p.f.p. assignment 2

8/8/2019 P.F.P. Assignment 2

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Assignment No.-2

SUBMITTED TO- Mr. Bhavdeepsingh

SUBMITTED BY-

NAME- NipunBhardwaj

CLASS- MBA

ROLL. NO RT1903B38

REG. NO. - 10906203


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Introduction-

Insurance is a form of risk management primarily used to hedge against the risk of a

contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss,

from one entity to another, in exchange for payment. An insurer is a company selling the

insurance; an insured or policyholder is the person or entity buying the insurance policy.

The insurance rate is a factor used to determine the amount to be charged for a certain

amount of insurance coverage, called the premium. Risk management, the practice

of appraising and controlling risk, has evolved as a discret.

Principles

Insurance involves pooling funds from many insured entities (known as exposures) in order

to pay for relatively uncommon but severely devastating losses which can occur to these

entities. The insured entities are therefore protected from risk for a fee, with the fee being

dependent upon the frequency and severity of the event occurring. In order to be insurable,the risk insured against must meet certain characteristics in order to be an insurable risk.

Insurance is a commercial enterprise and a major part of the financial services industry, but

individual entities can also self-insure through saving money for possible future losses.

Insurability

Risk which can be insured by private companies typically share seven common

characteristics.[2]

1. Large number of similar exposure units. Since insurance operates through poolingresources, the majority of insurance policies are provided for individual members of

large classes, allowing insurers to benefit from the law of large numbers in which

predicted losses are similar to the actual losses.

2. Definite Loss. The loss takes place at a known time, in a known place, and from aknown cause. The classic example is death of an insured person on a life insurance

policy. Fire, automobile accidents, and worker injuries may all easily meet this

criterion. Other types of losses may only be definite in theory

3. Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous,or at least outside the control of the beneficiary of the insurance. The loss should be

pure, in the sense that it results from an event for which there is only theopportunity for cost.

4. Large Loss. The size of the loss must be meaningful from the perspective of theinsured. Insurance premiums need to cover both the expected cost of losses, plus the

cost of issuing and administering the policy, adjusting losses, and supplying the

capital needed to reasonably assure that the insurer will be able to pay claims. For

small losses these latter costs may be several times the size of the expected cost of

losses.


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5. Affordable Premium. If the likelihood of an insured event is so high, or the cost of theevent so large, that the resulting premium is large relative to the amount of protection

offered, it is not likely that anyone will buy insurance, even if on offer..

6. Calculable Loss. There are two elements that must be at least estimable, if notformally calculable: the probability of loss, and the attendant cost.

7. Limited risk of catastrophically large losses. Insurable losses areideally independent and non-catastrophic, meaning that the one losses do not happen

all at once and individual losses are not severe enough to bankrupt the insurer;

insurers may prefer to limit their exposure to a loss from a single event to some

small portion of their capital base, on the order of5 percent.

Indemnification-

To "indemnify" means to make whole again, or to be put in the position that one was in, to

the extent possible, prior to the happening of a specified event or peril. Accordingly, life

insurance is generally not considered to be indemnity insurance, but rather "contingent"

insurance (i.e., a claim arises on the occurrence of a specified event). There are generally two

types of insurance contracts that seek to indemnify an insured:

1. an "indemnity" policy and2. a "pay on behalf" or "on behalf of policy.

Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product"

paid for. Claims may be filed by insurers directly with the insurer or through brokers or

agents. The insurer may require that the claim be filed on its own proprietary forms, or may

accept claims on a standard industry form such as those produced by ACORD.


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Types Post Office Schemes.

Post Office Monthly Income

Scheme

Post Office Time DepositScheme

Post Office Savings Account

National Savings Certificate

KisanVikasPatra

Post office schemes

Mutual Fund-

A mutual fund is a professionally managed type of collective investment scheme that pools

money from many investors and invests typically in investment securities (stocks, bonds,

short-term money market instruments, other mutual funds, other securities,

and/or commodities such as precious metals).[1] The mutual fund will have a fund

manager that trades (buys and sells) the fund's investments in accordance with the fund's

investment objective. In the U.S., a fund registered with the Securities and ExchangeCommission (SEC) under both SEC and Internal Revenue Service (IRS) rules must distribute

nearly all of its net income and net realized gains from the sale of securities (if any) to its

investors at least annually.


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Average annual return

US mutual funds use SEC form N-1A to report the average annual compounded rates of

return for 1-year, 5-year and 10-year periods as the "average annual total return" for each

fund. The following formula is used:[6]

P(1+T)n

= ERVWhere:

P = a hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000 payment made

at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-,

or 10-year periods (or fractional portion).

Expenses and expense ratios

Mutual funds bear expenses similar to other companies. The fee structure of a mutual fund

can be divided into two or three main components: management fee, non-management

expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a percentage of the

average daily net assets of the fund.

Brokerage commissions

An additional expense which does not pass through the fund's income statement (statement of

operations) and cannot be controlled by the investor is brokerage commissions. Brokerage

commissions are incorporated into the price of securities bought and sold.


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Types of mutual funds

Open-end fund, forms of organization, other funds The term mutual fundis the common name for what is classified as an open-end

investment company by the SEC. Being open-ended means that, at the end of every

day, the fund continually issues new shares to investors buying into the fund and must

stand ready to buy back shares from investors redeeming their shares at the then

current net asset value per share.

Equity funds Equity funds, which consist mainly of stock investments, are the most common type

of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds

in the United States.

Hedge funds

Funds of funds Money market funds Bond funds Exchange-traded funds


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Post Office-

A post office is a facility authorised by a postal system for the posting, receipt, sorting,

handling, transmission or delivery of mail.[1]

Post offices offer mail-related services such as post office boxes, postage and packaging

supplies. In addition, some post offices offer non-postal services such as passport applications

and other government forms, car tax purchase, money orders, and banking services.

Post offices had a main customer service and point of sale area and many offices were

directly assigned to Postal code, ZIP code.

Comparative analysis on the basis of Risk, Return, and Maturity:

Risk Return Maturity

y y yInsurance y Returns given by

insurance company are

negative in some

cases.

y In some case companywill not give fullamount because lack

of evidenced.

y Returns given byinsurance company

through premium.

y If any accidentoccurs than claim can

be taken.y It can be used as a tax

savings.

y The date atwhich the

face amount

of a life

insurance

policybecomes

payable

either by

death or

other

contract

stipulation.

Mutual Funds y The amount investedhas little risk

involved.

y The risk factor can bedecided with the 3

available categories as

"No Risk Fund"

"Balanced Fund" and

y As Indian Economyis growing very

rapidly every day, the

funds can be

expected to give good

return in the long

term investment up to

70%.

y Maturityperiod

depends

upon the type

of scheme

taken by

investor for

e.g. there is


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"High Risk Fund"

y The amount investednot has a guaranteed

small percentage of

appreciation but there

may be quite highalso.

y Return on mutualfund can be positive

or negative.

no fixed

maturity

period in

case of open

ended fund

but in closeended fund

maturity

period is 5-7

years.

Strategies on the basis of income:

For those having income of 1 to3lakh.

y Planning for future safety.y Reduces expensesy Must open saving accounty Must take insurance policies by keeping the premium paying.y Must invest in mutual funds and share market for getting the better return.

For those having income of 3 to 10lakh.

y Invest in share market for getting better return.

y Must invest in real estate to get profit.

For those having income above 10lakh.

y Must buy new house.y Must take insurance for getting the tax rebate.y Must buy property for better investment of moneyy Can start new business.


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Impact of the Budget 2010-

y The Finance Minister in his Union budget 2010 speech proposed banking licenses toIndian banks to ensure the expansion of banking sector in size and turnover.

y With the increase in the share market it will definitely provide benefits to investorweather they invested through mutual funds or equity.

y Due to competition in market post office may increase benefits for its customers.y The parity in service tax was a substantial move for insurance sector.y So attracting the customers new banks may pay higher interest rate on mutual funds.y The budget has given a huge thrust to health insurance, but at the same time, it has

brought the industry with in the ambit of service tax.

y It can increase the market by which more return can be expected.

p.f.p. assignment 2

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