Indian Financial system Mutual Funds and Insurance Business in financial services

Group No. 8

Indian Financial system

Organised Regulators Financial Instruments Financial services Financial Market Unorganised Money Lenders Local Bankers Traders Landlords

HIRARACHY OF IFS
IFS Financial assets/inst ruments
Forex Money Capital Hybrid

Financial markets
Capital Money Credit

Financial intermediari es

Indian Financial Services

Players active in the stock, bond, foreign exchange, derivatives and commodities-markets, and investment banking, including: Commercial banks Hedge funds and Private Equity Pension funds Insurance companies Mutual funds

Mutual Fund

Its is a type of Investment company that gathers assets from investors and collectively invest in stocks, Bonds or money market instruments.

Working of Mutual Fund

Origin of Mutual fund in India

The first Mutual fund in India, 1963- Unit Trust of India

(UTI) launched by Government of India. Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market. Then a host of other government-controlled Indian financial companies SBI, Canara Bank, PNB came up with their own funds. This market was made open to private players in 1993, as a result of the historic constitutional amendments brought forward by the then Congress-led government under the existing regime of LPG. The first Private sector fund to operate in India was Kothari Pioneer, which later merged with Franklin Templeton.

Trends Indian Mutual Fund Industry

Primarily Debt-oriented with debt funds forming 64% of AUM The Sensex rose from the levels of 14,000 in February 2007 to a

dizzying peak of 21,000 in a span of a year (January 2008) and then plunged to levels below 9,000 in the next year (March 2009) despite the fact GDP grew by 9.3% in FY 2007-08 and 6.8% in FY 2008-09 Regardless of the above factor the Indian asset management industry has racked up an absolute growth of over 50% (31 March 2007 to 31 March 2009) number of mutual funds grow from 32 to 44 over the last six years The no of schemes has grown from 779 to 4,473 in the same period

Current Snapshot of 2011-12

MF Industry affected by net redemptions by investors

and adverse global and local market conditions i:e minimized by 16% in terms of AMU during 2011-12

Current Top five mutual Funds in India

Scheme name Motital Oswal Most Shares NASD ICICI Pru Tehnology Fund (G) SBI Magnum SFU- FMCG Fund ICICI Pru FMCG Fund (G) NAV (Rs) 153 20..2 44.7 100.7

SBI Magnum InfoTech Fund

24.0

MUTUAL FUND

As per SEBI Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

Legal & Regulatory Framework

The structure of mutual funds in India is governed by SEBI(Mutual Fund)Regulations, 1996. It is mandatory to have a three tier structure of :

Sponsor Trustee Asset Management Company

Regulating agencies for MF & its Constituents Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India (SEBI) was first established in the year 1988 as a non-statutory body for regulating the securities market. It became an autonomous body in 1992 and more powers were given through an ordinance. Since then it regulates the market through its independent powers. Objectives of SEBI It tries to develop the securities market. Promotes Investors Interest. Makes rules and regulations for the securities market.

Functions of SEBI
Regulates Capital Market
Check Trading of securities It enhances knowledge on market by providing

education It regulates the broker and the sub-broker To promote research and investigation Registering and regulating the working of venture capital funds and collective investing schemes including MUTUAL FUND

SEBI as MUTUAL FUND Regulator

SEBIs introduction as SEBI (Mutual Fund) Regulation in

1993 is to have direct control on all mutual funds both public and private sector
The MFs are regulated under the SEBI(MF) Regulations ,

1996.All the MFs have to be registered with SEBI.

In addition, RBI also supervises the operations of bank-

owned MFs.While SEBI regulates all market related and investor related activities of the bank funds, any issue concerning the ownership of the AMCs by banks falls under the regulatory ambit of the RBI.

 AMFI
Association of Mutual Funds in India (AMFI) incorporated in Aug 1995 is the

Umbrella body of all the mutual fund registered with SEBI. It is non profit organization committed to developed the Indian mutual fund industry on professional, healthy & ethical lines & to enhance and maintain standards in all areas with a view to protecting & promoting the interests of Mutual Funds and their unit holders.

AMFI is an industry association, incorporated in 1995, is not an SRO, so it can just issue guidelines to members. It cannot enforce regulations.

Objectives of AMFI :
To promote the interests of mutual funds and unit holders. To set ethical, commercial and professional standards in the industry. To increase public awareness of the mutual fund industry. AMFI is governed by a board of directors elected from mutual funds and headed by a full time chairman. AMFI has therefore prepared guidelines for intermediaries called AMFI Guidelines & Norms for Intermediaries (AGNI).

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INSURANCE SERVICES

INTRODUCTION
The insurance is primarily a social device adopted by

civilized society for mitigating the incidence of loss of income to families by unforeseen contingencies in India. The number of insurance companies stood at 48 at the end of 2010-11, consisting of 23 life insurers, 24 non-life insurers and a reinsurer. Edelweiss Tokio Life Insurance was granted registration in the year 2011-12, leading to total number of insurance companies increasing to 49 as at end-September 2011.

CONTD..
With such a large population and the untapped market area of this population Insurance happens to be a very big opportunity in India.
Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the countrys GDP.

IRDA
In 1993 Government setup a committee under

chairmanship of RN Malhotra ,former Governor of RBI for reforms in Insurance sector. Recommendations are : IRDA was constituted as an autonomous body toregulate and develop the insurance industry.
Foreign companies are allowed up to 26% of paid

upcapital and can operate with an Indian company.

Financial regulations
It is mandatory for each and every private insurer to deposit an amount of

Rs. 100 crores, as paid up capital, with the Reserve Bank of India, prior to grant of license by IRDA. This step will take care that small players do not make insurance business a crowded business. 85% of the premium collected by any insurer in any financial year has to be invested in the Government sector i.e. Central government, State government and other approved infrastructure bonds and securities. Balance 15% can only be invested by the company with its own prudence. This will ensure that money invested by the investor in the insurance schemes, will remain in the hands of Government, hence there is no chance of insecurity to public money. An amount equal to 95% of the profits generated, every year has to be compulsorily distributed amongst the policy holders as Bonus. This is the minimum limit. This will force the insurance companies to provide maximum benefits to the policy holders.

TYPES OF INSURANCE

INSURANCE
LIFE GENERAL INSURANCE INSURANCE

LIFE INSURANCE
Life insurance is a written contract between the insured and the insurer, that provides for the payment of the insured sum on the date of the maturity of the contract or on the unfortunate death of the insured, whichever occurs earlier.

GENERAL INSURANCE
General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance.

TYPES OF GENERAL INSURANCE

Health insurance
Business insurance Automobile insurance

Fire insurance,etc.

REASONS FOR GROWTH IN DEMAND FOR INSURANCE

India is a developing economy with remarkable progress

in almost every dimension like infrastructure, employment, education, health, income and thus, purchasing power. Rising awareness about protection of tangible and intangible assets and providing security to oneself has become imminent.

FACTORS RESPONSIBLE FOR GROWTH IN DEMAND FOR INSURANCE

Increased competition
Growing awareness Government initiatives

Projections of life insurance and non-life insurance premiums from 2004-2014

MARKET SHARE OF HEALTH INSURANCE IN INDIA

Structure of Life Insurance Industry

Historical Perspective
(i) Prior to 1956- 242 companies operating (ii) 1956 - 2001 Nationalisation LIC monopoly player

Government control (iii) 2001 -- Opened up sector Present Structure of Insurance Industry (a) LIC Fully owned by Government (b) Postal Life Insurance

Private players 1. Bajaj Allianz Life Insurance Co. Ltd. 2. Birla Sun Life Insurance Co. Ltd. (BSLI) 3. HDFC Standard Life Insurance Co. Ltd. (HDFC STD

LIFE) 4. ICICI Prudential Life Insurance Co. Ltd. (ICICI PRU) 5. ING Vysya Life Insurance Co. Ltd. (ING VYSYA) 6. Max New York Life Insurance Co. Ltd. (MNYL) 7. MetLife India Insurance Co. Pvt. Ltd. (METLIFE) 8. Kotak Mahindra Old Mutual Life Insurance Co. Ltd. 9. SBI Life Insurance Co. Ltd. (SBI LIFE) 10. TATA AIG Life Insurance Co. Ltd. (TATA AIG)

Life Insurance Corporation of India:- remains the largest life insurance company LIC still
accounting for 64% market share. Its share, however, has dropped from 74% a year before, mainly owing to entry of private players with innovative products and better sales force Total sales stood at Rs 10,797.1 crore during April-July as against new sales of Rs 14,186.04 crore in the corresponding period last financial year..

Top 5 Gainers in Life Insurance Business in a Year:

Reliance Life +3.9% gain in total private life insurance

market share Birla Sunlife +3.3% gain in total private life insurance market share Met Life +2.8% gain in total private life insurance market share Aviva +2% gain in total private life insurance market share SBI Life +1.7% gain in total private life insurance market share

Top Losers in Life Insurance Business in a Year:

ICICI Prudential Life - 8.3% loss in total private life

insurance market share Bajaj Allianz - 2.4% loss in total private life insurance market share HDFC Standard Life - 1.2% loss in total private life insurance market share

Type of Life Insurance Products

Based on the benefit patterns the traditional Life Insurance products can be categorised into the following types: Term Insurance Whole Life Insurance Endowment Insurance Annuities Non Traditional Covers

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