE CORPORATION AAA 0.62%HDFC AAA 0.62%IDFC AAA 0.42%SBI AAA 0.30%BHARAT PETROLEUM CORPORATION AAA 0.12%BHARAT HEAVY ELECTRICAL AAA 0.12%NATIONAL THERMAL POWER CORPORATION AAA 0.12%IDBI AA+ 3.61%GUJARAT AMBUJA CEMENT AA+ 0.18%TATA CHEMICALS AA+ 0.09%INDIAN PETROCHEMICAL CORPORATION AA 0.08%

TOTAL 22.30%

GOVERNMENT SECURITIES

TREASURY BILLS Sovereign 10.55%7.38% GOI 2015 Sovereign 7.50%11.19% GOI 2005 Sovereign 4.95%6.18% GOI 2005 Sovereign 4.06%7.55 GOI 2010 Sovereign 3.53%6.96% OIL COMPANIES SPECIAL BOND 2009 Sovereign 0.46%11.4% GOI 2008 Sovereign 0.39%5.59% GOI 2016 Sovereign 0.21%9.39% GOI 2011 Sovereign 0.16%

TOTAL 31.82%Bank Fixed Deposits 3.01%ACCRUED INTEREST /CASH/CALL/ MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

5.45%


Period ICICIPru

Benchmar

One year 6.67% 5.73%Three years(Annualised)

18.96% 13.48%

SinceInception(NOV 16-01)(Annualised)

22.48% NA

65% CRISIL Composite Bond Index + 35% BSE 100


55/80

43%

35%

8%

8%6%

Government

Securities

Corp Bonds - AAA

& eq.

Corp Bonds - AA +

& eq.

Call / Current

Assets

FD with Banks

Protector plan detailsPortfolio Allocation as on December 31, 2004


DEBENTURES / BONDS

INDIAN RAILWAY FINANCE CORPORATION AAA 4.60%RELIANCE INDUSTRIES AAA 4.49%RURAL ELECTRIFICATION CORPORATION AAA 3.97%GRASIM INDUSTIRES AAA 2.91%EXIM BANK AAA 2.55%HINDALCO AAA 2.49%CITIFINANCIAL CONSUMER AAA 2.27%HINDUSTAN PETROLEUM CORPORATION AAA 2.22%HDFC AAA 1.84%BHARAT HEAVY ELECTRICALS AAA 1.60%GE CAPITAL AAA 1.57%POWER FINANCE CORPORATION AAA 0.99%IDFC AAA 0.90%BHARAT PETROLEUM CORPORATION AAA 0.89%NATIONAL THERMAL POWER CORPORATION AAA 0.52%SBI AAA 0.46%NALCO AAA 0.31%NABARD AAA 0.07%IDBI AA+ 6.05%TATA CHEMICALS AA+ 0.81%GUJARAT AMBUJA CEMENT AA+ 0.74%INDIAN PETROCHEMICAL CORPORATION AA 0.50%

TOTAL 42.75%

GOVERNMENT SECURITIESTreasury Bills Sovereign 14.68%7.38% GOI 2015 Sovereign 12.54%7.55% GOI 2010 Sovereign 6.13%6.18% GOI 2005 Sovereign 5.96%11.19% GOI 2005 Sovereign 1.87%6.96% OIL COMPANIES SPECIAL BOND 2009 Sovereign 1.16%9.39% GOI 2011 Sovereign 0.51%5.59% GOI 2016 Sovereign 0.45%

Total 43.31%

Bank Fixed Deposits 6.22%ACCURED INTEREST CASH/CALL/MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

7.72%


Period ICICIPru

Benchmark

One year 0.01% 0.18%

Three years(Annualised)

7.58% 6.82%

SinceInception(NOV 16-01)(Annualised)

11.03% NA

CRISIL Composite Bond Index


56/80

78%

10%11% 1%

Government

Securities

Corp Bonds - AAA

& eq.

Corp Bonds - AA +

& eq.

Call / Current

Assets

Preserver plan details


Name Rating % Net AssetsDEBENTURES / BONDSHDFC AAA 10.27%IDBI AA+ 10.90%

TOTAL 21.17%

GOVERNMENT SECURITIESTreasury Bills Sovereign 77.62%

Total 77.62%

ACCRUED INTEREST/CASH/CALL/MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

1.20%


Period ICICI Pru Benchmark

Since Inception (May 17, 04)

(Absolute)

4.96% 4.17%


57/80

UNIT LINKED PENSION FUNDS PERFORMANCE

Pension Maximiser Plan Details



EQUITY




CHEMICALS 8.71%RELIANCE INDUSTRIES LIMITED 8.71%

CEMENT & CONGLOMERATES 8.20%GUJRAT AMBUJA CEMENTS LIMITED 3.24%ASSOCIATED CEMENT COMPANIES LIMITED 1.49%GRASIM INDUSTRIES LTD. 2.47%







MISCELLANEOUS 2.65%G.D. SHIPPING 1.78%CENTURY TEXTILE LIMITED 0.87%TOTAL 93.40%ACCRUED INTEREST/CASH/CALL/MONEY AT SHORT NOTICE/OTHERNET CURRENT ASSETS

6.60%


58/80

93%

7%

Equity

Call / Current

Assets



One year

Two years (Annualized)

Since Inception(JUN 1.02)

(Annualized)

16.89%

63.92%

49.41%

14.41%

53.55%

33.33%


59/80

Pension Balancer Plan Details



EQUITY




CHEMICALS 3.62%











60/80

38%

29%

18%

5%

7%

3%

Equity

Government

Securities

Corp Bonds - AAA

& eq.

Corp Bonds - AA& eq.

Call / Current

Assets

FD with Banks


DEBENTURES / BONDS

INDIAN RAILWAY FINANCE CORPORATION AAA 2.89%RELIANCE INDUSTRIES AAA 2.78%RURAL ELECTRIFICATION CORPORATION AAA 2.06%HINDUSTAN PETROLEUM CORPORATION 1.77%HINDALCO AAA 1.59%

HDFC AAA 1.50%CITIFINANCIALCONSUMER AAA 1.20%EXIM BANK AAA 0.99%IDFC AAA 0.73%POWER FINANCE CORPORATION AAA 0.60%GRASIM INDUSTRIES AAA 0.50%SBI AAA 0.45%NATIONAL THERMAL POWER CORPORATION AAA 0.36%BHARAT PETROLEUM CORPORATION AAA 0.19%BHARAT HEAVY ELECTRICALS AAA 0.18%NABARD AAA 0.15%IDBI AA+ 4.40%GUJARAT AMBUJA CEMENT AA+ 0.16%TATA CHEMICALS AA+ 0.14%INDIAN PETROCHEMICAL CORPORATION AA 0.13%

TOTAL 22.77%

GOVERNMENT SECURITIESTREASURY BILLS Sovereign 13.04%7.38% GOI 2015 Sovereign 7.29%11.19% GOI 2005 Sovereign 2.91%6.18% GOI 2005 Sovereign 2.87%7.55 GOI 2010 Sovereign 1.68%6.96% OIL COMPANIES SPECIAL BOND 2009 Sovereign 0.54%11.4% GOI 2008 Sovereign 0.49%5.59% GOI 2016 Sovereign 0.46%

TOTAL 29.43%Bank Fixed Deposits 3.25%ACCRUED INTEREST /CASH/CALL/ MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

6.73%


Period ICICIPru

Benchmar

One year 6.78% 5.73%Last Twoyears(Annualised)

25.03% 19.15%

SinceInception (Jun1-02)(Annualised)

22.50% 15.68%

65% CRISIL Composite Bond Index + 35% BSE 100


61/80

44%

36%

9%

5%6%

Government

SecuritiesCorp Bonds - AAA

& eq.

Corp Bonds - AA +

& eq.

Call / Current

Assets

FD with Banks

Pension Protector Plan Details



DEBENTURES / BONDS

INDIAN RAILWAY FINANCE CORPORATION AAA 5.51%RELIANCE INDUSTRIES AAA 5.28%RURAL ELECTRIFICATION CORPORATION AAA 4.40%GRASIM INDUSTIRES AAA 3.25%EXIM BANK AAA 2.62%HINDALCO AAA 2.47%CITIFINANCIAL CONSUMER AAA 2.30%HINDUSTAN PETROLEUM CORPORATION AAA 1.75%HDFC AAA 1.33%BHARAT HEAVY ELECTRICALS AAA 1.2%GE CAPITAL AAA 1.10%POWER FINANCE CORPORATION AAA 1.05%IDFC AAA 1.02%BHARAT PETROLEUM CORPORATION AAA 0.89%NATIONAL THERMAL POWER CORPORATION AAA 0.68%SBI AAA 0.8%NALCO AAA 0.24%NABARD AAA 0.12%

IDBI AA+ 7.35%TATA CHEMICALS AA+ 0.56%GUJARAT AMBUJA CEMENT AA+ 0.54%INDIAN PETROCHEMICAL CORPORATION AA 0.34%

TOTAL 44.49%

GOVERNMENT SECURITIESTreasury Bills Sovereign 12.91%7.38% GOI 2015 Sovereign 12.24%7.55% GOI 2010 Sovereign 5.44%6.18% GOI 2005 Sovereign 7.26%11.19% GOI 2005 Sovereign 3.56%6.96% OIL COMPANIES SPECIAL BOND 2009 Sovereign 1.00%9.39% GOI 2011 Sovereign 0.66%

5.59% GOI 2016 Sovereign 0.53%11.40%GOI 2008 Sovereign 0.37%

Total 43.96%Bank Fixed Deposits 6.23%ACCURED INTEREST CASH/CALL/MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

5.33%


Period ICICIPru

Benchmark

One year 0.15% 0.18%Two years(Annualised)

4.70% 4.51%

SinceInception (Jun1-02)(Annualised)

8.14% 7.08%

CRISIL Composite Bond Index


62/80

72%

12%

12% 4%

Government

Securities

Corp Bonds - AAA

& eq.

Corp Bonds - AA +

eq.

Call / CurrentAssets

Pension Preserver Plan DetailsPortfolio Allocation as on December 31, 2004

Name Rating % Net AssetsDEBENTURES / BONDSHDFC AAA 11.72%IDBI AA+ 11.87%

TOTAL 23.59%

GOVERNMENT SECURITIESTreasury Bills Sovereign 72.39%

Total 72.39%

ACCRUED INTEREST/CASH/CALL/MONEY ATSHORT NOTICE/OTHER NET CURRENTASSETS

4.02%



Since Inception (May 17, 04)

Absolute

4.42% 4.17%


63/80

39%

7%10%12%

8%

4%

3%

7%10%

ICICI Pru

Max NYL

HDFC Std. Life

Birla Sunlife

Allianz Bajaj

Om Kotak

SBI Life

Tata AIGOthers

10.7

8.9 8.7

4.4

3.4

2.21.3

0

2

4

6

8

10

12

UK Japan SouthKorea

UnitedStates

Malaysia India China

INSURANCE OPPORTUNITY

INSURANCE OPPORTUNITY : LOW PENETRATION

Ins. Premium as a % of GDP


64/80

KEY BUSINESS ASSETS

Risk Framework

Distribution Product

Present in 54 locations Complete array of

About 38,000 agents products with a

12 Bancassuance partners successful linked &

pensions products strategy

Technology People

To provide differential Built a talent pool

sales & service experience to sustain leadership position


65/80

What statistics says

Cover up New business 04 05

Company Premium (Rs. Cr) Policies

Tata AIG

OM Kotak

Birla Sun Life

Max New York

ING Vysya

HDFC standard

Met Life

Bajaj Allianz

ICICI Prudential

SBI

Aviva

AMP Sanmar

Sahara Life

LICTOTAL

300.22

374.75

621.28

224.69

281.62

486.15

56.03

800.01

1584.08

482.93

192.29

91.18

167.09

19785.9

228894

63468

198370

216671

111141

206320

46682

288191

614

icici pru investment

Documents