FINANCIAL SERVICES PROVIDED BY OTHER FINANCIAL INSTITUTIONS Prof. (Dr.) Paresh Shah FCMA., Ph.D. (Finance)., F.D.P. (IIMA) Prof. (Dr.) Paresh Shah 1 Session 4

INVESTMENT INSTITUTIONS Prof. (Dr.) Paresh Shah 2 INSURANCE: PUBLIC SECTOR LIC GIC PRIVATE SECTOR MUTUAL FUNDS PUBLIC SECTOR SBI, LIC, GIC, BOI, BOB, PNB, IDBI, IL & FS, INDEX FUND PRIVATE SECTOR

INSURANCE BUSINESS Prof. (Dr.) Paresh Shah 3 Since 1818 Entire insurance business brought under social control Life insurance in 1956 General insurance in 1972 Life insurance corporation of India set up in 1956 Negligible business by P & T department

WHAT IS LIFE INSURANCE? Prof. (Dr.) Paresh Shah 4 A contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) on the happening of the event insured against. The contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death, if it occurs earlier.

WHAT IS LIFE INSURANCE? Prof. (Dr.) Paresh Shah 5 The contract provides for the payment of premium periodically to the corporation by the assured. Life insurance is universally acknowledged to be an institution which eliminates ‘risk’, substituting certainty for uncertainty, and comes to the timely aid.

LIFE INSURANCE SUPERIOR TO OTHER FORMS OF SAVINGS Prof. (Dr.) Paresh Shah 6 Protection – full protection against risk of death of the saver Aid to thrift – long term savings made in a relatively ‘painless’ manner Liquidity – security for a commercial loan Tax relief – tax rebate availed from tax liability Money when you need it Also extends individual insurance abroad

INVESTMENT POLICY OF LIC Prof. (Dr.) Paresh Shah 7 According to the provisions of Insurance act, 1936 At least Avenues 50%Govt., and other approved securities 15%Other investments like State Govt., for housing and water supply schemes, to municipal corporations, govt. guaranteed loans to municipal committees and cooperative sugar factories

INVESTMENT POLICY OF LIC Prof. (Dr.) Paresh Shah 8 35%In approved investments which include shares, and debentures of public and private limited companies, of co-operative societies, immovable property, loans to policy holders and fixed deposits with banks and co-operative societies. RECENT MODIFICATION 5%National Housing Bank

INVESTMENT POLICY OF LIC Prof. (Dr.) Paresh Shah 9 Long term life cover is essential purpose of life insurance, speculative investments are strictly avoided. The investment policy reflecting the LIC’s judiciously MIXING SAFETY WITH HIGHER YIELD

GENERAL INSURANCE CORPORATION (GIC) Prof. (Dr.) Paresh Shah 10 GIC and its four subsidiaries National insurance co. ltd. New India assurance co. ltd. Oriental fire and general insurance co. ltd. United India insurance co. ltd. GIC is the holding company and its direct business restricted to the aviation insurance; general insurance is handled by the subsidiaries.

GENERAL INSURANCE CORPORATION (GIC) Prof. (Dr.) Paresh Shah 11 General insurance business is classified as: marine, fire and miscellaneous. Marine insurance for transportation of goods and commodities GENERAL INSURANCE COVER based on sharing risks that may arise on accidental, fortuitous occurrence.

GENERAL INSURANCE CORPORATION (GIC) Prof. (Dr.) Paresh Shah 12 Of a shorter duration normally year or less Offer insurance cover: Fire, automobiles, ocean and inland marine, theft, loss, damage, etc.

GENERAL INSURANCE CORPORATION (GIC) Prof. (Dr.) Paresh Shah 13 Non-traditional schemes Comprehensive Crop Insurance scheme, Cattle and livestock insurance scheme, Innovative schemes like mediclaim, personal accident, householders’ comprehensive insurance policy, professional products, nuclear insurance pool, etc.

GIC’s INVESTMENT POLICIES Prof. (Dr.) Paresh Shah 14 Maximise income, ensure the safety, and liquidity of funds, and deploy consistent with national objectives resources and priorities. As liabilities are of short-term nature and claims thereby unpredictable, - fairly liquid assets coupled with higher returns Industrial securities followed by government securities

IRDA Prof. (Dr.) Paresh Shah 15 Insurance regulatory and development authority (IRDA) was enacted in Objectives: Take care of the policy holders interest Open the insurance sector for private use Ensure continued financial soundness and solvency Regulate insurance and reinsurance companies

IRDA’s Objectives Prof. (Dr.) Paresh Shah 16 To eliminate dishonesty and unhealthy competition Supervise the activities of intermediaries Amend insurance act, 1938; life insurance corporation act, 1956 and the general business nationalisation act, 1972

MUTUAL FUNDS Prof. (Dr.) Paresh Shah 17 IN 1822, King William I of the Netherlands WHAT IS MUTUAL FUND? A group of investors, individuals and institutions with common investment goals, pooled their investment and placed them with fund managers. These professional money managers then invested these funds in securities, and distributed profits among the funds members. Mutual funds came in India in 1960s.

MUTUAL FUNDS Prof. (Dr.) Paresh Shah 18 Mutual fund units are investment vehicles that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake direct investment in equities successfully. A mutual fund is divided into equal portfolios called units

MUTUAL FUNDS Prof. (Dr.) Paresh Shah 19 The prices are quoted for units – The higher (offer) price being the price the investor pays to buy units; The lower (bid) price being the price he will receive for units sold back to the managers.

TYPES OF MUTUAL FUNDS Prof. (Dr.) Paresh Shah 20 OPEN AND CLOSE ENDED FUNDS: If the period and/or target amount of the fund is definite, the fund is called close-ended. If indefinite, it is called open ended. INCOME AND GROWTH ORIENTED FUNDS: The income oriented funds aims at distribution of income periodically amongst investors. The growth oriented funds meets the investors need for appreciation, high risk bearing capacity and ability to defer liquidity. The fund which partially meets the needs for income and growth are called ‘balance’ or ‘income-cum-growth’ fund.

TYPES OF MUTUAL FUNDS Prof. (Dr.) Paresh Shah 21 AREA, INDUSTRY, CUSTOMER GROUP FUNDS: TAXATION FUNDS

ADVANTAGES OF MUTUAL FUNDS Prof. (Dr.) Paresh Shah 22 Advantages of investing in mutual funds: Professional management – experienced and skilled professionals Diversification – number of companies across a broad cross- section of industries and sectors Convenient administration like avoiding bad deliveries, delayed payments and unnecessary follow up with brokers and companies

ADVANTAGES OF MUTUAL FUNDS Prof. (Dr.) Paresh Shah 23 Return potential – over a medium to long term Low costs – less expensive way to invest compared to directly investing in capital market Liquidity Transparency Flexibility Choice of schemes Well regulated through SEBI and AMFI