FINANCIAL SERVICES PROVIDED BY OTHER FINANCIAL INSTITUTIONS Prof. (Dr.) Paresh Shah FCMA., Ph.D....

FINANCIAL SERVICES PROVIDED BY OTHER FINANCIAL INSTITUTIONS

Prof. (Dr.) Paresh ShahFCMA., Ph.D. (Finance)., F.D.P. (IIMA)

Prof. (Dr.) Paresh Shah1

Session 4

INVESTMENT INSTITUTIONS

Prof. (Dr.) Paresh Shah2

INSURANCE:PUBLIC SECTOR

LICGIC

PRIVATE SECTORMUTUAL FUNDS

PUBLIC SECTORSBI, LIC, GIC, BOI, BOB, PNB, IDBI, IL & FS, INDEX

FUNDPRIVATE SECTOR

INSURANCE BUSINESS

Prof. (Dr.) Paresh Shah3

Since 1818Entire insurance business brought under

social control Life insurance in 1956General 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 Shah4

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 Shah5

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 Shah6

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 itAlso extends individual insurance

abroad

INVESTMENT POLICY OF LIC

Prof. (Dr.) Paresh Shah7

According to the provisions of Insurance act, 1936

At least Avenues50% Govt., and other approved

securities15% 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 Shah8

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 Shah9

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 Shah10

GIC and its four subsidiariesNational 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 Shah11

General insurance business is classified as:marine, fire and miscellaneous.

Marine insurance for transportation of goods and commoditiesGENERAL INSURANCE COVER based on sharing risks that may arise on accidental, fortuitous occurrence.

GENERAL INSURANCE CORPORATION (GIC)

Prof. (Dr.) Paresh Shah12

Of a shorter duration normally year or lessOffer insurance cover:

Fire, automobiles, ocean and inland marine, theft, loss, damage, etc.

GENERAL INSURANCE CORPORATION (GIC)

Prof. (Dr.) Paresh Shah13

Non-traditional schemesComprehensive 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 Shah14

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 Shah15

Insurance regulatory and development authority (IRDA) was enacted in 1999.

Objectives:Take care of the policy holders interestOpen the insurance sector for private useEnsure continued financial soundness and

solvencyRegulate insurance and reinsurance

companies

IRDA’s Objectives

Prof. (Dr.) Paresh Shah16

To eliminate dishonesty and unhealthy competition

Supervise the activities of intermediariesAmend insurance act, 1938; life insurance

corporation act, 1956 and the general business nationalisation act, 1972

MUTUAL FUNDS

Prof. (Dr.) Paresh Shah17

IN 1822, King William I of the NetherlandsWHAT 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 Shah18

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 Shah19

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 Shah20

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 Shah21

AREA, INDUSTRY, CUSTOMER GROUP FUNDS:

TAXATION FUNDS

ADVANTAGES OF MUTUAL FUNDS

Prof. (Dr.) Paresh Shah22

Advantages of investing in mutual funds:Professional management – experienced and

skilled professionalsDiversification – 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 Shah23

Return potential – over a medium to long term

Low costs – less expensive way to invest compared to directly investing in capital market

LiquidityTransparencyFlexibilityChoice of schemesWell regulated through SEBI and AMFI