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CONTENTS

1. INDUSTRY PROFILE a. Insurance Industry b. History c. Insurance Regulatory Authority d. Riders & Options e. Some Dos & Donts f. Tax Benefits g. Benefits of Insurance 2. COMPANY PROFILE a. Company Profile b. Board Members c. Key Strengths d. About the Products 3. OBJECTIVES a. Need of Study 4. METHODOLOGY a. Funds Management b. Types of Funds Management c. Investment & Management d. Contents of Funds Management e. Types of Funds in HDFC STANDARD LIFE INSURANCE

INDUSTRY PROFILE

INDUSTRY PROFILE
What is insurance? Insurance is a contract between two parties where by one party called insurer undertakes in exchange for a fixed sum called premiums, pay the other party happening of a certain event. Insurance is a protection against a financial loss arising on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. A loss is paid out of this premium collected from the insuring public. The insurance company act as a trustee to the amount collected through premium. The Insurance is generally classified in three main categories (i) (ii) (iii) Life insurance Health insurance General insurance

To get insurance an individual or an organization can approach to an insurance company directly, through insurance agent of the concerned company or through intermediaries.

Insurance industry
India is the largest democracy in the world having a population more than one billion. It is 5th largest in the world in terms of purchasing power parity. India GDP growth rate is over 6 percent per year on average for the last decade and saving rate is around 26 percent of GDP. Through Indias economic development, it becomes the most lucrative insurance markets in the world. Before the year 1999 there were monopoly of state run life insurance Corporation of India in life insurance sector and general Insurance Corporation of with its four subsidiaries in general sector. In the wake of reform process and passing insurance regulatory development act (IRDA) through Indian parliament in 1999, Indian insurance was opened for private companies.

HISTORY
Insurance industries in India have a long history. Life insurance in existing form came in India from UK in 1818 with oriental life insurance company. The India life assurance companies act, 1912 was the first measure to regulate life insurance business. Later in 1928 the Indian insurance company act was enacted, which was amended in 1938. Finally government of India was formed in September 1956 by passing LIC act, 1956 in Indian parliament. The first general insurance company, triton insurance company ltd, was established in Calcutta in1850. In 1957 the general insurance council a wing of insurance association of Indian formed a code of conduct. In 1961 an insurance act was passed to form general insurance company ltd., which amended in 1968. General insurance business was nationalized with effect from 1-1-1973 by the general insurance business act, from 1973, the general insurance company as holding company divided in four subsidiaries as NATIONAL INSURANC COMPANY LTD., THE NEW INDIAN ASSURACE COMPANY LTD THE ORIENTAL INSURCE COMPANY LTD THE INITED ASSURANCE COMPANY LTD.

INSURANCE REGULATORY AUTHORITY


On the recommendation of amphora committee, an insurance development act (IRDA) passed by Indian parliament in 1993. Its main aim is to activate an insurance regulatory apparatus essential for proper monitoring and control of the insurance regulatory apparatus essential for proper monitoring and control of the insurance industry. Due to this act several Indian private companies have entered into the insurance market and some companies have joined with foreign partners.

In this economic reform process the insurance companies will boost the socio economic development process. The huge amount of funds that will be at the disposal of insurance companies will be directed as desired avenues like housing safe drinking water, electricity, primary education and infrastructure. The growth of the debt market wills also a boost. Above all the policy holders will get better pricing of products from competitive insurance companies.

RIDERS AND OPTIONS

PERSONAL ACCENDENTAL BENEFITS


If the insured dies as a result of an accident, the insurer will pay the beneficiary, in addition to the basic death benefit twice or thrice of the basic death benefit. The death must have been caused independently of all other causes but directly by an accidental bodily injury. In the case of any permanent disability as a result of accident the life insured will get either a wavier of 5 or 10 annual installments or a certain specified amount.

TERMINAL ILLNESS
If the policy holder contacts any of the specified terminal diseases during the tenancy of the policy, the benefit payable may be for full sum assured or between 25% and 75% up to a specified up to specified maximum limit. This enables him combat the disease. It is a payable in lump sum to the insured and the remainder to the beneficiary at the insured death. Maximum range of terminalillnessiscovered.

DREADED DISEASE BENEFIT


This provides a portion of the policy of the policys sum assured if one suffers from one of the specified diseases like cancer, AIDS, or undergoes bypass surgery and the remainder will be paid to the beneficiary at the death. The cover is offered for a maximum age of 65 or 70 years.

MAJOR SURGICAL ASSISTANCE

This provides financial if the insured persons needs any of the specified surgical procedure during the tenancy of the policies. Under
this scheme a percentage of the sum assured is paid for some major, intermediate and minor surgeries. The is provided even for more than one such occasions but the total benefit will not exceed a specified limit, usually 50% of the sum assured.

WAVIER OF PREMIUM

If the insured is disabled due to accident, the rider to purchase additional insurance coverage goes into effect automatically without asking for extra premium.

HIKE SUMASSURACNE

Any time during the tenancy of the policy, the insured has the right to purchase additional insurance equal to the base insurance without supplying evidence of insurability. For example the rider attached to 5 lakh in case of your marriage, another 1 lakh at the Childs birth or the child going to school. How ever this rider mostly limits the benefits by putting a restriction on the maximum age after which you cant exercise the option.

SPOUSE INSURANCE

You can cover your spouse without having to enter a new contract and not taking a fresh policy in his/her name

RENEW/CONVERT BENEFIT

After the fixed term of the policy, it is renewed for another term without requiring evidence of insurability. Convertible benefit provides the option to convert it into another policy of the same sum assured.

EXCLUSION IN THE RIDERS:

The insurance is not applicable where the death occurs due to suicide, war, and strike, civil commotion, nuclear perils, etc. death due to accident in aviators is not available to those who have not paid fare for traveling. Death due to influence of drugs, alcohol, narcotics or psychotics substances,

participation in criminal and unlawful acts will debar the insured from getting the benefit. There is a maximum limit on coverage under each rider irrespective of the number of basis polices the insured has purchased. For dreaded disease riders, if it occurs within a specified period. Then the benefit is not payable.

SOME DOS AND DONTS CHILDRENS POLICES:

There are a plethora of polices designed for children. I do not understand the purpose of their existence. In most cases, a child is not a breadwinner and his demise would make no difference to the financial status of the family. The main advantage claimed by the insurer is that it is better to invest the money in a systematic deposits plan to make it grow faster. This growth would be able to support not only the higher premiums but also a higher sum assured.

BACK DATING A POLICY:

Many agents request the proponents to back date the policy, a favour to enable them to reach their targets performance. Another argument is that the policy will mature faster. Signing a contract for life cover with retrospective effect is stupidity of the highest order; it means that the life was covered for a period when the individual was very much alive.

LOANS

Loans can be obtained on unencumbered polices for purchases of housing properties on assignment of an insurance policy from the banks or housing finance companies(particularly from LIC housing finance) or for any other purpose at a heap rates. The amount available is up to 90% of surrender value under polices, which are in force for full sum assured up to 85% of surrender value on polices, which are paid up for reduced sum assured.

It is also possible to get the surrender value of the policy from LIC at any time. Alternatively, it is also possible to convert it into a paid up policy. There by saving the stress of paying future premiums and simultaneously, getting the paid-up value after long term of the policy or on prior death, which ever is earlier? Yes, all this gives the proponent a comfort but this should not be the reasons for choosing the cover.

KICKBACKS:

Under any circumstances, do not accept any kick from the agent. First, it is illegal to do so U/S 41 of the insurance act, 1938 secondly, if you buy a policy on the basis of this temptation and not because you need insurance, you will cause immense harm to your finances. The agency commission is quite heavy and most of the unscrupulous agents do not mind parting with a large portion o their first year premium to book business for them and hook you for life.

TAXBENEFITS

Life insurance is a blue-eyed baby which has been bestowed with much tax concession. Tax rebate u/s 88 is available in respect of premiums paid on polices in the name of self, spouse or children, major or minor, even married daughters.

Under Section 88(2ii), sums paid a deposited to effect or to keep in force a contract for a deferred annuity is eligible for rebate provided that such contract does not contain a provision for the exercise by the insured of an option to receive a cash payment in lieu of the payment of the annuity. Any policy with such a clause should be avoided.

Where a taxpayer discontinue an a policy before premiums for two years have been paid, all rebates allowed during earlier years shall be with drawn and shall be deemed to be tax payable in the year in which the policy is discontinued.

Money received under a life or accidental policy effected in personal or family interest is a capital receipt and therefore not taxable, either as normal income or as capital gains.

In the case of life annuity, the amount installment will be treated as income form other sources in the case of annuity certain, the interest

portion or the annuity installments is treated as income. If cash option is exercised, the difference between the amount of cash option received and the total amount of premiums paid is treated as taxable income.

To counter this FAO3 inserted sec.88(2A) to provide that the rebate in respect of premium or other payments made on an insurance policy, other than a contract for a differed annuity, shall be available as is not in excess of 20 % of the actual capital sum assure. Sec10 (10D)was also amended to provide that where premium paid in any of the years during the term of the policy, exceeds 20% of the actual capital sum assured , the maturity value received by the policy holder will be fully taxable. However, any sum received under such policy on the death of a person shall continue to be exempt. For both of these sections in calculating the actual capital sum, no account shall be taken of

(i) (ii)

the value of any premiums agreed to be returned Bonus received. Both these amendments are effective on polices issued.

Even the endowment assurance had started inhering towards investment. It was possible for the LIC to make long-term commitment for such polices, therefore, LIC dropped a slew of products from its stable in November 2002. Even the endowment assurance had started inching towards investment. It was impossible for the LIC to make long

term commitment for such polices. Therefore, LIC dropped a slew of products from its stable in November.

BENEFITS OF INSURANCE:

Insurance is the instrument of security, saving and peace of mind. It provides several benefits by paying a small amount of premium to an insurance company as:

Safeguards oneself if and ones family for future requirements. Peace of mind-in-case of financial loss Encouraging saving Tax rebate Protection from the claim made by creditors Security against a personal loan, housing loan or other types of loan.

COMPANY PROFILE

COMPANY PROFILE

HDFC Standard Life Insurance Company Ltd. is one of India's leading private life insurance Companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India's leading housing finance institution incorporated in the year 1977 and The Standard Life Insurance Company, a leading provider of financial services from the United Kingdom which is since 1875. Both the promoters are well known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry.

HDFC Standard Life is one of the leading life insurance companies having a track record of declaring bonuses every year since inception. They attribute this success to their people, who are the most important asset. They believe they are a key facet of the company and it is their contribution that has enabled them to achieve their current status. Since they deserve the best, their efforts have been to provide them with the best environment, best culture and best development opportunities possible.

BOARD MEMBERS:

Brief profile of the Board of Directors

Mr. Deepak S Parekh is the Chairman of the Company. He is also the Executive Chairman of Housing Development Finance Corporation Limited (HDFC Limited). He joined HDFC Limited in a senior management position in 1978. He was inducted as a whole-time director of HDFC Limited in 1985 and was appointed as its Executive Chairman in 1993. He is the Chief Executive Officer of HDFC Limited. Mr. Parekh is a Fellow of the Institute of Chartered Accountants (England & Wales).

Mr. Keki M Mistry joined the Board of Directors of the Company in December, 2000. He is currently the Managing Director of HDFC Limited. He joined HDFC Limited in 1981 and became an Executive Director in 1993. He was appointed as its Managing Director in November, 2000. Mr. Mistry is a Fellow of the Institute of Chartered Accountants of India and a member of the Michigan Association of Certified Public Accountants.

Mr. Alexander M Crombie joined the Board of Directors of the Company in April, 2002. He has been with the Standard Life Group for 34 years holding various senior management positions. He was appointed as the Group Chief Executive of the Standard Life Group in March 2004.

Ms. Marcia D Campbell is currently the Group Operations Director in the Standard Life group and is responsible for Group Operations, Asia Pacific Development, Strategy & Planning, Corporate Responsibility and Shared Services Centre. Ms. Campbell joined the Board of Directors in November 2005.

Mr. Keith N Skeoch is currently the Chief Executive in Standard Life Investments Limited and is responsible for overseeing Investment Process & Chief Executive Officer Function. He was also responsible for Economic and Investment Strategy research produced on a worldwide basis. Mr. Skeoch joined the Board of Directors in November 2005.

Mr. Gautam R Divan is a practicing Chartered Accountant and is a Fellow of the Institute of Chartered Accountants of India. Mr. Divan has wide experience in auditing accounts of large public limited companies and nationalized banks, financial and taxation planning of individuals and limited companies and also has substantial experience in structuring overseas investments to and from India.

Mr. Ranjan Pant is a global Management Consultant advising CEO/Boards on Strategy and Change Management. Mr. Pant, until 2002 was a Partner & Vice-President at Bain & Company,

Inc., Boston, where he led the worldwide Utility Practice. He was also Director, Corporate Business Development at General Electric headquarters in Fairfield, USA. Mr. Pant has an MBA from The Wharton School and BE (Honours) from Birla Institute of Technology and Sciences. Mr. Ravi Narain is the Managing Director & CEO of National Stock Exchange of India Limited. Mr. Ravi Narain was a member of the core team to set-up the Securities & Exchange Board of India (SEBI) and is also associated with various committees of SEBI and the Reserve Bank of India (RBI). Mr. Deepak M Satwalekar is the Managing Director and CEO of the Company since November, 2000. Prior to this, he was the Managing Director of HDFC Limited since 1993. Mr. Satwalekar obtained a Bachelors Degree in Technology from the Indian Institute of Technology, Bombay and a Masters Degree in Business Administration from The American University,

Washington DC. Ms. Renu S. Karnad is the Executive director of HDFC Limited, is a graduate in law and holds a Master's degree in economics from Delhi University. She has been employed with HDFC Limited since 1978 and was appointed as the Executive Director in 2000. She is responsible for overseeing all aspects of lending operations of HDFC Limited.

KEY STRENGTHS Financial Expertise

As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage the long-term investments safely and efficiently.

Range of Solutions

HDFC Standard Life Insurance has a range of individual and group solutions, which can be easily customized to specific needs. The group solutions have been designed to offer customer complete flexibility combined with a low charging structure.

Track Record so far

The gross premium income, for the year ending March 31, 2007 stood at Rs.2, 856 crores and new business premium income at Rs. 1,624 crores of HDFC Standard Life Insurance. The company has covered over 8,77,000 lives year ending March 31, 2007

ABOUT THE PRODUCTS

HDFC standard life insurance products include a broad array of life insurance coverage to both individuals and groups. The company has life products where as individuals; it has term products, endowment products as well as money back products. HDFC polices have more demand in the ULIPS polices. These are the polices which have a very good demand in market. These polices only polices give more profit to company compared to the traditional polices. Traditional polices are the mother polices to all insurance companies The following are some of the polices given by HDFC: Unit linked endowment plus Unit linked endowment Unit linked youngster plus Unit linked youngster Unit linked pension Unit linked pension plus Endowment assurance Term assurance Money back policy Single premium whole life Loan cover term assurance

OBJECTIVES
1. Main objective is mobilization and application of funds in various sources when they are required. 2. To estimate the cost fo funds in the form of interest, dividends, cost of capital etc,. 3. To concentrate on financing funds required by an enterprice. 4. To understand the portfolio selection process. 5. To understand the process of calculating risk of an individual securities in portfolio.

6. Suggesting the company to improve the usage of funds.

Need Of the study


Every company treats funds management is very essential because its main aim is to utilize the funds effectively and efficiently. If the company utilizes the funds effectively and efficiently, we can increase the performance of the company, which leads to the economic growth of the country. In this context this study on management of funds in the organization will be useful for the organization to managed the funds effectively.

METHODOLOGY
THE STUDY BASICALLY DEPENDS ON 1. Primary Data. 2. Secondary data.

I.

PRIMARY DATA
The information collected directly without any reference is

Primary data.

In the study it is mainly though conservation with

concerned Officer or Staff members either individually or collectively the data includes: 1. Conducting Personal Interview with Officers of the Company. 2. Individual observation & Interferences. 3. Form the people who are directly involved with the transaction of the firm.

II.

SECONDARY DATA
The data of HDFC Standard Life Insurance from secondary

sources i.e. published annual reports of the Company in Books, Journals, Magazines and Websites. The collected data from the above sources have been used for the study for accessing the performance of the company.

INTRODUCTION

Funds Management Introduction:


In India we are used to the concept of professional fund management. Today, a host of funds are available to investors. A unifying feature of all of these funds is that they are all actively managed funds. Funds managers select a portfolio of stocks so as to get returns. It gives an overview of the whole business and explores the process and techniques of fund management, performance measurement and fund administration.

Funds Management:
Funds management professionals also need to be able to trade quickly to respond to market conditions. They want to follow the markets and keep abreast of significant developments while routing orders. So, they look for services that provide news, real-time price data and trade connectivity from the same desktop interface. Funds management professionals aim for best price and execution on their trade orders, requires access to a wide pool of liquidity to trade efficiently. They look for trade order routing systems that allow them to direct their trade to multiple brokers. They need to be able to track trade orders, check the value of executed trades and integrate order information.

Definition:
Fund Management Investment of and administering a quantity of money, eg. pension fund, insurance fund, on behalf of the funds owners.

Components of funds management:


Money: A commodity or asset, such as gold, an officially issued currency, coin or paper note, that can be legally exchanged for something equivalent, such as goods or services. Portfolio Management: The art and science of making decisions about investment mix and policy, matching investments to objectives, assets allocation for individuals and institutions and balancing risk. It is vital to manage investments as parts of unified portfolio. This is only way to achieve the balance and diversification. There is a need to limit the risk to reasonable levels. The portfolio manager also has to know how to run the portfolio in order to produce growth during early stages of the investment career. Portfolio management is all about strengths, weaknesses, opportunities, and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety and numerous other trade-offs

encountered in the attempt to maximize return at a given appetite for risk.

Money Management: The process of budgeting, saving, investing, spending or otherwise in overseeing the cash usage of an individual or group. The predominant use of the phrase in financial markets is that of an investment professional making investment decisions for large pools of funds.

Investment Approaches:
Investment focus is based on the primary objective of protecting and generating good and consistent investment returns to match the investors long-term objective and return expectations. The investment approaches are of 2 types.

a. Investment process b. Risk management A. Investment process: The manager with the belief that over the medium and long term, will be able to perform the benchmark. High quality research is therefore stock or sector or asset can be influnced by liquidity or other such factors in the short term, over the long term market prices based on

fundamental values. For this reason investment process is based on the fundamental evaluation of each individual security. B. Risk management: Risk management is a critical function in the investment process and is monitored at multiple levels like fund risk, operational risk, market risk and stock or instrument specific risk. Discipline is critical in managing funds over a longtime.

Types Of Funds Management:

Active management:
Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming a benchmark index. Ideally, the manager exploits market inefficiencies by purchasing securities that are undervalued, and/or (less frequently), short selling securities that are overvalued. Depending on the goals of the specific investment portfolio or mutual fund, active management may also strive to achieve a goal of less volatility or risk than the benchmark index instead of, or in addition to, greater long-term return Active management is the opposite of passive management, where the manager does not seek to outperform the benchmark index. Active portfolio managers may use a variety of factors and strategies to construct their portfolio. These include quantitative measures such as P/E ratios and PEG ratios, sector bets that attempt to anticipate longterm macroeconomic trends (such as a focus on energy or housing stocks), and purchasing stocks of companies that are temporarily out-offavor or selling at a discount to their intrinsic value. Some actively managed funds also pursue strategies such as merger arbitrage, short positions, option writing, and asset allocation.

The effectiveness of an actively-managed investment portfolio obviously depends on the skill of the manager and research staff. In reality, the majority of actively managed collective investment schemes rarely outperform their index counterparts over long periods of time, assuming that they are benchmarked correctly. For example, the Standard & Poor's Index Versus Active (SPIVA) quarterly scorecards demonstrate that only a minority of actively managed mutual funds usually beat Standard & Poor's various index benchmarks. As the time period for comparison increases, this minority percentage tends to shrink even more. When all expenses are taken into account one might actually see underperformance even if the securities outperform the Market. However, if not for active management, passive management would become a gamble, thus the incentives for active management will aways exist. In addition, many investors find active management an attractive strategy within market segments that are less likely to be fully efficient, such as investments in small cap stocks.

Advantages of active management:


The primary attraction of active management is that it allows selection of investments that do not echo those of the market as a whole. Investors may have a variety of motivations for following such a strategy:

They may be skeptical of the efficient market theory, or believe that some market segments are less efficient than others.

They may want to manage volatility by investing in less-risky, high-quality companies rather than in the market as a whole, even at the cost of slightly lower returns.

Conversely, some investors may want to take on additional risk for the chance of higher-than-market returns.

Investments that are not highly correlated to the market are useful as a portfolio diversifier.

Some investors may wish to follow a strategy that avoids or underweights certain industries compared to the market as a whole, and may find an actively-managed fund more in line with their particular investment goals. (For instance, an employee of a high-technology growth company who receives company stock or stock options as a benefit might prefer not to tie up their other assets in the same industry.)

Several of the actively-managed mutual funds with strong long-term records invest in value stocks. Passively-managed funds that track broad market indices such as the S&P 500 have money invested in both growth and value stocks.

Disadvantages of active management The most obvious disadvantage of active management is that the fund manager may make bad investment choices or follow an unsound theory in managing the portfolio. The fees associated with active management are also higher than those associated with passive management, even if frequent trading is not present. Those who are considering investing in an actively-managed mutual fund should evaluate the fund's prospectus carefully. The majority of actively managed large- and mid-cap stock funds in United States fail to outperform a passive stock index in recent decades. Active fund management strategies that involve frequent trading generate higher transaction costs which cut into the fund's return. In addition, the short-term capital gains resulting from frequent trades have an unfavorable tax treatment when such funds are held in a taxable account. When the asset base of an actively-managed fund becomes too large, it begins to take on index-like characteristics because it must invest in an increasingly diverse set of investments instead of only those which represent the fund manager's best ideas. Many mutual fund companies close their funds before they reach this point, but there is potential for conflict of interest between the fund manager and shareholders because of the additional management fees that can be collected by keeping the fund open.

Real active management Equity fund managers usually do not have board members at the firms in which they have an equity stake, and they do virtually nothing about the future performance of the firm. So buying and selling equity is not active management of the companies; it is just an active transaction of equity in the fund. Real active management is done by the people that work at the company, every employee and manager. Private-equity is often real active management since a privately owned company have a small number of owners and usually have just one owner that make strategy decisions at the board level.

Passive funds management:


Passive management (also called passive investing) is a financial strategy in which a fund manager makes as few portfolio decisions as possible, in order to minimize transaction costs, including the incidence of capital gains tax. One popular method is to mimic the performance of an externally specified indexcalled 'index funds'. The ethos of an index fund is aptly summed up in the injunction to an index fund manager: "Don't just do something, sit there!" Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming more common

in other investment types, including bonds, commodities and hedge funds. Today, there is a plethora of market indexes in the world, and thousands of different index funds tracking many of them.

The concept of passive management is counterintuitive to many investors. The rationale behind indexing stems from four concepts of financial economics: 1. In the long term, the average investor will have an average before-costs performance equal to the market average. Therefore the average investor will benefit more from reducing investment costs than from trying to beat the average.[1]. 2. The efficient market hypothesis, which postulates that equilibrium market prices fully reflect all available information. It is widely interpreted as suggesting that it is impossible to systematically "beat the market" through active management, although this is not a correct interpretation of the hypothesis in its weak form. Stronger forms of the hypothesis are extremely controversial, and there is some debatable evidence against it in its weak form too. For further information see behavioural finance 3. The principal-agent problem: an investor (the principal) who allocates money to a portfolio manager (the agent) must properly give incentives to the manager to run the portfolio in accordance with the investor's risk/return appetite, and must monitor the manager's performance.

4. The capital asset pricing model (CAPM) and related portfolio separation theorems, which imply that, in equilibrium, all investors will hold a mixture of the market portfolio and a riskless asset. That is, under suitable conditions, a fund indexed to "the market" is the only fund investors need. Some active managers may beat the index in particular years, or even consistently over a series of years. Nevertheless the retail investor still has the problem of discerning how much of the out performance was due to skill rather than luck, and which managers will do well in the future. Implementation At the simplest, an index fund is implemented by purchasing securities in the same proportion as in the stock market index. It can also be achieved by sampling (e.g. buying stocks of each kind and sector in the index but not necessarily some of each individual stock), and there are sophisticated versions of sampling (e.g. those that seek to buy those particular shares that have the best chance of good performance). Investment funds run by Investment managers who closely mirror the index in their managed portfolios and offer little "added value" as managers whilst charging fees for active management are called 'closet trackers'; that is they do not in truth actively manage the fund but furtively mirror the index.

Collective investment schemes that employ passive investment strategies to track the performance of a stock market index, are known as index funds. Exchange-traded funds are never actively managed and often track a specific market or commodity indices.

Investment management
Investment management is the professional management of various securities (shares, bonds etc) assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds). The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". The provision of investment management services includes elements of financial analysis, asset selection, stock selection, plan

implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Fund manager refers to both a firm that provides investment management services and an individual who directs "fund management" decision.

Contents Of Funds Management


1. Process and people:

The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results.

"Philosophy" refers to the over-arching beliefs of the investment organization. For example: (i) Does the manager buy growth or value shares (and why)? (ii) Does he believe in market timing (and on what evidence)? (iii) Does he rely on external research or does he employ a team of researchers? It is helpful if any and all of such fundamental beliefs are supported by proof-statements.

"Process" refers to the way in which the overall philosophy is implemented. For example: Which universe of assets is explored before particular assets are chosen as suitable investments? (ii) How does the manager decide what to buy and when? (iii) How does the manager decide what to sell and when? (iv) Who takes the decisions and are they taken by committee? (v) What controls are in place to ensure that a rogue fund (one very different from others and from what is intended) cannot arise?

"People" refers to the staff, especially the fund managers. The questions are, Who are they? How are they selected? How old are they? Who reports to whom? How deep is the team (and do all the members understand the philosophy and process they are supposed to be using)? And most important of all, How long has

the team been working together? This last question is vital because whatever performance record was presented at the outset of the relationship with the client may or may not relate to (have been produced by) a team that is still in place. If the team has changed greatly (high staff turnover or changes to the team), then arguably the performance record is completely unrelated to the existing team (of fund managers).

2. Investment managers and portfolio structures


At the heart of the investment management industry are the managers who invest and divest client investments.A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments.

3. Asset allocation
The different asset classes and the exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of monies among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset

allocation, and separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer group of competing funds, bond and stock indices).

4. Long-term returns
It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (eg. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are riskier (more volatile) than bonds which are themselves more risky than cash.

5. Diversification
Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz and effective diversification requires

management of the correlation between the asset returns and the

liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns.

6. Investment styles
Investment Style selection depends upon risk appetite and return expectation. There are a range of different styles of fund management that the institution can implement. For example, growth, value, market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.

7. Performance measurement
Fund performance is the acid test of fund management, and in the institutional context accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their

management, and performance is also measured by external firms that

specialize in performance measurement. The leading performance measurement firms compile aggregate industry data. Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions). An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realised capital gains (and not unrealised). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer. .8. Risk-adjusted performance measurement Performance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement:

evaluating if managers have succeeded in reaching their objective, i.e. if their return was sufficiently high to reward the risks taken; how they compare to their peers; and finally whether the portfolio management results were due to luck or the managers skill. The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate in modern portfolio theory. Modern portfolio theory established the quantitative link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance measure. It measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it does not allow the separation of the performance of the market in which the portfolio is invested from that of the manager. The information ratio is a more general form of the Sharpe ratio in which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it evaluates portfolio performance in reference to a benchmark, making the result strongly dependent on this benchmark choice.

Portfolio alpha is obtained by measuring the difference between the return of the portfolio and that of a benchmark portfolio. This measure appears to be the only reliable performance measure to evaluate active management. In fact, we have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to the managers skill, whether through market timing or stock picking. The first component is related to allocation and style investment choices, which may not be under the sole control of the manager, and depends on the economic context, while the second component is an evaluation of the success of the managers decisions. Only the latter, measured by alpha, allows the evaluation of the managers true performance. Portfolio normal return may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on the CAPM and explains portfolio normal returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns and that other factors have to be considered. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and an accurate evaluation of managers performance. For example, Fama and French (1993) have highlighted two important factors that characterise a company's risk in addition to market risk. These factors are the book-to-market ratio and the

company's size as measured by its market capitalisation. Fama and French therefore proposed a three-factor model to describe portfolio normal returns. Carhart (1997) proposed to add momentum as a fourth factor to allow the persistence of the returns to be taken into account. Also of interest for performance measurement is Sharpes (1992) style analysis model, in which factors are style indices. This model allows a custom benchmark for each portfolio to be developed, using the linear combination.

Types of funds in HDFC STANDARD LIFE INSURANCE:

HDFC STANDARD LIFE INSURANCE is having six types of funds they are

Secure Managed Fund Defensive Managed Fund Balanced Managed Fund Growth Fund Equity Managed Fund

Secure Managed Fund: The Secure Managed fund invests 100% in Government securities and bonds issued by companies or other bodies with a high credit standing, however a small amount of working capital may be invested in cash to facilitate the day to day running of the fund. This fund has a low level of

risk but unit prices may still go up or down. As the funds are invested in secured securities where the returns are provided regularly. Defensive Managed Fund: The first is a defensive investment strategy that protects an investors principal when the stock market is going down. They are sometimes known as INCOME FUND and tend to the heavily weighted in cash and fixed interest investments. 15% to 30% of the defensive managed fund will be invested in high quality Indian equities. The remainder will be invested in government securities and bonds issued by companies or other bodies with a high credit standing. In addition, a small amount of working capital may be invested in cash to facilitate the day to day running of the fund. The fund has a moderate level of risk with the opportunity to earn higher returns in the long term from some equity investment. Unit prices may go up or down. Balaced Managed Fund: 30% to 60% of the Balanced Managed fund will be invested in high quality Indian equities. The remainder will be invested in government securities and bonds issued by companies or other bodies with a high credit standing. In addition a small amount of working capital may be invested in cash to facilitate the day to day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in

the long term from the higher proportion it invests in equities. Unit prices may go up or down. Growth Fund: This fund focus on long term capital growth rather than income and are generally suited to people who donot need to access their money for 5+ years. They tend to be heavily weighted in property securities. Using these funds managers are content to buy shares in companies with mildly above average revenue and earnings growth. Growth funds also invest in shares of rapidly growing companies, but learn more toward large established names. Which are probably not going to go out of business too quickly. Risk level in this fund is from moderate to high. The growth fund invests 100% in high quality Indian equities. In addition a small amount of working capital may be invested in cash to facilitate the day to day running of the fund.

Equity Managed Fund: An equity fund is an open or closed-end fund that invests primarily in stocks, allowing investors to buy into the fund and thus buy a basket of stocks more easily than they could purchase the individual securities. There are literally thousands of equity funds out there and each has unique characteristics. The distinctions among funds aren't always clear,

but in general, equity funds pursue one of these three primary goals: income, capital gains, or both. To really be sure about categorizing, you must study the fund's underlying investments. However, there are a few broad categories that most funds fit into.

General equity funds include:

Aggressive growth funds, which seek maximum capital appreciation and may use speculative strategies.

Small-company funds, which invest in companies with relatively small market capitalizations.

Growth funds, which invest in larger, established but growing companies. They generally emphasize capital appreciation.

Growth and income funds, which invest in larger, established companies that offer the potential for capital appreciation but also pay regular dividends.

Equity-income funds, which primarily invest in dividend-paying stocks. Other equity funds include:

Hybrid funds, which generally invest in equities but also invest in bonds. Specialty funds, which invest in stocks meeting certain criteria (such as geographic region, industry sector, social causes, etc.). Sector funds, which invest in specific stock groups, often within one industry. Index funds, which invest in the same or similar stocks as equity market indexes like the S&P 500. International funds, which invest in foreign stocks.

Why It Matters:
One of the greatest advantages of equity funds is instant diversification. Also, it is usually easier and less expensive to invest in equity funds than to buy each and every stock in a fund's portfolio. Equity funds are also cheaper -- they're a way to avoid the often higher transaction costs and lower liquidity associated with trading individual stocks. It's often easier to sell fund shares than to sell a particular stock, especially if that stock has unusual characteristics, the issuer has a low credit rating, or the issuer is facing other turmoil. Equity funds also offer the services of a professional who watches and acts on the market on behalf of the investor, handles the trading decisions, and determines the asset allocation. Fees, however, can eat into returns, which can be already low if the equity fund invests in lower-risk equities. In general, larger funds should have lower fees due to their economies of scale. However, small funds often take meaningful positions in smaller issues that large funds cannot or will not look at. Also, small funds are often better able to exit certain positions because they have less impact on market prices.