Description
In general usage, a financial plan is a series of steps or goals used by an individual or business, the progressive and cumulative attainment of which are designed to accomplish a financial goal or set of circumstances, e.g.
A PROJECT REPORT ON 3600 FINANCIAL PLANNING AND AWARENESS OF BAJAJ CAPITAL Ltd. IN LUCKNOW
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BAJAJ CAPITAL LTD.
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(LIFE INSURANCE)
Submitted in fulfillment of Summer Training Program for M.B.A. (Finance and Marketing) Session 2009-2011
Submitted to Mr. Vivek Singh (Branch Head)
Submitted By Swati Gupta
Mr. Dheerendra Kumar (Area Manager)
Central Institute of Management & Technology
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U.P. Technical University, Lucknow
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ACKNOWLEGDEMENT
I express my deepest sense of gratitude of Mr. for inspiring me to do this research project. During the whole research work he guided and provided me the valuable inputs, which helped me in the completion of the project. Despite his busy schedule he granted me a generous amount of his time with great interest. I owe my sincere regards and feel extremely grateful. A special thank to Sir who constantly monitored my work and preceded support and guidance the project I am thankful to all those respondents who spared their valuable time attending to my questions, which has contributed a great in the completion of the project.
SWATI GUPTA M.B.A. (F&M.) IIIrd Semester C.I.M.T. (U.P.T.U.) 2009-2011
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DECLARATION
I hereby declare that the following documented project report titled "360 degree financial planning and awareness of Bajaj Capital in Lucknow" is an authentic work done by me. The study was undertaken as a part of the course curriculum of M.B.A. Full time Programme Central Institute of Management & Technology U.P. Technical University, Lucknow. I here by declare that the study has not been submitted to any other institute/organization for the reference.
SWATI GUPTA M.B.A. IIIrd Semester 2009-2011
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PREFACE
Investment is the sacrifice of certain present value for the uncertain future reward. It entails arriving at numerous decisions such as type, mix, amount, timing, grade etc. of investment and disinvestments. Further, such decisions making has not only to be continuous but rational too. Broadly speaking, an investment decision is a trade off between risk and return. All investment choices are made at points of time in accordance with the personal investment ends and in contemplation of an uncertain future.
Since investments in securities are revocable, investment ends are transient and investment environment is fluid, the reliable bases for reasoned expectations become more and more vague as one conceives of the distant future.
Investors in securities will, therefore, from time to time, reappraise and reevaluate their various investment commitments in the light of new information, changed expectations and ends.
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CONTENTS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
INTRODUCTION COMPANY PROFILE AIMS AND OBJECTIVE OBJECTIVE OF STUDY RESEARCH METHODOLOGY PROBLEM AND LIMITATION FINDING ANALYSIS AND INTERPETATION SWOT SUGGESTION/RECOMMENDATION CONCLUSION APPENDIX BIBLIOGRAPGHY
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COMPANY PROFILE
Bajaj Capital is one of India's leading Financial Services companies offering Free Advice on Investments, Insurance, Tax Saving, Retirement Planning, Financial Planning, Children's Future Planning and other services. We also have a wide range of products and services for Corporates, High Net worth Individuals, and NRIs? all under one roof.
At Bajaj Capital, we believe in dreaming big. Dreams inspire us to excel. They ignite hope and kindle in us the passion to stretch our limits. We also believe that nothing can or should stop us from realising our dreams? and financial constraints should be the last thing to stop anyone.
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Four decades of excellence For over four decades, we have been helping people realise their aspirations by helping them make their wealth grow, and plan their financial lives. Today, we are a one of the largest financial planning and investment advisory companies in India, with a strong presence all over the country. We take pride in serving our customers - both individual and institutional - and are known for our strong professionalism and work ethics. Wide range of services We offer a comprehensive range of services including financial planning and investment advice, and the entire gamut of financial instruments and investment products of almost all major companies, both public and private. In addition, we also provide investment assistance by helping you complete all the formalities, and help you keep regular track of your investments. These services and products are delivered through our network of 134 Bajaj Capital Investment Centres located all over the country.
We are also a SEBI-approved Category I Merchant Banker. We raise resources for over 1,000 top institutions and corporate houses every year, and
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offer specialised services to Non-Resident Indian (NRIs) and High Networth Clients.
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What you can expect from us
-based advice -based advice
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Milestones
The History of Bajaj Capital Bajaj Capital has contributed to the growth of the Indian Capital Market at every step. In 1965, we were the first to innovate the Companies Fixed Deposit. Today, we are playing an active role in the growth of the Indian Mutual Fund industry. We are also working closely with private insurance companies to deepen India's insurance market. Here is a brief gist of our journey throug the years.
1964 Bajaj Capital sets up its first Investment Centre™ in New Delhi to guide individual investors on where, when and how to invest.
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India's first Mutual Fund, Unit Trust of India (UTI) is incorporated in the same year. 1965 Bajaj Capital is incorporated as a Company. In the same year, the company introduces an innovative financial instrument - the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, then known as Associated Hotels of India Ltd.) becomes the first company to raise resources through Company Fixed Deposits. 1966 Bajaj Capital expands its product range to include all UTI schemes and Government saving schemes in addition to Company Fixed Deposits.
1969 Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & Wells India Ltd.; right from drafting the prospectus to marketing the issue. 1975 Bajaj Capital starts offering 'need-based' investment advice to investors, which would later be known as 'Financial Planning' in the investment world.
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1981 SAIL becomes the first government company to accept deposits, followed by IOC, BHEL, BPCL, HPCL and others; thus opening the floodgates for growth of retail investment market in India.
Bajaj Capital plays an active role in all the schemes as 'Principal Brokers'
1986 Public Sector Undertakings (PSUs) begin making public issues of bonds MTNL, NHPC, IRFC offer a series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.
1987 SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant role in fund mobilisation for all these players.
1991 SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top
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mobiliser
with
collections
of
over
US
$20
million.
1993 The first private sector Mutual Fund - Kothari Pioneer - is launched, followed by Birla and Alliance in the following years. Bajaj Capital plays an active role and is ranked among the top mobilisers for all these schemes.
1995 IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the co-manager in all these offerings and consistently ranks among the top five mobilisers on an all-India basis. 1997 Private sector players lead the revival of Mutual Funds in India through Openended Debt schemes. Bajaj Capital consolidates its position as India's largest retail distributor of Mutual Funds. 1999 Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (through associate firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves the milestone of becoming the top 'Pension
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Scheme' seller in India and launches marketing of GIC's Health Insurance schemes.
2000 Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Company offers all kinds of financial products, including the entire range of investment and insurance products through its Investment Centre. Bajaj Capital offers 'full-service merchant banking' including structuring, management and marketing of Capital issues. Bajaj Capital reinvents 'Financial Planning' in its international sense and upgrades its entire team of Investment Experts into Financial Planners.
2002 The company focuses on creating investor awareness for Financial Planning and need-based investing. To achieve this goal, the company introduced the International College of Financial Planning. The graduates of this institute become Certified Financial Planners (CFPs), a coveted professional qualification.
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2004 Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealth creation seminars are launched all over the country, making Bajaj Capital a household name. 2005 Bajaj Capital launches 360° Financial Planning, a software-based programme aimed at encouraging scientific and holistic investing. 2007 Bajaj Capital launches Stock Broking and Depository (Demat) Services. 2008 Bajaj Capital launches Just Trade, an online Platform for investing in Equities, Mutual Funds, IPO's
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MISSION, AIMS & OBJECTIVES
Bajaj Capital's Mission Statement The focus of our organisation is to be the most useful, reliable and efficient provider of Financial Services. It is our continuous endeavour to be a trustworthy advisor to our clients, helping them achieve their financial goals. Aims
exceed their expectations and build enduring relationships.
products, constant innovation in services and use of the latest technology. To always give honest and unbiased financial advice and earn our clients' everlasting trust.
Financial Planning and in turn help shape a financially strong society.
individual and permits their personal growth.
seamless organisation.
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Wide range of products and services 41 years experience as Investment Advisors and Financial Planners More than eight lakh satisfied clients all over India Countrywide network of 134 branches Over 12,000 NRI clients across the globe Personalised wealth management advice 24 x 7 online accessibility through www.bajajcapital.com Strong team of qualified and experienced professionals including CAs, MBAs, MBEs, CFPs, CSs, Insurance experts, Legal experts and others SEBI-Approved Category I Merchant Bankers Group Co BCIBL is an IRDA-licensed Direct Insurance Broker
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Who's at Bajaj Capital
Mr. Chairman
K.K.
Bajaj
A visionary par excellence, a pioneer and a leader, Mr K.K. Bajaj has been instrumental in shaping Bajaj Capital's emergence as one of India's largest Investment Advisory companies.
He is a highly respected figure in the field of institutional and personal finance and Company FDs. His emphasis on honesty, ethics and values are the guiding principles of the organisation.
Mr Bajaj is also a prolific writer and has written over 200 articles on diverse issues such as Personal Finance, Economic Affairs, and Health.
Mr.
Rajiv
Deep
Bajaj
Vice
Chairman
&
Managing
Director
A qualified Financial Planner, Mr Rajiv Deep Bajaj was the first to introduce the concept of Financial Planning in India. In fact, he is the Founding Chairman of the Association of Financial Planners (AFP). He is also amongst the first
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batch of 25 Certified Financial Planners (CFP tm) designation holders in India.
A Post-graduate in Management and holder of an International Certificate for Financial Advisors from the Chartered Insurance Institute, London, Mr Rajiv Deep Bajaj has played a pivotal role in expanding Bajaj Capital's reach across the country. He has recently pursued an Executive MBA in International Wealth Management under an exchange program between University of Geneva, Switzerland and Carnegie Mellon University, Pittsburgh, USA.
His youthful energy, dynamic leadership, vision and 16 years strategic management experience in Banking, Financial Advisory, Insurance Broking and Financial Planning have strengthened Bajaj Capital.
The Media and Industry honchos have regularly acclaimed Mr. Rajiv Deep Bajaj for his strengths as a powerful orator and writer. His views on various Investment Strategy and Financial Planning-related issues are regularly flashed in some of the leading media entities like The Economic Times, Business Today, Star TV, CNBC and Aaj Tak. His personal life goal is to spread 'Financial Education' amongst the Indian masses in order to increase their knowledge base and shift their perspective from 'Saving to Investing'.
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Mr.
Sanjiv
Bajaj
Joint
Managing
Director
Mr. Sanjiv Bajaj started his career in 1995 as managerial trainee, worked on various projects which included developments at alternate channel of distribution like Broker's associations...etc. From here, he moved on to Investment Advisory services, which included understanding the client's needs, and by using various tools of financial planning to offer them a solution to meet his requirements. Mr Sanjiv Bajaj is versatile personality with diverse areas of interest. He is a Post-graduate in Business Management with specialisation in Finance, and holds an International Certificate for Financial Advisors from the Chartered Insurance Institute, London. Thanks to him, Bajaj Capital is today the largest individual agent for LIC. Mr Sanjiv Bajaj has a keen interest in IT, and has played a major role in implementing the ERP software and Ecommerce activities in the company Mr. Anil Chopra
CEO & Director Mr. Anil Chopra is the Chief Executive Officer & Director of Bajaj Capital Limited, He joined the Company in 1984. Mr. Chopra has been instrumental in expanding the branch network of Bajaj Capital Ltd. all over India.
A Chartered Accountant and a Certified Financial Planner, Mr Chopra is
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credited with introducing international accounting and HR practices in the organisation. His most valuable contribution, however, has been in building up a financially literate society and making Bajaj Capital a strong retail brand. He is considered an authority, and is widely sought after by the media for quotes on key developments in the industry. The Significance of Our Logo
Our logo depicts Lord Ganesha who is the source of all our values and ethics in business.
carefully to our clients to understand their needs.
silently, without blowing our own trumpet.
avenues to provide the best investment opportunities for our clients.
to attain financial stability through wise investments.
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prosperity. We emulate His example and try our best to help our clients attain prosperity by proper financial planning.
symbolises wealth. According to Vedic lore, it is also the colour associated with Brihaspati, the guru and counsellor of the Gods. We offer our clients sage counsel to make their wealth grow. - symbolising power and incessant activity. It symbolises our aggressive quest for your well-being and happiness.
colour of satva guna, and implies our selfless commitment to your lifelong happiness.
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3600 FINANCIAL PLANNING AND AWARENESS OF BAJAJ CAPITAL
Experience the power of Bajaj Capital's 360 The only thing permanent in life is change. Times change. People change. So does life. You expect life to be much better tomorrow than it is today. Tomorrow, you hope to fulfil all your dreams and aspirations. But what happens if things take an untoward turn? Or, if there is an eventuality? Perhaps it's time for you to change the way you plan your investments...
Learn more about Bajaj Capital's 360º Financial Planning
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•Why do you need Bajaj Capital's 360° Financial Planning? •Who needs 360° Financial Planning? •What is 360° Financial Planning all about? •How will 360° Financial Planning help me? •How do I get my personalised 360° Financial Plan created?
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Don't just dream... Plan! Financial Planning is becoming increasingly popular in developed countries all over the world. Now, with a little help from Bajaj Capital, you too can give yourself the 360° Financial Planning edge! Get your Financial Plan prepared now Why do you need Bajaj Capital's 360° Financial Planning? You may have many dreams, needs and desires. For example, you could be dreaming of:
•Owning a new car Buying a dream house Providing your children with
the best education Planning a grand wedding for your children
•Having a great time after your retirement
But in today's world of skyrocketing costs and increasing inflation, how many of these dreams can you hope to turn into reality? By planning well, you can utilise your limited resources to the fullest.
360° Financial Planning helps you see the big picture and invest for specific long-term Who and needs short-term 360° goals Financial well in time.
Planning?
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Everyone does! Because everyone has a right to dream. And realising dreams is easier when you work to a plan that's:
•Reliable Realistic •Proven
Bajaj Capital's 360° Financial Planning Programme could make a difference to all those who wish to lead a worry-free, financially secure life. What is 360° Financial Planning all about?
360° Financial Planning is a unique software-based simulation that takes a holistic view of your life-long financial needs and charts a personalised investment strategy to help you meet them. Broadly, it involves:
•Identifying your current financial status Listing and prioritising your
goals Creating a sound investment plan to achieve them
•Monitoring the plan to facilitate swift corrective action, if needed
360° Financial Planning is based on the premise that every individual has certain basic financial needs that are expressed at various stages of life (getting married, buying assets like homes, vehicles, or providing for your children's education and wedding). With the help of 360°Financial Planning, you can
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prepare
yourself
well
in
time
for
all
these
goals.
How will 360° Financial Planning help me? Instead of investing in an ad-hoc manner, 360° Financial Planning helps you take a holistic, all-round view. Briefly, 360° Financial Planning comprises:
•InvestmentPlanning: To make your wealth grow •Cash Flow Planning: To provide for assets and meet the periodic cash
requirements
•TaxPlanning: To save on taxes and increase your income •InsurancePlanning: To protect yourself, your family and your assets •Children's Future Planning: To give your children a financially secure
future
•Retirement Planning: Because retirement is a time to relax, not to get
worried Top
How do I get my personalised 360° Financial Plan created? Here's how Financial Plans are prepared:
•The process begins with identifying your needs with the help of the Need
Analysis Form. Our Financial Planners then use the especially-created
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360° Financial Planning software to generate a personalised Snapshot. The Snapshot gives you a graphic account of all your financial requirements, at every stage of your future life. Based on the Snapshot, our experts work out an investment strategy.
•Once implemented, our experts keep regular track of your investments.
A Financial Planning session takes just 15 minutes
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Investment Planning
Everyone needs to save for a rainy day. Once you have saved enough to take care of emergencies, you should start thinking about investing and to make your money grow. We can help you plan your investments so that you can reap adequate benefits and achieve your financial goals. Bajaj Capital's Investment Planning Service includes:
Plans (SIP) Regular review of progress and Portfolio Rebalancing
Essentially, Investment Planning involves identifying your financial goals throughout your life, and prioritising them. Investment Planning is important because it helps you to derive the maximum benefit from your
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investments.
Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return. Investment Planning also helps you to decide upon the right investment strategy. Besides your individual requirement, your investment strategy would also depend upon your age, personal circumstances and your risk appetite. These aspects are typically taken care of during investment planning. Investment Planning also helps you to strike a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, that suits your particular needs and requirements.
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What Is Cash Flow Planning? In simple terms, cash flow refers to the inflow and outflow of money. It is a record of your income and expenses. Though this sounds simple, very few people actually take the time out to find out what comes in and what goes out of their hands each month Cash flow planning refers to the process of identifying the major expenditures in future (both short-term and long-term) and making planned investments so that the required amount is accumulated within the required time frame. Cash flow planning is the first thing that should be done prior to starting an investment exercise, because only then will you be in a position to know how your finances look like, and what is it that you can invest without causing a strain on yourself. It will also enable you to understand if a particular investment matches with your flow requirement. So does it involve looking at future cash flows only? Not really. You should always do a cash flow for yourself as on date, and you will realize that you could have a potential savings amount within each month of your working life. This is the amount that you should look at saving for meeting your financial goals. The best way of doing this is to have a personal budget.
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Why is cash flow planning important? Cash flow plans are commonly used by business houses. Without a viable cash flow plan, a company could easily spend more than its revenue, putting it in peril. Unfortunately, most of us do not realise that a cash flow plan is as important for people like us as well. The principles that apply to corporate finance and to our personal lives are largely the same.
There has never been a bigger need than today for families and individuals to work out cash flow plans. Without proper cash flow planning one could easily get caught in the debt trap. Of course, it goes without saying that creating a plan is not enough. One also needs to implement the plan, besides bringing about a change in the spending habits. Cash flow plan brings you face-to-face with what you should ideally be saving, and investing in a systematic and regular manner, and what would it mean to you to withdraw from your portfolio after a couple of years. It brings down in numbers what your financial future has in store for you, and gives a crystal clear view (as much as is possible with inflation and the interest rate scenario).
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Tax Planning - Introduction Proper tax planning is a basic duty of every person which should be carried out religiously. Basically, there are three steps in tax planning exercise. These three steps in tax planning are: Calculate your taxable income under all heads ie, Income from Salary, House Property, Business & Profession, Capital Gains and Income from Other Sources. Calculate tax payable on gross taxable income for whole financial year (i.e.,From 1st April to 31st March) using a simple tax rate table, given on next page. After you have calculated the amount of your tax liability. You have two options to choose from: 1.
2.
Pay your tax (No tax planning required) Minimize your tax through prudent tax planning.
Most people rightly choose Option 'B'. Here you have to compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of
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investments, which shall reduce your tax liability to zero or the minimum possible. Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory savings in highly safe Government schemes. We sincerely advise all our readers and clients to plan their investments in such a way, that the post-tax yield is the highest possible keeping in view the basic parameters of safety and liquidity
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The Need For Insurance Planning
"Insurance is not for the person who passes away, it for those who survive," goes a popular saying that explains the importance of Insurance Planning. It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his family's quality of life does not undergo any drastic change in case of an unfortunate eventuality.
It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his family's quality of life does not undergo any drastic change in case of an unfortunate eventuality.
Insurance Planning is concerned with ensuring adequate coverage against insurable risks. Calculating the right level of risk cover is a specialised activity, requiring considerable expertise. Proper Insurance Planning can help you look at the possibility of getting a wider coverage for the same amount of premium
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or the same level of coverage for the same amount amount of premium or the same level of coverage for a reduced premium. Hence, the need for proper insurance planning.
Insurance, simply put, is the cover for the risks that we run during our lives. Insurance enables us to live our lives to the fullest, without worrying about the financial impact of events that could hamper it. In other words, insurance protects us from the contingencies that could affect us. So what are the risks that we run? To name a few - the risk on our lives that is, the worries of replacement of the incomes that we contribute to the running of the household), the risks of medical contingencies (since they have the capability of depleting our wealth considerably) and risks to assets (since the replacement of these can have tremendous financial implications). If we can imagine a situation where our goals are disturbed by acts beyond our control, we can realise the relevance of insurance in our lives. Insurance Planning takes into account the risks that surround you and then provides an adequate coverage against those risks. There is no risk not worth insuring yourself against, and insurance should first and foremost be looked as a measure to guard against risks - the risk of your dreams going awry due to events beyond your control
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Children's Future Planning
Like every parent, you too must be overjoyed to watch your child grow. All parents want to give the best possible upbringing to their children. This includes good education and security, in case of any eventuality. Soon, your little bundle of joy will grow up, and it will be time to provide for his or her higher education and wedding. The purpose of Children's Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years. Children's Future Planning acquires added importance because children's education and wedding are high priority life goals, which can neither be postponed nor can there be a compromise on the amount. Good education has always been the passport to a secure future. Today, career opportunities have grown manifold, and there are many professional course that your
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child can aspire for. However, costs of higher education have also increased exponentially. Like most parents, you might be saving regularly to ensure a safe tomorrow for your child. However, savings alone is no longer enough. For ensuring adequate funding of your child's education, you as a parent, need to do two things:
It is never too early to start saving and investing for your child's future. Especially in today's context. For example, the cost of a professional degree today is approximately Rs 2.5 lakhs. If your child is one-year-old today, after 17 years when he/she goes to college, you may require a sum of Rs 6.3 lakhs, assuming an annual rate of inflation of 6%. There are many products which your Financial Planner can use to achieve the above objectives. For example, he could suggest a Children's Future Plan offered by any good insurance company, to build a corpus for your child's higher education, and provide for a security cover in the event of the parent's unfortunate demise. Children's plans are also available under unit-linked option. Being unit-linked, they offer access to investments in all kinds of asset classes - equity, debt and cash.
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Retirement Planning
Some like it. Some don't. But retirement is a reality for every working person. Most young people today think of retirement as a distant reality.
However, it is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. This is extremely important, because, unlike developed nations, India does not have a social security net. Retirement Planning acquires added importance because of the fact that though longevity has increased, the number of working years haven't.
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Our Retirement Planning Service involves: -retirement. This is done after taking inflation and time value of money into account.
(SIPs) and other long-term growth orient products -retirement income through safe investments. The asset allocation and selection of investment vehicles keep changing as your risk-bearing capacity diminishes.
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Plan for A Worry Free Retirement In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
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Why is it important? India, unlike other countries, does not have state-sponsored social security for the retired people. And after several decades when pensions provided many people with a large chunk of money they needed to live comfortably after they retired, things are changing. While you may be entitled to a pension, or income during retirement, in the new economic era, you are increasingly likely to be responsible for providing for your own needs. Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extreme ly important for every one. There are many reasons for the working individuals to secure their future emergence of nuclear families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates and the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life. Planning for retirement is as important as planning your career and marriage. Life takes its own course and from the poorest to the wealthiest, no one gets
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spared. "Everyone grows older". We get older every day, without realising. However, we assume that old age is never going to touch us. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
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PLAN FOR A WORRY FREE RETIREMENT In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
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Why is it important? India, unlike other countries, does not have state-sponsored social security for the retired people. And after several decades when pensions provided many people with a large chunk of money they needed to live comfortably after they retired, things are changing. While you may be entitled to a pension, or income during retirement, in the new economic era, you are increasingly likely to be responsible for providing for your own needs. Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extreme ly important for every one.
There are many reasons for the working individuals to secure their future emergence of nuclear families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates and the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life. Planning for retirement is as important as planning your career and marriage. Life takes its own course and from the poorest to the wealthiest, no one gets
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spared. "Everyone grows older". We get older every day, without realising. However, we assume that old age is never going to touch us. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
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INVESTMENTS
Mutual Funds are among the hottest favourites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. This section explains the various aspects of Mutual Funds.
• What are Mutual Funds? • Why choose Mutual Funds? • Types of Mutual Funds • Snapshot of Mutual Fund Schemes • Choosing the Right Mutual Fund Scheme • How to calculate the growth of your Mutual Funds
Investments?
• Points to Remember • Glossary
What are Mutual Funds ?
A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities -- ranging from shares and debentures to money market instruments or in a mixture of equity and debt, depending upon the objectives of the scheme.
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Why choose Mutual Funds ?
Investing in Mutual Funds offers several benefits:
•Professional expertise: Fund managers are professionals who track the market on
an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
•Diversification: Since a Mutual Fund scheme invests in number of stocks and/or
debentures, the associated risks are greatly reduced.
•Relatively less expensive: When compared to direct investments in the capital
market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
•Liquidity: Investments in Mutual Funds are completely liquid and can be
redeemed at their Net Assets Value-related price on any working day.
•Transparency: You will always have access to up-to-date information on the
value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager's investment strategy.
•Flexibility: Through features such as Systematic Investment Plans, Systematic
Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
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•SEBI regulated market: All Mutual Funds are registered with SEBI and function
within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.
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Types of Funds
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice. Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be
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availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory. Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to Gilt a predetermined These formula, funds invest usually exclusively linked in to an index. securities.
Funds
government
Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments. Fund of Funds
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A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.
Mutual Investment Fund Type Those Treasury Bills, Liquidity Moderate Money Income Market Reservation Capital Money bank deposits Shortterm Funds Liquidity + Little Interest Treasury Bills, surplus (Floating - Moderate shortterm) Rate Income term Government securities. Regular Income Credit Risk & Predominantly Salaried Interest Rate Debentures, funds CDs, Short- short-term 3 months 3 weeks Call Money, of Papers, Call short-term + Negligible Commercial accounts or Deposits, current 2 days - 3 weeks + Certificate of funds in park their who Objective Risk Portfolio invest horizon Who should Investment
Commercial Papers, Those with
Bond Funds
& More than 9 - 12
conservative months
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Government (Floating Longterm) Security Gilt Funds Income Risk securities investors Aggressive Long-term Equity Capital term out Appreciation look. To generate Portfolio NAV Index Funds commensurate with with returns of performance respective indices Balanced Capital Balanced Growth Funds & Market ratio etc index BSE, NIFTY investors. varies indices like Aggressive 3 years plus High Risk Stocks investors with 3 years plus Funds long Risk Corporate Bonds Salaried & Interest Rate Government conservative 12 months & more & securities, investors
returns that are
of equity and Risk debt funds to Moderate Interest ensure igher Aggressive & 2 years plus
Regular Income and
Rate Risk
returns at lower risk
How to choose the right Mutual Fund scheme
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Once you are comfortable with the basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age, etc.
What should be kept in mind before investing in Mutual Funds ?
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:
1. Identifying the Investment Objective
2. Selecting the right Scheme Category
3. Selecting the right Mutual Fund
4. Evaluating the Portfolio
A) Identifying the Investment Objective
Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple
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questions:
Why do I want to invest?
The probable answers could be:
•"I need a regular income" •"I need to buy a house/finance a wedding" •"I need to educate my children," or •Acombination of all the above
How much risk am I willing to take?
The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as:
•Very conservative •Conservative •Moderate •Aggressive •Very Aggressive
To ascertain your risk appetite, try out our Risk Thermometer.
What are my cash flow requirements?
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For example, you may require:
•Aregular Cash Flow •Alumpsum after a fixed period of time for some specific need in the future •Or, you may have no need for cash, but you may want to create fixed assets for
the future
B) Selecting the scheme category
The next step is to select a scheme category that matches your investment objectives:
•For Capital Appreciation go for equity sectoral funds, equity diversified funds or
balanced funds.
•For Regular Income and Stability you should opt for income funds/MIPs •For Short-Term Parking of Funds go for liquid funds, floating rate funds, shortterm funds.
•For Growth and Tax Savings go for Equity-Linked Savings Schemes.
Investment Objective Short-term 1- 6 months Investment Capital Over 3 years Appreciation Funds Diversified Equity/ Balanced Liquid/Short-term plans Investment Ideal Instruments horizon
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Monthly Regular Income Flexible
Income
Plans
/
Income Funds Equity-Linked Tax Saving 3 yrs lock-in Schemes (ELSS) Saving
C) Selecting the right Mutual fund
Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are:
The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category.
How well the Mutual Fund is organized to provide efficient, prompt and personalized service.
The degree of transparency as reflected in frequency and quality of their communications. D) Evaluation of portfolio
Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund manager's style of investment, portfolio diversification, fund manager's experience.
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Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees.
Evaluation of bond funds involve it's assets allocation analysis, return's consistency, it's rating profile, maturity profile, and it's performance over a period of time. The bond fund with ideal mix of corporate debt and gilt fund should be selected.
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How to calculate the growth of your Mutual Fund investments ?
Let's assume that Mr. Gupta has purchased Mutual Fund units worth Rs. 10,000 at an NAV of Rs. 10 per unit on February 1. The Entry Load on the Mutual Fund was 2%. On September 15, he sold all the units at an NAV of Rs 20. The exit load was 0.5%.
His growth/ returns is calculated as under:
1. (a) (b) (c) (d)
Calculation Amount
of
Applicable of
NAV
and
No. = =
of
units Rs. Rs.
purchased: 10,000 10 0.20 Rs. 10.20
Investment NAV
Market Entry Applicable NAV Load
= Price)
2% = (b)
= + (c)
Rs. =
(Purchase
(e) Actual Units Purchased = (a) / (d) = 980.392 units
2. Calculation of NAV at the time of Sale
(a) (b) (c)
NAV Exit Applicable
at
the Load NAV =
time = (a)
of 0.5% -
Sale
= or
Rs
20 Rs.0.10
(b)
=
Rs.
19.90
3. Returns/Growth on Mutual Funds
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(a) (b)
Applicable Applicable
NAV NAV
at at
the the
time time
of of
Redemption Purchase
= =
Rs. Rs.
19.90 10.20
(c) Growth/ Returns on Investment = {(a) - (b)/(b) * 100} = 95.30%
Points to Remember
•Do not speculate: Always evaluate risk-taking capacity. •Do not chase returns: Because what goes up must come down. •Do not put all eggs in one basket: Diversification reduces the risk. •Do not stop working on Mutual Funds: Continuous evaluation of funds is a
must.
•Do not time the market: Every time is good for investments. •Mutual Funds are subject to market risks and there is no assurance that the fund
objective will be achieved.
•NAVs fluctuate depending on forces affecting the Capital market. •Past performance may or may not be sustained in the future.
Assets Management Company: A highly regulated organization that pools money from many people into portfolio structured to achieve certain objectives. Typically an AMC manages several funds -open ended/ close ended across several categories- growth, income, Balanced Fund: A hybrid portfolio of stocks and bonds. balanced.
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Close Ended Fund: They neither issue nor redeem fresh units to investors. Some closed ended funds can be bought or sold over the stock exchange if the fund is listed. Else, investor have to wait till redemption date to exit. Most listed close ended funds trade at discount to the NAV.
Open Ended Fund: A diversified and professionally managed scheme, it issues fresh units to incoming investors at NAV plus any applicable sales charge, and it redeems shares at NAV from sellers, less any redemption fees.
Entry/ Exit Load: A charge paid when an investor buys/sells a fund. There could be a load at the time of entry or exit, but rarely at both times.
Expense Ratio : The annual expenses of the funds, including the management fee, administrative cost, divided by the fund under management.
Growth/Equity Fund: A fund holding stocks with good or improving profit prospects. The primary emphasis is on appreciation.
Liquidity: The ease with which an investment can be bought or sold. A person should be able to buy or sell a liquid asset quickly with virtually no adverse price impact.
Net Assets Value : A price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding the cash and any accrued
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income, then subtracting liabilities and dividing the result by the number of units outstanding.
Interest Rate Risk: The risk borne by fixed-interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed-interest securities declines and vice versa.
Credit Risk: Credit risk involves the loss arising due to a customer's or counterparty's inability or unwillingness to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.
Capital Market Risk : Capital Market Risk is the risk arising due to changes in the Stock Market conditions.
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INTRODUCTION
Investment options 1. Insurance 2. PPF- Public provident fund 3. NSC- National Saving Certificate 4. Post Office Saving schemes 5. Mutual fund 6. Bank Saving Schemes 7. Securities 8. Real Estate
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RESEARCH OBJECTIVE This research was undertaken with the following scope of work:
• To know the current strategy of investment. • To know why salaried employees do investment {need of investment}. • To know when they invest. • To know where they prefer to invest. • To identify the whether they are aware about the Tax structure. • To give suggestion related to their investment strategy.
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DEFINITIONS OF INVESTMENT
• Investing: the act of investing; laying out money or capital in an
enterprise with the expectation of profit
• Money that is invested with an expectation of profit
• The use of money for the purpose of making more money, to gain income
or increase capital, or both.
• The use of money through various vehicles, or an individual's time and
effort, to make more income or increase capital, or both. The term "investment" infers that the safety of principal is important. On the other hand, speculation connotes that risking principal is acceptable
• Anything of value purchased to provide capital appreciation and/or
income. Examples include stocks, bonds, mutual funds, unit investment trusts, certificates of deposit, money market funds and collectibles. Investments may also include artwork, antiques and real estate. But why do we save and then invest our savings somewhere? The answer seems to be too simple. We save to earn more money. We always invest for a specific purpose. For instance, we invest in life insurance to save on taxes. We put money into recurring deposits to, say, partfinance the down payment for a house. We invest for our children's education,
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for their imminent weddings. We also invest to take care of our own needs after retirement.
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Motives for investment may vary, but there are some common desires. people want investments to give some return.
• Safety • Liquidity • Returns
We have to use these criteria to assess our investment needs. For instance, if people want to put away money for retirement, safety will be the most important criterion. A safe investment avenue that gives people a decent annual return will be good enough for people. What about the money their father sent people for the down payment on their car? People haven't even decided on the model! People'll probably keep the money in their savings bank account so that people can withdraw it quickly. At different stages of life their needs for financial security and plans for the future are likely to change. Here is a simple introduction to common financial needs as they relate to different lifestyles and life stages. Protection
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Families with peopling, dependent children need adequate protection against losing their primary wage earner's income if and when premature and unexpected death occurs.
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1. Emergency Fund
Life insurance provides an additional consideration by providing an emergency fund to provide money for survivors. It buys the time so essential and necessary that is needed to adjust to the death of a parent or spouse.
1. Education
Yet another priority need for peopling families is building adequate funds for higher education costs. The need for highly specialized education is greater than ever before. Every year, the cost of education rises beyond estimated limits.
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2. Retirement
Peopling families should also plan for retirement in the long run. Investment and pension plans are not adequate to fund the retirement needs at times. Once a family attains a specific standard of living, it is very hard to adjust to a reduced standard during the retirement years. Systematic savings over a working lifetime is the key towards supplementing other retirement programmes. The old rule of saving 10 percent of the annual income still holds true for single income peopling families. Peopling families with modest incomes must commence with at least a 10 percent guideline if they cannot make a total commitment immediately. 3. Disability A single income peopling family would be in an extremely perilous situation if there would be a loss of income owing to a disability. In case an income provider is unable to work, the economic consequences could be severe for the family. Not only does the family have to maintain the established standard of living, it also has to shoulder the additional burden of a disabled member within itself. Disability is the major need that is to be addressed and protection against this loss is a priority.
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Tax Planning Generally speaking, after a decade of their marriage their family would be complete. People should look at tax planning in a more serious manner. It is time to plan for some investments and funds in the names of minor children and to take some insurance policy in the name of minor children for their education and marriage purposes. This should be a long-term policy with a small amount of premium payment year after year The needs of mature adults tend to emphasis on their successors as well as their elders. These generally include:
• Providing funds for higher specialized studies for their children. • Assisting their children with payments on their new homes. • Loaning or granting money by way of gifts to other needy family
members or relatives.
• Ensuring health care and attention for their aged and dependent parents. • Planning for a dependent who might have specific needs. • Guaranteeing loans and financial obligations for their children.
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• Building a savings fund to provide additional income during retirement.
Marriage and Education Costs The cost of marriage and higher education for children forms a major expense during the mature adult's life cycle. The costs of living increase year after year. And to meet these rising costs requires sacrifice and considerable effort on the part of most families. The cost of higher education is also rising. More and more students are opting to go abroad to seek specialization in their chosen vocation. Foreign universities are also offering a wide range of specialized courses on Indian This makes a college education highly desirable. Yet, as the costs go on mounting, it makes planning all the more essential to make the education a reality.
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Children's First Home Since costs of housing have to be met with a large percentage from our incomes, newly married couples are finding it harder than ever before to pay the minimum down payment or even acquire the necessary resources to qualify for housing finance. Needless to say, these peopling couples need their parents' help for providing the necessary funds. When a peopling couple applies for a loan, they should purchase dual-life insurance policies, naming their parents as beneficiaries. If by chance, the couple expires before the housing loan is paid off, the proceeds of the policy can easily suffice in meeting the repayment installments.
In case the couple lives happily ever after, the cash value in the policies can be used to pay off the remainders of the loan after a while. The tax advantages offered are extremely advantageous for the peopling couple and their parents. Many other financial options are available, but the flexibility offered by life insurance policies is unmatched by any of them. Gifts and Loans Adults in their mature years are usually confronted with financial demands from generations proceeding as well as succeeding them.
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Providing funds for children, elderly parents, or relatives, either as a loan or an outright gift, may create a change in the financial planning considerations.
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Caring for Dependent Parents Not many people anticipate that as their children mature and gain independence, they might be confronted by new dependents - their own parents. Since these people are responsible for their children as well as their elderly parents, they subsequently get 'sandwiched' between the expenses of both the generations'. .A family 'sandwiched' between the pressures of two generations is subjected to a lot of emotional and financial strain. Difficulties arise from balancing the needs of parents and shouldering their children's responsibility besides concentrating on personal financial goals. The only solution lies in planning in advance for the risks covered. People who anticipate and prepare for the worst can afford to make choices later on in life. Long Term Care Long term care insurance is yet another major planning consideration. Medical assurance policies are not always adequate. They can never meet the catastrophic costs of a major illness or a chronic disability. Not many people can afford the large expenses of nursing homes with their current income.
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If matured adult parents are unable to afford this coverage, it makes sense for their children to share the premium expenditure. This is a sensible precaution to be exercised against any potentially high costs that might occur later. When the time period for future health planning is over, the options available for the elderly are fewer and extremely unattractive.
If a parent's health goes from bad to worse and they become completely dependent on external help, the medical costs may be higher than the income level of the family, regardless of how willing they might be. Dependents with Special Needs Just like elderly parents, children who are physically or mentally handicapped require special consideration and are a source of major and expensive concern. A provision for their needs must be considered and plans made as early as possible. Needless to say, the dependency period never ends with these dependents. Providing necessary care for dependents having special needs can be extremely strenuous, both emotionally and financially. At times, people who are caring for the disabled sacrifice their own health and financial security at the expense of the other members of the family. The emotional pull generated can create a terse atmosphere within the household.
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Parents of a dependent with special needs wish to see that these expenses are taken care of on a long-term and guaranteed basis. With timely and proper planning, such expenses can be met easily regardless of what happens to the provider of support.
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Tax Planning Once their children are grown up and settled in life, most of their responsibility towards them is over. It is now time to relax. Now people should plan their investment strategies in such a manner that the income in their family group is distributed from the point of view of tax planning, not merely in their name and that of their spouse but in the names of their son, their daughter-in-law and their grand children. People should also now start focusing on the investment decisions which will have a long-term repercussion relating to their succession. Thus, it is recommended to people that they should prepare their Will and adopt tax planning relating to the wills and achieve ultimate tax saving for family members who are going to be a part of their succession plan. Adulthood -The Middle Years 51 - 55 Middle years are the stage in the life cycle identified and characterized as a period of acquisition and establishment. People at this phase of life, assume more responsibility and often take on new career opportunities.
Middle-aged people are constantly making commitments, acquiring assets and incurring additional debts as well. This phase in the human life cycle
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develops the individual's long-term and ongoing relationships more than the others.
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Challenging Concerns People, in their middle years are assuming greater responsibilities as well as acquiring newer assets and possessions. Growth means change wrought together with new challenges and added concerns.
People have to consequently face a lot of problems and considerations during this stage of their life cycle. They may be trying to achieve their aims in life, their aspirations and dreams ranging from a proper balance between their careers and family life to a continual movement up the career ladder. They will also seek proper protection of their income levels in event of a disability, or a loss of job or a career change and even premature unexpected death. They may also be considering investing in better residential facilities with realistic provisions made for their retirement needs and financial security. Budgetary changes may also be implemented along with long-term savings and investment plans. They might also be updating their wills and bequests. Since different people use different approaches in meeting their mid-life crises and challenges, they are highly prone to make financial mistakes and errors of judgment. A miscalculation at this stage can affect an individual's financial standing for the rest of his life.
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The most common mistake made by individuals during their middle age periods is probably procrastination or delay in the commencement of programs for future needs. The benefits of compounded interest are lost forever owing to this single greatest failure. Another mistake people tend to commit is making inadequate estimates or judgments regarding the amount of protection needed for their future.
The other common errors on people's part are concurrent to the fact that people tend to overuse and at times, even abuse their credit limits. They blindly accept investment strategies or plans newly introduced in the market. Also they fail to provide for pending major purchases or replacement of large-sized utilitarian items.
They also tend to neglect in protecting or covering their property assets while continue to rely on their employment-sponsored benefits. At times, people forget that inflation will catch up with them and make inadequate provisions for their retirement.
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Hopes and Dreams An individual seeking to fulfill their aspirations should base his game plan with specific objectives estimated on his resources and working capacity. As long as the individual maintains the following perspectives in mind, his chances of success are assured:
• Clearly defined goals and objectives. • Controlled spending with the budget. • Planned savings and investment program. • Adequate funds for children's higher education. • Protection against property losses. • Sufficient income against disability. • Emergency fund. • Financial independence and a comfortably secure retirement. • General well being and peace of mind.
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Tax Planning Their tax planning should now be such that people have no hassles and tensions in these golden years. Their aim should be to have an easy flow of money from their investments. The thrust should be on safety of their capital as against higher returns. Their focus should be only on 100% safe and secured investments. Try to have a joint bank account and joint investments which will help smooth succession in the years to follow. Their tax planning should now be in such a manner that people are required to spend less time managing their affairs and have more time available for their personal pursuits. INTRODUCTION TO INSURANCE The word insurance is an under writing by a company, society or the state to provide or safeguard against loss provision, against sickness, death etc in return for regular payment i.e. premium. In other words insurance is such a method, which provides security and fearlessness to the human being. It is a mean for shifting the risks to insurer in consideration of a nominal cost which is called as premium. Insurance is a cooperative device to spread the loss cause by a particular risk over a member of persons who are exposed to it and who agree to insure themselves against the risks. There are risk of outbreak, fire, cyclone,
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earthquake, floods, accidents and deaths etc. According to A.H. WHILET; risk is an objectified uncertainty regarding the occurrence of an undesirable event. Insurance is a cooperative method for spreading over the loss suffered by one or more, caused by a particular risk, over a no. of persons who agree to share the loss. By insurance a person can protect himself and his dependents from loss arising from future uncertain events like fir, accidents, early death and so on.
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DEFINITION OF INSURANCE "Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it." (GHOSH AND AGARWAL) "Insurance is a contract in which a sum of money is paid to the assured in consideration of insurer's incurring the risk of paying to a large sum upon a given contingency" (JUSTICE TINDALL) "Insurance is a contract by which one party for a compensation called in the premium assumes particular risk of the other party and promises to pay to him or his nominee a certain or a certain able sum of money on a specified contingency." (E.W. FITTERSON)
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CLASSIFICATION OF INSURANCE
Insurance business can be divided into two broad categories - Life insurance & general insurance
Types of Insurance
Life Insurance
General Insurance
Marine
Fire
Miscellaneo us
1) GENERAL INSURANCE The general insurance includes property insurance, liability insurance & other forms of insurance. Fire and marine insurance are strictly called property insurance. Motor, fidelity and machine insurance include the extent of liability insurance to a certain extent.
• Property insurance- Under the property insurance, property of
the person is insured against a specified risk.
• Fire insurance- Hence the policy holder is assured of any loss
to the property by fire.
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• Liability insurance- In this insured is liable to pay the
damages of property or to compensate the loss of personal injury or death.
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2) LIFE INSURANCE It is different from other forms of insurance in the sense that the subject matter of insurance is life of human being. Insurance on one's life is taken and assured sum is payable on maturity or the assured or his nominee on maturity or death in consideration of premium paid by the assured. At present, life insurance enjoys maximum scope because the life is the most important property of the society or an individual. Life insurance provides protection to the family at the premature death or gives adequate amount to the old age when earning capacities are reduced. Under personal insurance a payment is made at the accident. The insurance is not only a protection but is a sort of investment. Personal Insurance includes Life Accident, Health and Sickness Insurances.
•
Accident Insurance- Personal Accident Policy provides for
specific benefit to the assured, suffering injury in any accident resulting ion death or disablement. The compensation payable but the insurer is dependent upon the extent of physical loss or injury.
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INTRODUCTION TO LIFE INSURANCE
Life Insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period.
Insurance has described as an institution, which eliminates risk and substitute certainty for uncertainty. It is the certainty of death inherent in the life which gives rise to the necessity for some form of protection against the loss arising from death. The breadwinner of the family more often than not depens a family for its food, clothing and shelter on the income benefit in at regular intervals. So long as he lives and the income is received steadily that family is secured but should death suddenly intervene the family may be left in very straitened circumstances and some time in stark poverty.
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HISTORY OF LIFE INSURANCE
Over 5000 year ago in china insurance was seen as a preventative measure against piracy on the sea. Piracy in fact so prevalent that as a way of spreading the risk a number of ship would carry a portion of another ship's cargo so that if one was captured the entire shipment would not be lost. In another part of the world nearly 4,500 year ago in the ancient land of Babylonia trader use to bear risk of the caravans trade by giving loan that have to be later repaid with interest when the good arrive safely. In 2100BC the code of Hammurabi granted legal status to the practice .it formulized concept of "bottormy" referring to vessel bottom and "recondition" referring to cargo. These provide the underpinning for marine insurance contracts. Such contracts contain three elements. A loan on the vessel, cargo, or freight, an interest rate and a surcharge to cover the possibility of loss. In effect ship owners were insured and lenders were the underwriters. Life insurance come out a little later in ancient Rome were burial clubs were form to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's formed around 450 A.D, most of the concept of insurance were abandoned, but aspect of it did continue through the middle age, particularly the merchant artisan guilds. This provide forms of member
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insurance covering risk like fire , flood , disability , death theft and even imprisonment. During the feudal period early forms of insurance ebbed with the decline of travel and long distance trade. But during the 14 th and 16th centuries, transportation, commerce and insurance would again reemerge. Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of life insurance Corporation of India's corporate headquarters, is derived from a Rig Veda. The term suggests the form of "community insurance" was prevalent in 1000BC and practice by the Aryans.
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IMPORTANCE OF LIFE INSURANCE The purpose of life insurance is to safe guard the interest of people from uncertainly by providing certainty of payment at a given contingency. the insurance principle has become all the more useful in modern affairs. The rule and importance of insurance discussed as below:
•
LIFE INSURANCE ENCOURAGE SAVINGS are required to
Systematic savings is possible because regular premium
be compulsorily paid. Unlike bank deposits the deposited the insurance premium can not be withdrawn. Life insurance is the best media of saving.
•
LIFE INSURANCE PROFITABLE INVESTMENT
The elements of investment i.e. regular savings capital formation and return of the capital are observed in the life insurance, In India the insurance policies; carry a special exemption from income tax and estate duty.
•
PERSON
LIFE INSURANCE FULFIL THE NEED OF A
The need of a person may be divided into: i) Old age needs; ii) Re -adjustment needs, and iii) Family needs. iv) Special needs including needs for education,
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marriage settlement of children, etc.
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ADVANTAGES OF LIFE INSURANCE
The following are the advantages of life insurance:-
•
SUPERIOR SAVING PLANS
Life insurance is superior to other forms of saving because, unlike other savings plans, it affords full protection against risk of death. In case of death, the full sum assured is made available under a life assurance policy, whereas under other savings schemes the total accumulated saving alone will be available.
•
TAX BENEFIT
The Indian income Tax Act allows deduction of certain portion of taxable income of individual or Hindu Undivided Families for computing Income Tax which is diverted to payment of life insurance premiums. Taking this tax benefits into account the assured is in effect paying lower premiums for his insurance.
•
INVESTMENT ELEMENT
In life insurance, the insured is required to pay the premiums the premiums is a kind of investment. This premium is returned to the insured along with additional bonus amount after the expiry of the period of contract.
•
REDUCES FINANCIAL BURDEN
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Life insurance reduces financial burden by providing money for children, marriage of daughter, build a house or starting business after retirement, etc.
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THE ACT OF INSURANCE
There are three acts of insurance :
• • •
Insurance act. LIC Act. IRDA Act.
INSURANCE ACT, 1938 Insurance act 1938 was the first comprehensive legislation in India to regulate the business of insurance when it was found that the earlier Indian company act failed to meet the purpose. It was way back in 1912,when the Indian life insurance companies act and provident fund insurance societies act 1912 was passed , which was further modified and a new legislation was passed in 1928. in 1938 the insurance act was passed, which aimed to consolidate and amend the law relating to the business of insurance. The act came into force with effect from july, 1939. in 1950, certain changes were effected in order to limit the expenses and control the investments. The nationalization of the insurance business, the insurance act was through the IRDA Act 1999.
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LIC ACT, 1956 The Life Insurance Corporation Act, 1912 was the first legislation for regulating insurance business in India. However the Insurance Act, 1912 was replaced by comprehensive Insurance Act of 1938. This Act was again amended in 1950. Finally the Government of India nationalized the entire life insurance business in the year 1956 by passing Life Insurance Corporation Act, 1956 and as such LIC was setup on 1st September, 1956. The LIC took over the assets and liabilities of 245 insurers which were operating at the time to nationalization. IRDA ACT, 1999 After the economic crisis of 1991, the Narsimha Rao led Government adopted the policy of deregulating all the sectors including the insurance sector from the clutches of the Government and thereby promote the private players to prove their worth. In this sequence in April, 1993 the Government of India appointed the Malhotra Committee, to recommend on the reforms on insurance sector, under the chairmanship of Sri. R.N.Malhotra, former Governor of RBI. The Committee submitted its report on 7th January, 1994 and made recommendations for the establishment of on effective Insurance Regulatory Authority (IRA) in the form of a statutory autonomous board, and also recommended for the entry of private sector in insurance business.
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In December 1996, Government tabled the IRA Bill in the parliament but due to strong opposition form left parties the Government was forced to withdraw IRA Bill in parliament.
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IRDA
Under the provision of the insurance Act, 1938 an institution of the controller of the insurance was set up to act as a strong and powerful supervisory and regulatory Authority. After the nationalization of the life insurance industry in 1956 and general insurance industry in 1972, the role of controller of insurance had diminished in significance. The government of India in April 1993 set up a high power committee to examine the structure of the insurance industry and recommended changes to make it more efficient and competitive. The committee submitted its report on 7th January, 1994 and expressed the view that the insurance regulatory apparatus should be activated even in the existing set up of nationalized insurance sector. It recommended for the establishment of a strong and effective Insurance Regulatory Authority in the form of statutory autonomous board. The recommendations of the committee were discussed at different forums. It was widely supported that an autonomous Insurance Regulatory Authority be set up. In view of this the government decided to bring in legislation to establish an independent regulatory authority for insurance industry.
In order to provide better insurance coverage to the citizens and also to augment the flow of long term resources for financing infrastructure , in the budget
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speech 1998 the policy of the government was announced to open up the insurance sector and also to establish a statutory Regulatory Authority . According the insurance Regulatory Authority Bill 1998 was introduced in the Lok Sabha or 15th December 1998. The bill was referred to the standing committee suggested some amendments which were accepted by government. However the bill could not be taken up consideration on the dissolution of the Lok Sabha. A fresh bill titled Insurance Regulatory and Development Authority bill was introduced in the parliament.
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DUTIES, POWERS AND FUNCTIONS OF IRDA:
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA:
• Subject to the provision of this act and any other law for the time being in
force. The authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and reinsurance business.
• Without prejudice to the generality of the provision contain in the sub section.
• Issue to the applicant a certificate of registration , renew ,modify ,
withdraw , suspend or cancel such registration .
• Specifying requisite qualification , code of conduct and practical tanning
for intermediary or insurance intermediaries and agents.
• Specifying the code of conduct for surveyors and loss assessors. • Promoting efficiency in the conduct of insurance business. • Promoting and regulating professional organization connected with the
insurance and reinsurance business.
• Levying fees and other charges for carrying our the purpose or this act.
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• Specifying the form and manner in which books of insurer and other
insurance intermediaries shall maintain account .
• Regulating investment of funds by insurance companies. • Regulating maintenance of martin of solvency. • Adjudication of disputes between insurers and intermediaries or insurance
intermediaries.
• Supervision the functioning OF THE Traffic Advisory Committee. • Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organization referred to in clause.
• Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector.
• Exercising such other powers as many be prescribed.
The power and function mentioned above would enable the Authority to perform the role of an effective watchdog and regulator for the insurance sector in India. To enable the Authority to function in a truly independent manner and discharges its assigned responsibilities effectively, it is proposed to vest the Authority with statutory status.
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RESEARCH METHODOLOGY
RESEARCH DESIGN: Descriptive Research Design SAMPLE DESIGN: Probability Sampling - Stratified Sampling, Employees are divided into three strata on the basis of their age a) Employees of age group 40 to 45 (120 employees) b) Employees of age group 46 to 50 (80 employees) c) Employees of age group 51 to 55 (40 employees) SAMPLING UNIT: Salaried Employees SAMPLE SIZE: Sample of 240 Salaried employees is chosen. METHOD OF DATA COLLECTION PRIMARY DATA
1. Interview Method: personal interview involve asking questions in face to
face contact.
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2. Questionnaire: It is the most popular and common instrument used in
research .The basic objective of questionnaire was to collect adequate information.
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SECONDARY DATA
1. Internet Search www.google.com
2. Publish material
3. Books Direct Taxes Law & Practice
Tax Planning PROCESSING OF DATA Different techniques are used for processing
ANALYSIS OF DATA Data collected through above method has been analyzed statistically. Result of analysis is shown in the form of Bar Chart
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WHERE DO YOU SERVICE IN PUBLIC SECTOR OR PRIVATE SECTOR
90 80 70 60 50 40 30 20 10 0 40 - 45 age 46 - 50 age 51 - 55 age
Public Sector
Private Sector
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
70% said they are working in Private Organization 30% said they are working in Public Organization
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
80% said they are working in Private Organization 20% said they are working in Public Organization
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• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
90% said they are working in Private Organization 10% said they are working in Public Organization
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YOUR MONTHLY SALARY
90 80 70 60 50 40 30 20 10 0 40 - 45 age 46 - 50 age 51 - 55 age
Rs. 10 - 20,000 Rs 31 - 35,000
Rs. 21 - 30,000
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
60% said their monthly salary is Rs.10,000 to 20,000 30% said their monthly salary is Rs.21,000 to 30,000 10% their monthly salary is Rs.31,000 to 35,000
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said their monthly salary is Rs.10,000 to 20,000
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70% said their monthly salary is Rs. 21,000 to 30,000 10% said their monthly salary is Rs. 31,000 to 35,000
• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
5% said their monthly salary is Rs.10,000 to 20,000 90% said their monthly salary is Rs. 21,000 to 30,000 5% said their monthly salary is Rs. 31,000 to 35,000
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YOUR ANNUAL SAVING
70 60 50 40 30 20 10 0 40 - 45 ag e Rs. 1 - 150,000 46 - 50 age Rs. 1.5 - 2,00,000 51 - 55 age Rs 2 - 250,000
INFERENCESSALARIED EMPLOYEE OF AGE GROUP 40 TO 45 60% said their annual saving is Rs.1.0 lac. to 1.5 lac. 30% said their annual saving is Rs.1.5 lac. to 2.0 lac. 10% said their annual saving is Rs.2.0 lac. to 2.5 lac.
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said their annual saving is Rs.1.0 lac. to 1.5 lac. 70% said their annual saving is Rs.1.5 lac. to 2.0 lac. 10% said their annual saving is Rs.2.0 lac. to 2.5 lac. Page | 115
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•
SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
100% said their annual saving is Rs.1.0 lac. to 1.5 lac. 40% said their annual saving is Rs.1.5 lac. to 2.0 lac. 50% said their annual saving is Rs.2.0 lac. to 2.5 lac.
WHERE DO YOU LIKE TO INVEST
80
70
60
50
40
30
20
10
0 40 - 45 age 46 - 50 age 51 - 55 age
Public
Private
Public and Private both
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
10% said they prefer to invest in Public 40% said they prefer to invest in Private Page | 116
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50% said they prefer to invest in both Public and Private
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said they prefer to invest in Public 20% said they prefer to invest in Private 60% said they prefer to invest in both Public and Private SALARIED EMPLOYEE OF AGE GROUP 51 TO 55 10% said they prefer to invest in Public 10% said they prefer to invest in Private 80% said they prefer to invest in both Public and Private
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HOW MUCH RISK YOU LIKE TO TAKE
80
70
60
50
40
30
20
10
0 40 - 4 5 a g e 46 - 50 a g e 51 - 5 5 a g e
High Risk
Medium Risk
Low Risk
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
30% said they would like to take High Risk 50% said they would like to take Medium Risk 20% said they would like to take Low Risk SALARIED EMPLOYEE OF AGE GROUP 46 TO 50 10% said they would like to take High Risk 80% said they would like to take Medium Risk Page | 118
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10% said they would like to take Low Risk SALARIED EMPLOYEE OF AGE GROUP 51 TO 55 10% said they would like to take High Risk 20% said they would like to take Medium Risk 70% said they would like to take Low Risk
ARE YOU AWARE ABOUT TAX STRUCTURE
90 80 70 60 50 40 30 20 10 0 40 - 45 ag e 46 - 5 0 a g e Ye s No 5 1 - 55 ag e
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
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90% said Yes they are aware about Tax Structure 10% said No they are not aware by Tax Structure
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
80% said Yes they are aware about Tax Structure 20% said No they are not aware by Tax Structure
• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
80% said Yes they are aware about Tax Structure 20% said No they are not aware by Tax Structure
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WHERE YOU LIKE TO INVEST
60
50
40
30
20
10
0 40 - 45 age Insurance PP F 46 - 50 age NSC KVP 51 - 55 age Securities Bank
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
55% said they prefer to invest in Insurance 10% said they prefer to invest in PPF 15% said they prefer to invest in NSC 5% said that they prefer to invest in KVP 17% said that they prefer to invest in Securities 8% said that they prefer to invest in Bank
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
50% said they prefer to invest in Insurance 15% said they prefer to invest in PPF
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5% said they prefer to invest in NSC 10% said that they prefer to invest in KVP 7% said that they prefer to invest in Securities 8% said that they prefer to invest in Bank
C.I.M.T
•
SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
55% said they prefer to invest in Insurance 10% said they prefer to invest in PPF 5% said they prefer to invest in NSC 10% said that they prefer to invest in KVP 10% said that they prefer to invest in Securities 10% said that they prefer to invest in Bank
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FINDINGS
In this research salaried employees are classified in three strata
• One strata is of employee of age between 40 to 45 • Second strata is of employee of age between 46 to 50 • Third strata is of employee of age 51 to 55.
These three groups of employees respond differently. This difference is because of different perception
despite keeping in bank of the low rate of return as bank provides.
investment among people due to the following reasons:
consequent higher savings.
specified channels.
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sector.
and there return and security as a government investment instrument.
with fixed deposit, real estate, mutual funds and primary market.
higher returns and to gain on there savings.
banks as they consider to be the safest financial institutions, although they would prefer primary market and mutual funds if they invest in future.
withdrawal as per their need of money.
However, in future they would like to make investment in insurance.
future they would prefer to invest their money in fixed deposits. -15,000 presently invest in banks and in the future they would like to invest in fixed deposits and to pay for the
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investment purpose in which they get higher return on there investment. -20,000 presently make their investments in Insurance and other tax saving investments to save there tax labiality. According to the survey done, most of the people who fall under the income group of 20,000-25,000 invest in different investments and in future they would like to invest in tax savings instruments. (Bonds NSC mutual fund etc.)
is above Rs. 25,000 presently invest in insurance while in future their choice of investment would preferably be real estate and fixed deposits. People who are above the age of 51-55 presently make maximum of their investments in Insurance as well as PPF and banks.
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RECOMMENDATIONS Today's environment is very competitive hence to survive in such environment people need both power and wealth. Earlier people prefer to keep their money either on home or keep in bank but today people to see their money grow and today a lot of options are present which are not only attractive but fast growing too. People who can bear high risk for that person the security market are good. There is high risk and high return according to their investment amount. Salaried people wants the security in their savings so for those people who wants high security Insurance and other Government instruments of Investments is better option in which there is a fix growth up to certain amount. Today's market is so fluctuating for this type of market security is important as well as growth so Insurance is good option for them in which there is return as well as security.
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LIMITATIONS
This study is based on reaction hence it is not an indication that everything is true t its fullest sense. Time is act as constraint Some employees refuse to fill the questionnaire because they do not free time Some employee does not read the questions carefully as a result they give the wrong response Most of employees do not give answer of the personal question related to PAN number and Accurate Salary.
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CONCLUSION
Many years ago people used to hold money means that they kept their money as cash in hand or other safe places But today people are more aware of different investment option, which are the key of growth of money Instead of a range of investment option salaried employees prefer to take medium risk and they will invest their money in that option where they get maximum tax benefit like insurance and PPF
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QUESTIONNAIRE
This is a research pertaining to measuring satisfaction level of retailers. Please give your response to the following questions by ticking the appropriate choice. 1. Respondent Name__________________________________________
2. Your Age
from 40 from 46 to 50? from 51 to 55?
to 45?
3. Education ______________________________________ 4. Name of Organization / Company where you are working
_______________________________________________
5. Nature of Company
Public
?
Private?
6. Post / Designation ____________________________________
7. Average Monthly Salary
Rs. Rs. 21,000 to 30,000? Rs. 31,000 to
10,000 to 20,000? 35,000?
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8. Your
Anuual Rs. 1.5 to 2.0 Lac.?
Savings Rs. 2.0 to
Rs. 1 to 1.5 Lac.? 2.5 Lac.?
9. Where you prefer to invest ? Public? Private?
10.Liabilities (dependent) _________________________________________ Tax Payee No? 11.PAN No. __________________________________________ Are you filling up Income Tax Return? No? 12.Are you aware about tax Structure? Yes? No? Yes? Yes?
13.What is your tax liability (approximate) ___________________ Where would you like to invest PPF ? Securities? Real Estate? Bank Saving Scheme? Insurance? NSC ? Post
mutual fund? office Saving Scheme?
14. How much risk you like to take ? Page | 130
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High?
Medium
?
Low?
THANKS FOR YOUR TIME AND COOPERATION ???????????????????????????????? ????
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BIBLIOGRAPHY
Books: Kothari C.R. Research Methodology
Bajaj Capital publication
Web Site
www.nseindia.com www.Bajaj Capital mutualfund.com www.amfi.com www.mutualfundofinsa.com ?
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OF INDIA)
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doc_193153759.docx
In general usage, a financial plan is a series of steps or goals used by an individual or business, the progressive and cumulative attainment of which are designed to accomplish a financial goal or set of circumstances, e.g.
A PROJECT REPORT ON 3600 FINANCIAL PLANNING AND AWARENESS OF BAJAJ CAPITAL Ltd. IN LUCKNOW
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(LIFE INSURANCE)
Submitted in fulfillment of Summer Training Program for M.B.A. (Finance and Marketing) Session 2009-2011
Submitted to Mr. Vivek Singh (Branch Head)
Submitted By Swati Gupta
Mr. Dheerendra Kumar (Area Manager)
Central Institute of Management & Technology
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U.P. Technical University, Lucknow
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ACKNOWLEGDEMENT
I express my deepest sense of gratitude of Mr. for inspiring me to do this research project. During the whole research work he guided and provided me the valuable inputs, which helped me in the completion of the project. Despite his busy schedule he granted me a generous amount of his time with great interest. I owe my sincere regards and feel extremely grateful. A special thank to Sir who constantly monitored my work and preceded support and guidance the project I am thankful to all those respondents who spared their valuable time attending to my questions, which has contributed a great in the completion of the project.
SWATI GUPTA M.B.A. (F&M.) IIIrd Semester C.I.M.T. (U.P.T.U.) 2009-2011
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DECLARATION
I hereby declare that the following documented project report titled "360 degree financial planning and awareness of Bajaj Capital in Lucknow" is an authentic work done by me. The study was undertaken as a part of the course curriculum of M.B.A. Full time Programme Central Institute of Management & Technology U.P. Technical University, Lucknow. I here by declare that the study has not been submitted to any other institute/organization for the reference.
SWATI GUPTA M.B.A. IIIrd Semester 2009-2011
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PREFACE
Investment is the sacrifice of certain present value for the uncertain future reward. It entails arriving at numerous decisions such as type, mix, amount, timing, grade etc. of investment and disinvestments. Further, such decisions making has not only to be continuous but rational too. Broadly speaking, an investment decision is a trade off between risk and return. All investment choices are made at points of time in accordance with the personal investment ends and in contemplation of an uncertain future.
Since investments in securities are revocable, investment ends are transient and investment environment is fluid, the reliable bases for reasoned expectations become more and more vague as one conceives of the distant future.
Investors in securities will, therefore, from time to time, reappraise and reevaluate their various investment commitments in the light of new information, changed expectations and ends.
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CONTENTS
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
INTRODUCTION COMPANY PROFILE AIMS AND OBJECTIVE OBJECTIVE OF STUDY RESEARCH METHODOLOGY PROBLEM AND LIMITATION FINDING ANALYSIS AND INTERPETATION SWOT SUGGESTION/RECOMMENDATION CONCLUSION APPENDIX BIBLIOGRAPGHY
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COMPANY PROFILE
Bajaj Capital is one of India's leading Financial Services companies offering Free Advice on Investments, Insurance, Tax Saving, Retirement Planning, Financial Planning, Children's Future Planning and other services. We also have a wide range of products and services for Corporates, High Net worth Individuals, and NRIs? all under one roof.
At Bajaj Capital, we believe in dreaming big. Dreams inspire us to excel. They ignite hope and kindle in us the passion to stretch our limits. We also believe that nothing can or should stop us from realising our dreams? and financial constraints should be the last thing to stop anyone.
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Four decades of excellence For over four decades, we have been helping people realise their aspirations by helping them make their wealth grow, and plan their financial lives. Today, we are a one of the largest financial planning and investment advisory companies in India, with a strong presence all over the country. We take pride in serving our customers - both individual and institutional - and are known for our strong professionalism and work ethics. Wide range of services We offer a comprehensive range of services including financial planning and investment advice, and the entire gamut of financial instruments and investment products of almost all major companies, both public and private. In addition, we also provide investment assistance by helping you complete all the formalities, and help you keep regular track of your investments. These services and products are delivered through our network of 134 Bajaj Capital Investment Centres located all over the country.
We are also a SEBI-approved Category I Merchant Banker. We raise resources for over 1,000 top institutions and corporate houses every year, and
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offer specialised services to Non-Resident Indian (NRIs) and High Networth Clients.
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What you can expect from us
-based advice -based advice
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Milestones
The History of Bajaj Capital Bajaj Capital has contributed to the growth of the Indian Capital Market at every step. In 1965, we were the first to innovate the Companies Fixed Deposit. Today, we are playing an active role in the growth of the Indian Mutual Fund industry. We are also working closely with private insurance companies to deepen India's insurance market. Here is a brief gist of our journey throug the years.
1964 Bajaj Capital sets up its first Investment Centre™ in New Delhi to guide individual investors on where, when and how to invest.
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India's first Mutual Fund, Unit Trust of India (UTI) is incorporated in the same year. 1965 Bajaj Capital is incorporated as a Company. In the same year, the company introduces an innovative financial instrument - the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, then known as Associated Hotels of India Ltd.) becomes the first company to raise resources through Company Fixed Deposits. 1966 Bajaj Capital expands its product range to include all UTI schemes and Government saving schemes in addition to Company Fixed Deposits.
1969 Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & Wells India Ltd.; right from drafting the prospectus to marketing the issue. 1975 Bajaj Capital starts offering 'need-based' investment advice to investors, which would later be known as 'Financial Planning' in the investment world.
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1981 SAIL becomes the first government company to accept deposits, followed by IOC, BHEL, BPCL, HPCL and others; thus opening the floodgates for growth of retail investment market in India.
Bajaj Capital plays an active role in all the schemes as 'Principal Brokers'
1986 Public Sector Undertakings (PSUs) begin making public issues of bonds MTNL, NHPC, IRFC offer a series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.
1987 SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant role in fund mobilisation for all these players.
1991 SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top
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mobiliser
with
collections
of
over
US
$20
million.
1993 The first private sector Mutual Fund - Kothari Pioneer - is launched, followed by Birla and Alliance in the following years. Bajaj Capital plays an active role and is ranked among the top mobilisers for all these schemes.
1995 IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the co-manager in all these offerings and consistently ranks among the top five mobilisers on an all-India basis. 1997 Private sector players lead the revival of Mutual Funds in India through Openended Debt schemes. Bajaj Capital consolidates its position as India's largest retail distributor of Mutual Funds. 1999 Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (through associate firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves the milestone of becoming the top 'Pension
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Scheme' seller in India and launches marketing of GIC's Health Insurance schemes.
2000 Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Company offers all kinds of financial products, including the entire range of investment and insurance products through its Investment Centre. Bajaj Capital offers 'full-service merchant banking' including structuring, management and marketing of Capital issues. Bajaj Capital reinvents 'Financial Planning' in its international sense and upgrades its entire team of Investment Experts into Financial Planners.
2002 The company focuses on creating investor awareness for Financial Planning and need-based investing. To achieve this goal, the company introduced the International College of Financial Planning. The graduates of this institute become Certified Financial Planners (CFPs), a coveted professional qualification.
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2004 Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealth creation seminars are launched all over the country, making Bajaj Capital a household name. 2005 Bajaj Capital launches 360° Financial Planning, a software-based programme aimed at encouraging scientific and holistic investing. 2007 Bajaj Capital launches Stock Broking and Depository (Demat) Services. 2008 Bajaj Capital launches Just Trade, an online Platform for investing in Equities, Mutual Funds, IPO's
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MISSION, AIMS & OBJECTIVES
Bajaj Capital's Mission Statement The focus of our organisation is to be the most useful, reliable and efficient provider of Financial Services. It is our continuous endeavour to be a trustworthy advisor to our clients, helping them achieve their financial goals. Aims
exceed their expectations and build enduring relationships.
products, constant innovation in services and use of the latest technology. To always give honest and unbiased financial advice and earn our clients' everlasting trust.
Financial Planning and in turn help shape a financially strong society.
individual and permits their personal growth.
seamless organisation.
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Wide range of products and services 41 years experience as Investment Advisors and Financial Planners More than eight lakh satisfied clients all over India Countrywide network of 134 branches Over 12,000 NRI clients across the globe Personalised wealth management advice 24 x 7 online accessibility through www.bajajcapital.com Strong team of qualified and experienced professionals including CAs, MBAs, MBEs, CFPs, CSs, Insurance experts, Legal experts and others SEBI-Approved Category I Merchant Bankers Group Co BCIBL is an IRDA-licensed Direct Insurance Broker
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Who's at Bajaj Capital
Mr. Chairman
K.K.
Bajaj
A visionary par excellence, a pioneer and a leader, Mr K.K. Bajaj has been instrumental in shaping Bajaj Capital's emergence as one of India's largest Investment Advisory companies.
He is a highly respected figure in the field of institutional and personal finance and Company FDs. His emphasis on honesty, ethics and values are the guiding principles of the organisation.
Mr Bajaj is also a prolific writer and has written over 200 articles on diverse issues such as Personal Finance, Economic Affairs, and Health.
Mr.
Rajiv
Deep
Bajaj
Vice
Chairman
&
Managing
Director
A qualified Financial Planner, Mr Rajiv Deep Bajaj was the first to introduce the concept of Financial Planning in India. In fact, he is the Founding Chairman of the Association of Financial Planners (AFP). He is also amongst the first
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batch of 25 Certified Financial Planners (CFP tm) designation holders in India.
A Post-graduate in Management and holder of an International Certificate for Financial Advisors from the Chartered Insurance Institute, London, Mr Rajiv Deep Bajaj has played a pivotal role in expanding Bajaj Capital's reach across the country. He has recently pursued an Executive MBA in International Wealth Management under an exchange program between University of Geneva, Switzerland and Carnegie Mellon University, Pittsburgh, USA.
His youthful energy, dynamic leadership, vision and 16 years strategic management experience in Banking, Financial Advisory, Insurance Broking and Financial Planning have strengthened Bajaj Capital.
The Media and Industry honchos have regularly acclaimed Mr. Rajiv Deep Bajaj for his strengths as a powerful orator and writer. His views on various Investment Strategy and Financial Planning-related issues are regularly flashed in some of the leading media entities like The Economic Times, Business Today, Star TV, CNBC and Aaj Tak. His personal life goal is to spread 'Financial Education' amongst the Indian masses in order to increase their knowledge base and shift their perspective from 'Saving to Investing'.
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Mr.
Sanjiv
Bajaj
Joint
Managing
Director
Mr. Sanjiv Bajaj started his career in 1995 as managerial trainee, worked on various projects which included developments at alternate channel of distribution like Broker's associations...etc. From here, he moved on to Investment Advisory services, which included understanding the client's needs, and by using various tools of financial planning to offer them a solution to meet his requirements. Mr Sanjiv Bajaj is versatile personality with diverse areas of interest. He is a Post-graduate in Business Management with specialisation in Finance, and holds an International Certificate for Financial Advisors from the Chartered Insurance Institute, London. Thanks to him, Bajaj Capital is today the largest individual agent for LIC. Mr Sanjiv Bajaj has a keen interest in IT, and has played a major role in implementing the ERP software and Ecommerce activities in the company Mr. Anil Chopra
CEO & Director Mr. Anil Chopra is the Chief Executive Officer & Director of Bajaj Capital Limited, He joined the Company in 1984. Mr. Chopra has been instrumental in expanding the branch network of Bajaj Capital Ltd. all over India.
A Chartered Accountant and a Certified Financial Planner, Mr Chopra is
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credited with introducing international accounting and HR practices in the organisation. His most valuable contribution, however, has been in building up a financially literate society and making Bajaj Capital a strong retail brand. He is considered an authority, and is widely sought after by the media for quotes on key developments in the industry. The Significance of Our Logo
Our logo depicts Lord Ganesha who is the source of all our values and ethics in business.
carefully to our clients to understand their needs.
silently, without blowing our own trumpet.
avenues to provide the best investment opportunities for our clients.
to attain financial stability through wise investments.
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prosperity. We emulate His example and try our best to help our clients attain prosperity by proper financial planning.
symbolises wealth. According to Vedic lore, it is also the colour associated with Brihaspati, the guru and counsellor of the Gods. We offer our clients sage counsel to make their wealth grow. - symbolising power and incessant activity. It symbolises our aggressive quest for your well-being and happiness.
colour of satva guna, and implies our selfless commitment to your lifelong happiness.
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3600 FINANCIAL PLANNING AND AWARENESS OF BAJAJ CAPITAL
Experience the power of Bajaj Capital's 360 The only thing permanent in life is change. Times change. People change. So does life. You expect life to be much better tomorrow than it is today. Tomorrow, you hope to fulfil all your dreams and aspirations. But what happens if things take an untoward turn? Or, if there is an eventuality? Perhaps it's time for you to change the way you plan your investments...
Learn more about Bajaj Capital's 360º Financial Planning
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•Why do you need Bajaj Capital's 360° Financial Planning? •Who needs 360° Financial Planning? •What is 360° Financial Planning all about? •How will 360° Financial Planning help me? •How do I get my personalised 360° Financial Plan created?
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Don't just dream... Plan! Financial Planning is becoming increasingly popular in developed countries all over the world. Now, with a little help from Bajaj Capital, you too can give yourself the 360° Financial Planning edge! Get your Financial Plan prepared now Why do you need Bajaj Capital's 360° Financial Planning? You may have many dreams, needs and desires. For example, you could be dreaming of:
•Owning a new car Buying a dream house Providing your children with
the best education Planning a grand wedding for your children
•Having a great time after your retirement
But in today's world of skyrocketing costs and increasing inflation, how many of these dreams can you hope to turn into reality? By planning well, you can utilise your limited resources to the fullest.
360° Financial Planning helps you see the big picture and invest for specific long-term Who and needs short-term 360° goals Financial well in time.
Planning?
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Everyone does! Because everyone has a right to dream. And realising dreams is easier when you work to a plan that's:
•Reliable Realistic •Proven
Bajaj Capital's 360° Financial Planning Programme could make a difference to all those who wish to lead a worry-free, financially secure life. What is 360° Financial Planning all about?
360° Financial Planning is a unique software-based simulation that takes a holistic view of your life-long financial needs and charts a personalised investment strategy to help you meet them. Broadly, it involves:
•Identifying your current financial status Listing and prioritising your
goals Creating a sound investment plan to achieve them
•Monitoring the plan to facilitate swift corrective action, if needed
360° Financial Planning is based on the premise that every individual has certain basic financial needs that are expressed at various stages of life (getting married, buying assets like homes, vehicles, or providing for your children's education and wedding). With the help of 360°Financial Planning, you can
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prepare
yourself
well
in
time
for
all
these
goals.
How will 360° Financial Planning help me? Instead of investing in an ad-hoc manner, 360° Financial Planning helps you take a holistic, all-round view. Briefly, 360° Financial Planning comprises:
•InvestmentPlanning: To make your wealth grow •Cash Flow Planning: To provide for assets and meet the periodic cash
requirements
•TaxPlanning: To save on taxes and increase your income •InsurancePlanning: To protect yourself, your family and your assets •Children's Future Planning: To give your children a financially secure
future
•Retirement Planning: Because retirement is a time to relax, not to get
worried Top
How do I get my personalised 360° Financial Plan created? Here's how Financial Plans are prepared:
•The process begins with identifying your needs with the help of the Need
Analysis Form. Our Financial Planners then use the especially-created
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360° Financial Planning software to generate a personalised Snapshot. The Snapshot gives you a graphic account of all your financial requirements, at every stage of your future life. Based on the Snapshot, our experts work out an investment strategy.
•Once implemented, our experts keep regular track of your investments.
A Financial Planning session takes just 15 minutes
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Investment Planning
Everyone needs to save for a rainy day. Once you have saved enough to take care of emergencies, you should start thinking about investing and to make your money grow. We can help you plan your investments so that you can reap adequate benefits and achieve your financial goals. Bajaj Capital's Investment Planning Service includes:
Plans (SIP) Regular review of progress and Portfolio Rebalancing
Essentially, Investment Planning involves identifying your financial goals throughout your life, and prioritising them. Investment Planning is important because it helps you to derive the maximum benefit from your
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investments.
Your success as an investor depends upon your ability to choose the right investment options. This, in turn, depends on your requirements, needs and goals. For most investors, however, the three prime criteria of evaluating any investment option are liquidity, safety and return. Investment Planning also helps you to decide upon the right investment strategy. Besides your individual requirement, your investment strategy would also depend upon your age, personal circumstances and your risk appetite. These aspects are typically taken care of during investment planning. Investment Planning also helps you to strike a balance between risk and returns. By prudent planning, it is possible to arrive at an optimal mix of risk and returns, that suits your particular needs and requirements.
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What Is Cash Flow Planning? In simple terms, cash flow refers to the inflow and outflow of money. It is a record of your income and expenses. Though this sounds simple, very few people actually take the time out to find out what comes in and what goes out of their hands each month Cash flow planning refers to the process of identifying the major expenditures in future (both short-term and long-term) and making planned investments so that the required amount is accumulated within the required time frame. Cash flow planning is the first thing that should be done prior to starting an investment exercise, because only then will you be in a position to know how your finances look like, and what is it that you can invest without causing a strain on yourself. It will also enable you to understand if a particular investment matches with your flow requirement. So does it involve looking at future cash flows only? Not really. You should always do a cash flow for yourself as on date, and you will realize that you could have a potential savings amount within each month of your working life. This is the amount that you should look at saving for meeting your financial goals. The best way of doing this is to have a personal budget.
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Why is cash flow planning important? Cash flow plans are commonly used by business houses. Without a viable cash flow plan, a company could easily spend more than its revenue, putting it in peril. Unfortunately, most of us do not realise that a cash flow plan is as important for people like us as well. The principles that apply to corporate finance and to our personal lives are largely the same.
There has never been a bigger need than today for families and individuals to work out cash flow plans. Without proper cash flow planning one could easily get caught in the debt trap. Of course, it goes without saying that creating a plan is not enough. One also needs to implement the plan, besides bringing about a change in the spending habits. Cash flow plan brings you face-to-face with what you should ideally be saving, and investing in a systematic and regular manner, and what would it mean to you to withdraw from your portfolio after a couple of years. It brings down in numbers what your financial future has in store for you, and gives a crystal clear view (as much as is possible with inflation and the interest rate scenario).
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Tax Planning - Introduction Proper tax planning is a basic duty of every person which should be carried out religiously. Basically, there are three steps in tax planning exercise. These three steps in tax planning are: Calculate your taxable income under all heads ie, Income from Salary, House Property, Business & Profession, Capital Gains and Income from Other Sources. Calculate tax payable on gross taxable income for whole financial year (i.e.,From 1st April to 31st March) using a simple tax rate table, given on next page. After you have calculated the amount of your tax liability. You have two options to choose from: 1.
2.
Pay your tax (No tax planning required) Minimize your tax through prudent tax planning.
Most people rightly choose Option 'B'. Here you have to compare the advantages of several tax saving schemes and depending upon your age, social liabilities, tax slabs and personal preferences, decide upon a right mix of
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investments, which shall reduce your tax liability to zero or the minimum possible. Every citizen has a fundamental right to avail all the tax incentives provided by the Government. Therefore, through prudent tax planning not only income-tax liability is reduced but also a better future is ensured due to compulsory savings in highly safe Government schemes. We sincerely advise all our readers and clients to plan their investments in such a way, that the post-tax yield is the highest possible keeping in view the basic parameters of safety and liquidity
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The Need For Insurance Planning
"Insurance is not for the person who passes away, it for those who survive," goes a popular saying that explains the importance of Insurance Planning. It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his family's quality of life does not undergo any drastic change in case of an unfortunate eventuality.
It is extremely important that every person, especially the breadwinner, covers the risks to his life, so that his family's quality of life does not undergo any drastic change in case of an unfortunate eventuality.
Insurance Planning is concerned with ensuring adequate coverage against insurable risks. Calculating the right level of risk cover is a specialised activity, requiring considerable expertise. Proper Insurance Planning can help you look at the possibility of getting a wider coverage for the same amount of premium
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or the same level of coverage for the same amount amount of premium or the same level of coverage for a reduced premium. Hence, the need for proper insurance planning.
Insurance, simply put, is the cover for the risks that we run during our lives. Insurance enables us to live our lives to the fullest, without worrying about the financial impact of events that could hamper it. In other words, insurance protects us from the contingencies that could affect us. So what are the risks that we run? To name a few - the risk on our lives that is, the worries of replacement of the incomes that we contribute to the running of the household), the risks of medical contingencies (since they have the capability of depleting our wealth considerably) and risks to assets (since the replacement of these can have tremendous financial implications). If we can imagine a situation where our goals are disturbed by acts beyond our control, we can realise the relevance of insurance in our lives. Insurance Planning takes into account the risks that surround you and then provides an adequate coverage against those risks. There is no risk not worth insuring yourself against, and insurance should first and foremost be looked as a measure to guard against risks - the risk of your dreams going awry due to events beyond your control
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Children's Future Planning
Like every parent, you too must be overjoyed to watch your child grow. All parents want to give the best possible upbringing to their children. This includes good education and security, in case of any eventuality. Soon, your little bundle of joy will grow up, and it will be time to provide for his or her higher education and wedding. The purpose of Children's Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years. Children's Future Planning acquires added importance because children's education and wedding are high priority life goals, which can neither be postponed nor can there be a compromise on the amount. Good education has always been the passport to a secure future. Today, career opportunities have grown manifold, and there are many professional course that your
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child can aspire for. However, costs of higher education have also increased exponentially. Like most parents, you might be saving regularly to ensure a safe tomorrow for your child. However, savings alone is no longer enough. For ensuring adequate funding of your child's education, you as a parent, need to do two things:
It is never too early to start saving and investing for your child's future. Especially in today's context. For example, the cost of a professional degree today is approximately Rs 2.5 lakhs. If your child is one-year-old today, after 17 years when he/she goes to college, you may require a sum of Rs 6.3 lakhs, assuming an annual rate of inflation of 6%. There are many products which your Financial Planner can use to achieve the above objectives. For example, he could suggest a Children's Future Plan offered by any good insurance company, to build a corpus for your child's higher education, and provide for a security cover in the event of the parent's unfortunate demise. Children's plans are also available under unit-linked option. Being unit-linked, they offer access to investments in all kinds of asset classes - equity, debt and cash.
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Retirement Planning
Some like it. Some don't. But retirement is a reality for every working person. Most young people today think of retirement as a distant reality.
However, it is important to plan for your post-retirement life if you wish to retain your financial independence and maintain a comfortable standard of living even when you are no longer earning. This is extremely important, because, unlike developed nations, India does not have a social security net. Retirement Planning acquires added importance because of the fact that though longevity has increased, the number of working years haven't.
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Our Retirement Planning Service involves: -retirement. This is done after taking inflation and time value of money into account.
(SIPs) and other long-term growth orient products -retirement income through safe investments. The asset allocation and selection of investment vehicles keep changing as your risk-bearing capacity diminishes.
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Plan for A Worry Free Retirement In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
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Why is it important? India, unlike other countries, does not have state-sponsored social security for the retired people. And after several decades when pensions provided many people with a large chunk of money they needed to live comfortably after they retired, things are changing. While you may be entitled to a pension, or income during retirement, in the new economic era, you are increasingly likely to be responsible for providing for your own needs. Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extreme ly important for every one. There are many reasons for the working individuals to secure their future emergence of nuclear families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates and the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life. Planning for retirement is as important as planning your career and marriage. Life takes its own course and from the poorest to the wealthiest, no one gets
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spared. "Everyone grows older". We get older every day, without realising. However, we assume that old age is never going to touch us. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
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PLAN FOR A WORRY FREE RETIREMENT In simple words, retirement planning means making sure you will have enough money to live on after retiring from work. Retirement should be the best period of your life, when you can literally sit back and relax or enjoy your life by reaping benefits of what you earn in so many years of hard work. But it is easier said than done. To achieve a hassle-free retired life, you need to make prudent investment decisions during your working life, thus putting your hard-earned money to work for you in future.
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Why is it important? India, unlike other countries, does not have state-sponsored social security for the retired people. And after several decades when pensions provided many people with a large chunk of money they needed to live comfortably after they retired, things are changing. While you may be entitled to a pension, or income during retirement, in the new economic era, you are increasingly likely to be responsible for providing for your own needs. Although the compulsory savings in provident fund through both employee and employer contributions should offer some cushion, it may not be enough to support you throughout your retirement. That is why retirement planning is extreme ly important for every one.
There are many reasons for the working individuals to secure their future emergence of nuclear families and its attendant insecurity, increasing uncertainties in personal and professional life, the growing trends of seeking early retirement and rising health risks are among few important risks. Besides falling interest rates and the sustained increase in the cost of living make it a compelling case for individuals to plan their finances to fund their retired life. Planning for retirement is as important as planning your career and marriage. Life takes its own course and from the poorest to the wealthiest, no one gets
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spared. "Everyone grows older". We get older every day, without realising. However, we assume that old age is never going to touch us. The future depends to a great extent on the choices you make today. Right decisions with the help of proper planning, taken at the right time will assure smile and success at the time of retirement.
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INVESTMENTS
Mutual Funds are among the hottest favourites with all types of investors. Investing in mutual funds ranks among one of the preferred ways of creating wealth over the long term. In fact, mutual funds represent the hands-off approach to entering the equity market. There are a wide variety of mutual funds that are viable investment avenues to meet a wide variety of financial goals. This section explains the various aspects of Mutual Funds.
• What are Mutual Funds? • Why choose Mutual Funds? • Types of Mutual Funds • Snapshot of Mutual Fund Schemes • Choosing the Right Mutual Fund Scheme • How to calculate the growth of your Mutual Funds
Investments?
• Points to Remember • Glossary
What are Mutual Funds ?
A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities -- ranging from shares and debentures to money market instruments or in a mixture of equity and debt, depending upon the objectives of the scheme.
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Why choose Mutual Funds ?
Investing in Mutual Funds offers several benefits:
•Professional expertise: Fund managers are professionals who track the market on
an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
•Diversification: Since a Mutual Fund scheme invests in number of stocks and/or
debentures, the associated risks are greatly reduced.
•Relatively less expensive: When compared to direct investments in the capital
market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
•Liquidity: Investments in Mutual Funds are completely liquid and can be
redeemed at their Net Assets Value-related price on any working day.
•Transparency: You will always have access to up-to-date information on the
value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager's investment strategy.
•Flexibility: Through features such as Systematic Investment Plans, Systematic
Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
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•SEBI regulated market: All Mutual Funds are registered with SEBI and function
within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.
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Types of Funds
There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice. Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be
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availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory. Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically according to Gilt a predetermined These formula, funds invest usually exclusively linked in to an index. securities.
Funds
government
Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments. Fund of Funds
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A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.
Mutual Investment Fund Type Those Treasury Bills, Liquidity Moderate Money Income Market Reservation Capital Money bank deposits Shortterm Funds Liquidity + Little Interest Treasury Bills, surplus (Floating - Moderate shortterm) Rate Income term Government securities. Regular Income Credit Risk & Predominantly Salaried Interest Rate Debentures, funds CDs, Short- short-term 3 months 3 weeks Call Money, of Papers, Call short-term + Negligible Commercial accounts or Deposits, current 2 days - 3 weeks + Certificate of funds in park their who Objective Risk Portfolio invest horizon Who should Investment
Commercial Papers, Those with
Bond Funds
& More than 9 - 12
conservative months
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Government (Floating Longterm) Security Gilt Funds Income Risk securities investors Aggressive Long-term Equity Capital term out Appreciation look. To generate Portfolio NAV Index Funds commensurate with with returns of performance respective indices Balanced Capital Balanced Growth Funds & Market ratio etc index BSE, NIFTY investors. varies indices like Aggressive 3 years plus High Risk Stocks investors with 3 years plus Funds long Risk Corporate Bonds Salaried & Interest Rate Government conservative 12 months & more & securities, investors
returns that are
of equity and Risk debt funds to Moderate Interest ensure igher Aggressive & 2 years plus
Regular Income and
Rate Risk
returns at lower risk
How to choose the right Mutual Fund scheme
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Once you are comfortable with the basics, the next step is to understand your investment choices, and draw up your investment plan relevant to your requirements. Choosing your investment mix depends on factors such as your risk appetite, time horizon of your investment, your investment objectives, age, etc.
What should be kept in mind before investing in Mutual Funds ?
Mutual Fund investment decisions require consistent effort on the part of the investor. Before investing in Mutual Funds, the following steps must be given due weightage to decide on the right type of scheme:
1. Identifying the Investment Objective
2. Selecting the right Scheme Category
3. Selecting the right Mutual Fund
4. Evaluating the Portfolio
A) Identifying the Investment Objective
Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, level of income and expenses, among many other factors. Therefore, the first step is to assess you needs. Begin by asking yourself these simple
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questions:
Why do I want to invest?
The probable answers could be:
•"I need a regular income" •"I need to buy a house/finance a wedding" •"I need to educate my children," or •Acombination of all the above
How much risk am I willing to take?
The risk-taking capacity of individuals vary depending on various factors. Based on their risk bearing capacity, investors can be classified as:
•Very conservative •Conservative •Moderate •Aggressive •Very Aggressive
To ascertain your risk appetite, try out our Risk Thermometer.
What are my cash flow requirements?
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For example, you may require:
•Aregular Cash Flow •Alumpsum after a fixed period of time for some specific need in the future •Or, you may have no need for cash, but you may want to create fixed assets for
the future
B) Selecting the scheme category
The next step is to select a scheme category that matches your investment objectives:
•For Capital Appreciation go for equity sectoral funds, equity diversified funds or
balanced funds.
•For Regular Income and Stability you should opt for income funds/MIPs •For Short-Term Parking of Funds go for liquid funds, floating rate funds, shortterm funds.
•For Growth and Tax Savings go for Equity-Linked Savings Schemes.
Investment Objective Short-term 1- 6 months Investment Capital Over 3 years Appreciation Funds Diversified Equity/ Balanced Liquid/Short-term plans Investment Ideal Instruments horizon
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Monthly Regular Income Flexible
Income
Plans
/
Income Funds Equity-Linked Tax Saving 3 yrs lock-in Schemes (ELSS) Saving
C) Selecting the right Mutual fund
Once you have a clear strategy in mind, you now have to choose which Mutual fund and scheme you want to invest in. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some important factors to evaluate before choosing a particular Mutual Fund are:
The track record of performance over that last few years in relation to the appropriate yardstick and similar funds in the same category.
How well the Mutual Fund is organized to provide efficient, prompt and personalized service.
The degree of transparency as reflected in frequency and quality of their communications. D) Evaluation of portfolio
Evaluation of equity fund involve analysis of risk and return, volatility, expense ratio, fund manager's style of investment, portfolio diversification, fund manager's experience.
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Good equity fund should provide consistent returns over a period of time. Also expense ratio should be within the prescribed limits. These days fund house charge around 2.50% as management fees.
Evaluation of bond funds involve it's assets allocation analysis, return's consistency, it's rating profile, maturity profile, and it's performance over a period of time. The bond fund with ideal mix of corporate debt and gilt fund should be selected.
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How to calculate the growth of your Mutual Fund investments ?
Let's assume that Mr. Gupta has purchased Mutual Fund units worth Rs. 10,000 at an NAV of Rs. 10 per unit on February 1. The Entry Load on the Mutual Fund was 2%. On September 15, he sold all the units at an NAV of Rs 20. The exit load was 0.5%.
His growth/ returns is calculated as under:
1. (a) (b) (c) (d)
Calculation Amount
of
Applicable of
NAV
and
No. = =
of
units Rs. Rs.
purchased: 10,000 10 0.20 Rs. 10.20
Investment NAV
Market Entry Applicable NAV Load
= Price)
2% = (b)
= + (c)
Rs. =
(Purchase
(e) Actual Units Purchased = (a) / (d) = 980.392 units
2. Calculation of NAV at the time of Sale
(a) (b) (c)
NAV Exit Applicable
at
the Load NAV =
time = (a)
of 0.5% -
Sale
= or
Rs
20 Rs.0.10
(b)
=
Rs.
19.90
3. Returns/Growth on Mutual Funds
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(a) (b)
Applicable Applicable
NAV NAV
at at
the the
time time
of of
Redemption Purchase
= =
Rs. Rs.
19.90 10.20
(c) Growth/ Returns on Investment = {(a) - (b)/(b) * 100} = 95.30%
Points to Remember
•Do not speculate: Always evaluate risk-taking capacity. •Do not chase returns: Because what goes up must come down. •Do not put all eggs in one basket: Diversification reduces the risk. •Do not stop working on Mutual Funds: Continuous evaluation of funds is a
must.
•Do not time the market: Every time is good for investments. •Mutual Funds are subject to market risks and there is no assurance that the fund
objective will be achieved.
•NAVs fluctuate depending on forces affecting the Capital market. •Past performance may or may not be sustained in the future.
Assets Management Company: A highly regulated organization that pools money from many people into portfolio structured to achieve certain objectives. Typically an AMC manages several funds -open ended/ close ended across several categories- growth, income, Balanced Fund: A hybrid portfolio of stocks and bonds. balanced.
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Close Ended Fund: They neither issue nor redeem fresh units to investors. Some closed ended funds can be bought or sold over the stock exchange if the fund is listed. Else, investor have to wait till redemption date to exit. Most listed close ended funds trade at discount to the NAV.
Open Ended Fund: A diversified and professionally managed scheme, it issues fresh units to incoming investors at NAV plus any applicable sales charge, and it redeems shares at NAV from sellers, less any redemption fees.
Entry/ Exit Load: A charge paid when an investor buys/sells a fund. There could be a load at the time of entry or exit, but rarely at both times.
Expense Ratio : The annual expenses of the funds, including the management fee, administrative cost, divided by the fund under management.
Growth/Equity Fund: A fund holding stocks with good or improving profit prospects. The primary emphasis is on appreciation.
Liquidity: The ease with which an investment can be bought or sold. A person should be able to buy or sell a liquid asset quickly with virtually no adverse price impact.
Net Assets Value : A price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding the cash and any accrued
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income, then subtracting liabilities and dividing the result by the number of units outstanding.
Interest Rate Risk: The risk borne by fixed-interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed-interest securities declines and vice versa.
Credit Risk: Credit risk involves the loss arising due to a customer's or counterparty's inability or unwillingness to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.
Capital Market Risk : Capital Market Risk is the risk arising due to changes in the Stock Market conditions.
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INTRODUCTION
Investment options 1. Insurance 2. PPF- Public provident fund 3. NSC- National Saving Certificate 4. Post Office Saving schemes 5. Mutual fund 6. Bank Saving Schemes 7. Securities 8. Real Estate
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RESEARCH OBJECTIVE This research was undertaken with the following scope of work:
• To know the current strategy of investment. • To know why salaried employees do investment {need of investment}. • To know when they invest. • To know where they prefer to invest. • To identify the whether they are aware about the Tax structure. • To give suggestion related to their investment strategy.
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DEFINITIONS OF INVESTMENT
• Investing: the act of investing; laying out money or capital in an
enterprise with the expectation of profit
• Money that is invested with an expectation of profit
• The use of money for the purpose of making more money, to gain income
or increase capital, or both.
• The use of money through various vehicles, or an individual's time and
effort, to make more income or increase capital, or both. The term "investment" infers that the safety of principal is important. On the other hand, speculation connotes that risking principal is acceptable
• Anything of value purchased to provide capital appreciation and/or
income. Examples include stocks, bonds, mutual funds, unit investment trusts, certificates of deposit, money market funds and collectibles. Investments may also include artwork, antiques and real estate. But why do we save and then invest our savings somewhere? The answer seems to be too simple. We save to earn more money. We always invest for a specific purpose. For instance, we invest in life insurance to save on taxes. We put money into recurring deposits to, say, partfinance the down payment for a house. We invest for our children's education,
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for their imminent weddings. We also invest to take care of our own needs after retirement.
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Motives for investment may vary, but there are some common desires. people want investments to give some return.
• Safety • Liquidity • Returns
We have to use these criteria to assess our investment needs. For instance, if people want to put away money for retirement, safety will be the most important criterion. A safe investment avenue that gives people a decent annual return will be good enough for people. What about the money their father sent people for the down payment on their car? People haven't even decided on the model! People'll probably keep the money in their savings bank account so that people can withdraw it quickly. At different stages of life their needs for financial security and plans for the future are likely to change. Here is a simple introduction to common financial needs as they relate to different lifestyles and life stages. Protection
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Families with peopling, dependent children need adequate protection against losing their primary wage earner's income if and when premature and unexpected death occurs.
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1. Emergency Fund
Life insurance provides an additional consideration by providing an emergency fund to provide money for survivors. It buys the time so essential and necessary that is needed to adjust to the death of a parent or spouse.
1. Education
Yet another priority need for peopling families is building adequate funds for higher education costs. The need for highly specialized education is greater than ever before. Every year, the cost of education rises beyond estimated limits.
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2. Retirement
Peopling families should also plan for retirement in the long run. Investment and pension plans are not adequate to fund the retirement needs at times. Once a family attains a specific standard of living, it is very hard to adjust to a reduced standard during the retirement years. Systematic savings over a working lifetime is the key towards supplementing other retirement programmes. The old rule of saving 10 percent of the annual income still holds true for single income peopling families. Peopling families with modest incomes must commence with at least a 10 percent guideline if they cannot make a total commitment immediately. 3. Disability A single income peopling family would be in an extremely perilous situation if there would be a loss of income owing to a disability. In case an income provider is unable to work, the economic consequences could be severe for the family. Not only does the family have to maintain the established standard of living, it also has to shoulder the additional burden of a disabled member within itself. Disability is the major need that is to be addressed and protection against this loss is a priority.
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Tax Planning Generally speaking, after a decade of their marriage their family would be complete. People should look at tax planning in a more serious manner. It is time to plan for some investments and funds in the names of minor children and to take some insurance policy in the name of minor children for their education and marriage purposes. This should be a long-term policy with a small amount of premium payment year after year The needs of mature adults tend to emphasis on their successors as well as their elders. These generally include:
• Providing funds for higher specialized studies for their children. • Assisting their children with payments on their new homes. • Loaning or granting money by way of gifts to other needy family
members or relatives.
• Ensuring health care and attention for their aged and dependent parents. • Planning for a dependent who might have specific needs. • Guaranteeing loans and financial obligations for their children.
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• Building a savings fund to provide additional income during retirement.
Marriage and Education Costs The cost of marriage and higher education for children forms a major expense during the mature adult's life cycle. The costs of living increase year after year. And to meet these rising costs requires sacrifice and considerable effort on the part of most families. The cost of higher education is also rising. More and more students are opting to go abroad to seek specialization in their chosen vocation. Foreign universities are also offering a wide range of specialized courses on Indian This makes a college education highly desirable. Yet, as the costs go on mounting, it makes planning all the more essential to make the education a reality.
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Children's First Home Since costs of housing have to be met with a large percentage from our incomes, newly married couples are finding it harder than ever before to pay the minimum down payment or even acquire the necessary resources to qualify for housing finance. Needless to say, these peopling couples need their parents' help for providing the necessary funds. When a peopling couple applies for a loan, they should purchase dual-life insurance policies, naming their parents as beneficiaries. If by chance, the couple expires before the housing loan is paid off, the proceeds of the policy can easily suffice in meeting the repayment installments.
In case the couple lives happily ever after, the cash value in the policies can be used to pay off the remainders of the loan after a while. The tax advantages offered are extremely advantageous for the peopling couple and their parents. Many other financial options are available, but the flexibility offered by life insurance policies is unmatched by any of them. Gifts and Loans Adults in their mature years are usually confronted with financial demands from generations proceeding as well as succeeding them.
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Providing funds for children, elderly parents, or relatives, either as a loan or an outright gift, may create a change in the financial planning considerations.
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Caring for Dependent Parents Not many people anticipate that as their children mature and gain independence, they might be confronted by new dependents - their own parents. Since these people are responsible for their children as well as their elderly parents, they subsequently get 'sandwiched' between the expenses of both the generations'. .A family 'sandwiched' between the pressures of two generations is subjected to a lot of emotional and financial strain. Difficulties arise from balancing the needs of parents and shouldering their children's responsibility besides concentrating on personal financial goals. The only solution lies in planning in advance for the risks covered. People who anticipate and prepare for the worst can afford to make choices later on in life. Long Term Care Long term care insurance is yet another major planning consideration. Medical assurance policies are not always adequate. They can never meet the catastrophic costs of a major illness or a chronic disability. Not many people can afford the large expenses of nursing homes with their current income.
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If matured adult parents are unable to afford this coverage, it makes sense for their children to share the premium expenditure. This is a sensible precaution to be exercised against any potentially high costs that might occur later. When the time period for future health planning is over, the options available for the elderly are fewer and extremely unattractive.
If a parent's health goes from bad to worse and they become completely dependent on external help, the medical costs may be higher than the income level of the family, regardless of how willing they might be. Dependents with Special Needs Just like elderly parents, children who are physically or mentally handicapped require special consideration and are a source of major and expensive concern. A provision for their needs must be considered and plans made as early as possible. Needless to say, the dependency period never ends with these dependents. Providing necessary care for dependents having special needs can be extremely strenuous, both emotionally and financially. At times, people who are caring for the disabled sacrifice their own health and financial security at the expense of the other members of the family. The emotional pull generated can create a terse atmosphere within the household.
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Parents of a dependent with special needs wish to see that these expenses are taken care of on a long-term and guaranteed basis. With timely and proper planning, such expenses can be met easily regardless of what happens to the provider of support.
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Tax Planning Once their children are grown up and settled in life, most of their responsibility towards them is over. It is now time to relax. Now people should plan their investment strategies in such a manner that the income in their family group is distributed from the point of view of tax planning, not merely in their name and that of their spouse but in the names of their son, their daughter-in-law and their grand children. People should also now start focusing on the investment decisions which will have a long-term repercussion relating to their succession. Thus, it is recommended to people that they should prepare their Will and adopt tax planning relating to the wills and achieve ultimate tax saving for family members who are going to be a part of their succession plan. Adulthood -The Middle Years 51 - 55 Middle years are the stage in the life cycle identified and characterized as a period of acquisition and establishment. People at this phase of life, assume more responsibility and often take on new career opportunities.
Middle-aged people are constantly making commitments, acquiring assets and incurring additional debts as well. This phase in the human life cycle
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develops the individual's long-term and ongoing relationships more than the others.
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Challenging Concerns People, in their middle years are assuming greater responsibilities as well as acquiring newer assets and possessions. Growth means change wrought together with new challenges and added concerns.
People have to consequently face a lot of problems and considerations during this stage of their life cycle. They may be trying to achieve their aims in life, their aspirations and dreams ranging from a proper balance between their careers and family life to a continual movement up the career ladder. They will also seek proper protection of their income levels in event of a disability, or a loss of job or a career change and even premature unexpected death. They may also be considering investing in better residential facilities with realistic provisions made for their retirement needs and financial security. Budgetary changes may also be implemented along with long-term savings and investment plans. They might also be updating their wills and bequests. Since different people use different approaches in meeting their mid-life crises and challenges, they are highly prone to make financial mistakes and errors of judgment. A miscalculation at this stage can affect an individual's financial standing for the rest of his life.
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The most common mistake made by individuals during their middle age periods is probably procrastination or delay in the commencement of programs for future needs. The benefits of compounded interest are lost forever owing to this single greatest failure. Another mistake people tend to commit is making inadequate estimates or judgments regarding the amount of protection needed for their future.
The other common errors on people's part are concurrent to the fact that people tend to overuse and at times, even abuse their credit limits. They blindly accept investment strategies or plans newly introduced in the market. Also they fail to provide for pending major purchases or replacement of large-sized utilitarian items.
They also tend to neglect in protecting or covering their property assets while continue to rely on their employment-sponsored benefits. At times, people forget that inflation will catch up with them and make inadequate provisions for their retirement.
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Hopes and Dreams An individual seeking to fulfill their aspirations should base his game plan with specific objectives estimated on his resources and working capacity. As long as the individual maintains the following perspectives in mind, his chances of success are assured:
• Clearly defined goals and objectives. • Controlled spending with the budget. • Planned savings and investment program. • Adequate funds for children's higher education. • Protection against property losses. • Sufficient income against disability. • Emergency fund. • Financial independence and a comfortably secure retirement. • General well being and peace of mind.
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Tax Planning Their tax planning should now be such that people have no hassles and tensions in these golden years. Their aim should be to have an easy flow of money from their investments. The thrust should be on safety of their capital as against higher returns. Their focus should be only on 100% safe and secured investments. Try to have a joint bank account and joint investments which will help smooth succession in the years to follow. Their tax planning should now be in such a manner that people are required to spend less time managing their affairs and have more time available for their personal pursuits. INTRODUCTION TO INSURANCE The word insurance is an under writing by a company, society or the state to provide or safeguard against loss provision, against sickness, death etc in return for regular payment i.e. premium. In other words insurance is such a method, which provides security and fearlessness to the human being. It is a mean for shifting the risks to insurer in consideration of a nominal cost which is called as premium. Insurance is a cooperative device to spread the loss cause by a particular risk over a member of persons who are exposed to it and who agree to insure themselves against the risks. There are risk of outbreak, fire, cyclone,
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earthquake, floods, accidents and deaths etc. According to A.H. WHILET; risk is an objectified uncertainty regarding the occurrence of an undesirable event. Insurance is a cooperative method for spreading over the loss suffered by one or more, caused by a particular risk, over a no. of persons who agree to share the loss. By insurance a person can protect himself and his dependents from loss arising from future uncertain events like fir, accidents, early death and so on.
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DEFINITION OF INSURANCE "Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it." (GHOSH AND AGARWAL) "Insurance is a contract in which a sum of money is paid to the assured in consideration of insurer's incurring the risk of paying to a large sum upon a given contingency" (JUSTICE TINDALL) "Insurance is a contract by which one party for a compensation called in the premium assumes particular risk of the other party and promises to pay to him or his nominee a certain or a certain able sum of money on a specified contingency." (E.W. FITTERSON)
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CLASSIFICATION OF INSURANCE
Insurance business can be divided into two broad categories - Life insurance & general insurance
Types of Insurance
Life Insurance
General Insurance
Marine
Fire
Miscellaneo us
1) GENERAL INSURANCE The general insurance includes property insurance, liability insurance & other forms of insurance. Fire and marine insurance are strictly called property insurance. Motor, fidelity and machine insurance include the extent of liability insurance to a certain extent.
• Property insurance- Under the property insurance, property of
the person is insured against a specified risk.
• Fire insurance- Hence the policy holder is assured of any loss
to the property by fire.
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• Liability insurance- In this insured is liable to pay the
damages of property or to compensate the loss of personal injury or death.
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2) LIFE INSURANCE It is different from other forms of insurance in the sense that the subject matter of insurance is life of human being. Insurance on one's life is taken and assured sum is payable on maturity or the assured or his nominee on maturity or death in consideration of premium paid by the assured. At present, life insurance enjoys maximum scope because the life is the most important property of the society or an individual. Life insurance provides protection to the family at the premature death or gives adequate amount to the old age when earning capacities are reduced. Under personal insurance a payment is made at the accident. The insurance is not only a protection but is a sort of investment. Personal Insurance includes Life Accident, Health and Sickness Insurances.
•
Accident Insurance- Personal Accident Policy provides for
specific benefit to the assured, suffering injury in any accident resulting ion death or disablement. The compensation payable but the insurer is dependent upon the extent of physical loss or injury.
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INTRODUCTION TO LIFE INSURANCE
Life Insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period.
Insurance has described as an institution, which eliminates risk and substitute certainty for uncertainty. It is the certainty of death inherent in the life which gives rise to the necessity for some form of protection against the loss arising from death. The breadwinner of the family more often than not depens a family for its food, clothing and shelter on the income benefit in at regular intervals. So long as he lives and the income is received steadily that family is secured but should death suddenly intervene the family may be left in very straitened circumstances and some time in stark poverty.
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HISTORY OF LIFE INSURANCE
Over 5000 year ago in china insurance was seen as a preventative measure against piracy on the sea. Piracy in fact so prevalent that as a way of spreading the risk a number of ship would carry a portion of another ship's cargo so that if one was captured the entire shipment would not be lost. In another part of the world nearly 4,500 year ago in the ancient land of Babylonia trader use to bear risk of the caravans trade by giving loan that have to be later repaid with interest when the good arrive safely. In 2100BC the code of Hammurabi granted legal status to the practice .it formulized concept of "bottormy" referring to vessel bottom and "recondition" referring to cargo. These provide the underpinning for marine insurance contracts. Such contracts contain three elements. A loan on the vessel, cargo, or freight, an interest rate and a surcharge to cover the possibility of loss. In effect ship owners were insured and lenders were the underwriters. Life insurance come out a little later in ancient Rome were burial clubs were form to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's formed around 450 A.D, most of the concept of insurance were abandoned, but aspect of it did continue through the middle age, particularly the merchant artisan guilds. This provide forms of member
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insurance covering risk like fire , flood , disability , death theft and even imprisonment. During the feudal period early forms of insurance ebbed with the decline of travel and long distance trade. But during the 14 th and 16th centuries, transportation, commerce and insurance would again reemerge. Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of life insurance Corporation of India's corporate headquarters, is derived from a Rig Veda. The term suggests the form of "community insurance" was prevalent in 1000BC and practice by the Aryans.
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IMPORTANCE OF LIFE INSURANCE The purpose of life insurance is to safe guard the interest of people from uncertainly by providing certainty of payment at a given contingency. the insurance principle has become all the more useful in modern affairs. The rule and importance of insurance discussed as below:
•
LIFE INSURANCE ENCOURAGE SAVINGS are required to
Systematic savings is possible because regular premium
be compulsorily paid. Unlike bank deposits the deposited the insurance premium can not be withdrawn. Life insurance is the best media of saving.
•
LIFE INSURANCE PROFITABLE INVESTMENT
The elements of investment i.e. regular savings capital formation and return of the capital are observed in the life insurance, In India the insurance policies; carry a special exemption from income tax and estate duty.
•
PERSON
LIFE INSURANCE FULFIL THE NEED OF A
The need of a person may be divided into: i) Old age needs; ii) Re -adjustment needs, and iii) Family needs. iv) Special needs including needs for education,
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marriage settlement of children, etc.
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ADVANTAGES OF LIFE INSURANCE
The following are the advantages of life insurance:-
•
SUPERIOR SAVING PLANS
Life insurance is superior to other forms of saving because, unlike other savings plans, it affords full protection against risk of death. In case of death, the full sum assured is made available under a life assurance policy, whereas under other savings schemes the total accumulated saving alone will be available.
•
TAX BENEFIT
The Indian income Tax Act allows deduction of certain portion of taxable income of individual or Hindu Undivided Families for computing Income Tax which is diverted to payment of life insurance premiums. Taking this tax benefits into account the assured is in effect paying lower premiums for his insurance.
•
INVESTMENT ELEMENT
In life insurance, the insured is required to pay the premiums the premiums is a kind of investment. This premium is returned to the insured along with additional bonus amount after the expiry of the period of contract.
•
REDUCES FINANCIAL BURDEN
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Life insurance reduces financial burden by providing money for children, marriage of daughter, build a house or starting business after retirement, etc.
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THE ACT OF INSURANCE
There are three acts of insurance :
• • •
Insurance act. LIC Act. IRDA Act.
INSURANCE ACT, 1938 Insurance act 1938 was the first comprehensive legislation in India to regulate the business of insurance when it was found that the earlier Indian company act failed to meet the purpose. It was way back in 1912,when the Indian life insurance companies act and provident fund insurance societies act 1912 was passed , which was further modified and a new legislation was passed in 1928. in 1938 the insurance act was passed, which aimed to consolidate and amend the law relating to the business of insurance. The act came into force with effect from july, 1939. in 1950, certain changes were effected in order to limit the expenses and control the investments. The nationalization of the insurance business, the insurance act was through the IRDA Act 1999.
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LIC ACT, 1956 The Life Insurance Corporation Act, 1912 was the first legislation for regulating insurance business in India. However the Insurance Act, 1912 was replaced by comprehensive Insurance Act of 1938. This Act was again amended in 1950. Finally the Government of India nationalized the entire life insurance business in the year 1956 by passing Life Insurance Corporation Act, 1956 and as such LIC was setup on 1st September, 1956. The LIC took over the assets and liabilities of 245 insurers which were operating at the time to nationalization. IRDA ACT, 1999 After the economic crisis of 1991, the Narsimha Rao led Government adopted the policy of deregulating all the sectors including the insurance sector from the clutches of the Government and thereby promote the private players to prove their worth. In this sequence in April, 1993 the Government of India appointed the Malhotra Committee, to recommend on the reforms on insurance sector, under the chairmanship of Sri. R.N.Malhotra, former Governor of RBI. The Committee submitted its report on 7th January, 1994 and made recommendations for the establishment of on effective Insurance Regulatory Authority (IRA) in the form of a statutory autonomous board, and also recommended for the entry of private sector in insurance business.
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In December 1996, Government tabled the IRA Bill in the parliament but due to strong opposition form left parties the Government was forced to withdraw IRA Bill in parliament.
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IRDA
Under the provision of the insurance Act, 1938 an institution of the controller of the insurance was set up to act as a strong and powerful supervisory and regulatory Authority. After the nationalization of the life insurance industry in 1956 and general insurance industry in 1972, the role of controller of insurance had diminished in significance. The government of India in April 1993 set up a high power committee to examine the structure of the insurance industry and recommended changes to make it more efficient and competitive. The committee submitted its report on 7th January, 1994 and expressed the view that the insurance regulatory apparatus should be activated even in the existing set up of nationalized insurance sector. It recommended for the establishment of a strong and effective Insurance Regulatory Authority in the form of statutory autonomous board. The recommendations of the committee were discussed at different forums. It was widely supported that an autonomous Insurance Regulatory Authority be set up. In view of this the government decided to bring in legislation to establish an independent regulatory authority for insurance industry.
In order to provide better insurance coverage to the citizens and also to augment the flow of long term resources for financing infrastructure , in the budget
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speech 1998 the policy of the government was announced to open up the insurance sector and also to establish a statutory Regulatory Authority . According the insurance Regulatory Authority Bill 1998 was introduced in the Lok Sabha or 15th December 1998. The bill was referred to the standing committee suggested some amendments which were accepted by government. However the bill could not be taken up consideration on the dissolution of the Lok Sabha. A fresh bill titled Insurance Regulatory and Development Authority bill was introduced in the parliament.
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DUTIES, POWERS AND FUNCTIONS OF IRDA:
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA:
• Subject to the provision of this act and any other law for the time being in
force. The authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and reinsurance business.
• Without prejudice to the generality of the provision contain in the sub section.
• Issue to the applicant a certificate of registration , renew ,modify ,
withdraw , suspend or cancel such registration .
• Specifying requisite qualification , code of conduct and practical tanning
for intermediary or insurance intermediaries and agents.
• Specifying the code of conduct for surveyors and loss assessors. • Promoting efficiency in the conduct of insurance business. • Promoting and regulating professional organization connected with the
insurance and reinsurance business.
• Levying fees and other charges for carrying our the purpose or this act.
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• Specifying the form and manner in which books of insurer and other
insurance intermediaries shall maintain account .
• Regulating investment of funds by insurance companies. • Regulating maintenance of martin of solvency. • Adjudication of disputes between insurers and intermediaries or insurance
intermediaries.
• Supervision the functioning OF THE Traffic Advisory Committee. • Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organization referred to in clause.
• Specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector.
• Exercising such other powers as many be prescribed.
The power and function mentioned above would enable the Authority to perform the role of an effective watchdog and regulator for the insurance sector in India. To enable the Authority to function in a truly independent manner and discharges its assigned responsibilities effectively, it is proposed to vest the Authority with statutory status.
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RESEARCH METHODOLOGY
RESEARCH DESIGN: Descriptive Research Design SAMPLE DESIGN: Probability Sampling - Stratified Sampling, Employees are divided into three strata on the basis of their age a) Employees of age group 40 to 45 (120 employees) b) Employees of age group 46 to 50 (80 employees) c) Employees of age group 51 to 55 (40 employees) SAMPLING UNIT: Salaried Employees SAMPLE SIZE: Sample of 240 Salaried employees is chosen. METHOD OF DATA COLLECTION PRIMARY DATA
1. Interview Method: personal interview involve asking questions in face to
face contact.
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2. Questionnaire: It is the most popular and common instrument used in
research .The basic objective of questionnaire was to collect adequate information.
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SECONDARY DATA
1. Internet Search www.google.com
2. Publish material
3. Books Direct Taxes Law & Practice
Tax Planning PROCESSING OF DATA Different techniques are used for processing
ANALYSIS OF DATA Data collected through above method has been analyzed statistically. Result of analysis is shown in the form of Bar Chart
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WHERE DO YOU SERVICE IN PUBLIC SECTOR OR PRIVATE SECTOR
90 80 70 60 50 40 30 20 10 0 40 - 45 age 46 - 50 age 51 - 55 age
Public Sector
Private Sector
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
70% said they are working in Private Organization 30% said they are working in Public Organization
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
80% said they are working in Private Organization 20% said they are working in Public Organization
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• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
90% said they are working in Private Organization 10% said they are working in Public Organization
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YOUR MONTHLY SALARY
90 80 70 60 50 40 30 20 10 0 40 - 45 age 46 - 50 age 51 - 55 age
Rs. 10 - 20,000 Rs 31 - 35,000
Rs. 21 - 30,000
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
60% said their monthly salary is Rs.10,000 to 20,000 30% said their monthly salary is Rs.21,000 to 30,000 10% their monthly salary is Rs.31,000 to 35,000
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said their monthly salary is Rs.10,000 to 20,000
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70% said their monthly salary is Rs. 21,000 to 30,000 10% said their monthly salary is Rs. 31,000 to 35,000
• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
5% said their monthly salary is Rs.10,000 to 20,000 90% said their monthly salary is Rs. 21,000 to 30,000 5% said their monthly salary is Rs. 31,000 to 35,000
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YOUR ANNUAL SAVING
70 60 50 40 30 20 10 0 40 - 45 ag e Rs. 1 - 150,000 46 - 50 age Rs. 1.5 - 2,00,000 51 - 55 age Rs 2 - 250,000
INFERENCESSALARIED EMPLOYEE OF AGE GROUP 40 TO 45 60% said their annual saving is Rs.1.0 lac. to 1.5 lac. 30% said their annual saving is Rs.1.5 lac. to 2.0 lac. 10% said their annual saving is Rs.2.0 lac. to 2.5 lac.
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said their annual saving is Rs.1.0 lac. to 1.5 lac. 70% said their annual saving is Rs.1.5 lac. to 2.0 lac. 10% said their annual saving is Rs.2.0 lac. to 2.5 lac. Page | 115
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•
SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
100% said their annual saving is Rs.1.0 lac. to 1.5 lac. 40% said their annual saving is Rs.1.5 lac. to 2.0 lac. 50% said their annual saving is Rs.2.0 lac. to 2.5 lac.
WHERE DO YOU LIKE TO INVEST
80
70
60
50
40
30
20
10
0 40 - 45 age 46 - 50 age 51 - 55 age
Public
Private
Public and Private both
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
10% said they prefer to invest in Public 40% said they prefer to invest in Private Page | 116
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50% said they prefer to invest in both Public and Private
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
20% said they prefer to invest in Public 20% said they prefer to invest in Private 60% said they prefer to invest in both Public and Private SALARIED EMPLOYEE OF AGE GROUP 51 TO 55 10% said they prefer to invest in Public 10% said they prefer to invest in Private 80% said they prefer to invest in both Public and Private
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HOW MUCH RISK YOU LIKE TO TAKE
80
70
60
50
40
30
20
10
0 40 - 4 5 a g e 46 - 50 a g e 51 - 5 5 a g e
High Risk
Medium Risk
Low Risk
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
30% said they would like to take High Risk 50% said they would like to take Medium Risk 20% said they would like to take Low Risk SALARIED EMPLOYEE OF AGE GROUP 46 TO 50 10% said they would like to take High Risk 80% said they would like to take Medium Risk Page | 118
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10% said they would like to take Low Risk SALARIED EMPLOYEE OF AGE GROUP 51 TO 55 10% said they would like to take High Risk 20% said they would like to take Medium Risk 70% said they would like to take Low Risk
ARE YOU AWARE ABOUT TAX STRUCTURE
90 80 70 60 50 40 30 20 10 0 40 - 45 ag e 46 - 5 0 a g e Ye s No 5 1 - 55 ag e
INFERENCES
• SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
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90% said Yes they are aware about Tax Structure 10% said No they are not aware by Tax Structure
• SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
80% said Yes they are aware about Tax Structure 20% said No they are not aware by Tax Structure
• SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
80% said Yes they are aware about Tax Structure 20% said No they are not aware by Tax Structure
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WHERE YOU LIKE TO INVEST
60
50
40
30
20
10
0 40 - 45 age Insurance PP F 46 - 50 age NSC KVP 51 - 55 age Securities Bank
INFERENCES
•
SALARIED EMPLOYEE OF AGE GROUP 40 TO 45
55% said they prefer to invest in Insurance 10% said they prefer to invest in PPF 15% said they prefer to invest in NSC 5% said that they prefer to invest in KVP 17% said that they prefer to invest in Securities 8% said that they prefer to invest in Bank
•
SALARIED EMPLOYEE OF AGE GROUP 46 TO 50
50% said they prefer to invest in Insurance 15% said they prefer to invest in PPF
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5% said they prefer to invest in NSC 10% said that they prefer to invest in KVP 7% said that they prefer to invest in Securities 8% said that they prefer to invest in Bank
C.I.M.T
•
SALARIED EMPLOYEE OF AGE GROUP 51 TO 55
55% said they prefer to invest in Insurance 10% said they prefer to invest in PPF 5% said they prefer to invest in NSC 10% said that they prefer to invest in KVP 10% said that they prefer to invest in Securities 10% said that they prefer to invest in Bank
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FINDINGS
In this research salaried employees are classified in three strata
• One strata is of employee of age between 40 to 45 • Second strata is of employee of age between 46 to 50 • Third strata is of employee of age 51 to 55.
These three groups of employees respond differently. This difference is because of different perception
despite keeping in bank of the low rate of return as bank provides.
investment among people due to the following reasons:
consequent higher savings.
specified channels.
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sector.
and there return and security as a government investment instrument.
with fixed deposit, real estate, mutual funds and primary market.
higher returns and to gain on there savings.
banks as they consider to be the safest financial institutions, although they would prefer primary market and mutual funds if they invest in future.
withdrawal as per their need of money.
However, in future they would like to make investment in insurance.
future they would prefer to invest their money in fixed deposits. -15,000 presently invest in banks and in the future they would like to invest in fixed deposits and to pay for the
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investment purpose in which they get higher return on there investment. -20,000 presently make their investments in Insurance and other tax saving investments to save there tax labiality. According to the survey done, most of the people who fall under the income group of 20,000-25,000 invest in different investments and in future they would like to invest in tax savings instruments. (Bonds NSC mutual fund etc.)
is above Rs. 25,000 presently invest in insurance while in future their choice of investment would preferably be real estate and fixed deposits. People who are above the age of 51-55 presently make maximum of their investments in Insurance as well as PPF and banks.
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RECOMMENDATIONS Today's environment is very competitive hence to survive in such environment people need both power and wealth. Earlier people prefer to keep their money either on home or keep in bank but today people to see their money grow and today a lot of options are present which are not only attractive but fast growing too. People who can bear high risk for that person the security market are good. There is high risk and high return according to their investment amount. Salaried people wants the security in their savings so for those people who wants high security Insurance and other Government instruments of Investments is better option in which there is a fix growth up to certain amount. Today's market is so fluctuating for this type of market security is important as well as growth so Insurance is good option for them in which there is return as well as security.
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LIMITATIONS
This study is based on reaction hence it is not an indication that everything is true t its fullest sense. Time is act as constraint Some employees refuse to fill the questionnaire because they do not free time Some employee does not read the questions carefully as a result they give the wrong response Most of employees do not give answer of the personal question related to PAN number and Accurate Salary.
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CONCLUSION
Many years ago people used to hold money means that they kept their money as cash in hand or other safe places But today people are more aware of different investment option, which are the key of growth of money Instead of a range of investment option salaried employees prefer to take medium risk and they will invest their money in that option where they get maximum tax benefit like insurance and PPF
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QUESTIONNAIRE
This is a research pertaining to measuring satisfaction level of retailers. Please give your response to the following questions by ticking the appropriate choice. 1. Respondent Name__________________________________________
2. Your Age
from 40 from 46 to 50? from 51 to 55?
to 45?
3. Education ______________________________________ 4. Name of Organization / Company where you are working
_______________________________________________
5. Nature of Company
Public
?
Private?
6. Post / Designation ____________________________________
7. Average Monthly Salary
Rs. Rs. 21,000 to 30,000? Rs. 31,000 to
10,000 to 20,000? 35,000?
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8. Your
Anuual Rs. 1.5 to 2.0 Lac.?
Savings Rs. 2.0 to
Rs. 1 to 1.5 Lac.? 2.5 Lac.?
9. Where you prefer to invest ? Public? Private?
10.Liabilities (dependent) _________________________________________ Tax Payee No? 11.PAN No. __________________________________________ Are you filling up Income Tax Return? No? 12.Are you aware about tax Structure? Yes? No? Yes? Yes?
13.What is your tax liability (approximate) ___________________ Where would you like to invest PPF ? Securities? Real Estate? Bank Saving Scheme? Insurance? NSC ? Post
mutual fund? office Saving Scheme?
14. How much risk you like to take ? Page | 130
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High?
Medium
?
Low?
THANKS FOR YOUR TIME AND COOPERATION ???????????????????????????????? ????
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BIBLIOGRAPHY
Books: Kothari C.R. Research Methodology
Bajaj Capital publication
Web Site
www.nseindia.com www.Bajaj Capital mutualfund.com www.amfi.com www.mutualfundofinsa.com ?
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OF INDIA)
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