CHAPTER – I

INTRODUCTION

1
1.1 OVERVIEW OF THE INSURANCE INDUSTRY

The insurance sector in India has come a full circle from being an open competitive market to
nationalisation and back to a liberalised market again. Tracing the developments in the Indian
insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries.

A brief history of the Insurance sector

The insurance sector was opened up for private participation with the enactment of the
Insurance Regulatory and Development Authority Act, 1999. While permitting foreign
participation in the ventures set up by the private sector, the government restricted
participation of the foreign joint venture partner through the FDI route to 26 per cent of the
paid-up equity of the insurance company. The objective of the liberalization was to expand the
scope and ambit of Insurance both Life and General in India.

Since opening up, the number of participants in the sector has gone up from six insurers
(including the Life Insurance Corporation of India, four public sector general insurers and the
General Insurance Corporation (GIC) as the national re-insurer) in the year 2000 to 37 insurers
operating in the life, non-life and re-insurance segments as on December 2007. 26 insurance
companies in the private sector have been granted registration in the country in collaboration
with established foreign insurance companies from across the globe.

As per industry estimates, out of 78 per cent Indian households that are aware about life
insurance, only 24 per cent own a policy. A combined ICICI Prudential Life Insurance and
IMRB survey, conducted in three metros— Delhi, Mumbai and Chennai—shows that
households with income of Rs. 35000 on an average have two policies. Further, 79 per cent
people prefer life insurance over other tax saving instruments like post office savings, Equity-
Linked Saving Schemes and fixed deposits.

Since end of 2000 when insurance was privatized, Life Insurance Company and The
distribution network expanded significantly.

Until 2000, the general insurance sector had only four public sector players. The public
enterprises – Oriental Insurance Company of India (OIC), National Insurance Company of
India (NIC), and New India Assurance Company of India (NIA) and United Insurance

2
Company of India (UII) -- were located in Delhi, Kolkata, Mumbai and Chennai respectively.
They primarily focused on their immediate regions and there was little competition, leading to
a near monopolistic environment. On the whole, the sector achieved double-digit growth and
this trend is expected to persist over the medium term.

ABOUT IRDA (Insurance Regulatory and Development Authority Act)

Insurance sector has been opened up for competition from Indian private insurance companies
with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA
Act).Insurance Regulatory and Development Authority (IRDA) was established on 19th April
2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure
orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of
private players into the insurance market which was hitherto the exclusive privilege of public
sector insurance companies/ corporations. Under the new dispensation Indian insurance
companies in private sector were permitted to operate in India with the following conditions:

• Company is formed and registered under the Companies Act, 1956;

• The aggregate holdings of equity shares by a foreign company, either by itself or
through its subsidiary companies or its nominees, do not exceed 26%, paid up equity
capital of such Indian insurance company;
• The company's sole purpose is to carry on life insurance business or general insurance
business or reinsurance business.
• The minimum paid up equity capital for life or general insurance business is Rs.100
crores.
• The minimum paid up equity capital for carrying on reinsurance business has been
prescribed as Rs.200 crores.

The Authority has notified 27 Regulations on various issues which include Registration of
Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of
Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of
policy holders' interest etc. Applications were invited by the Authority with effect from 15th
August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The
Authority has its Head Quarter at Hyderabad.
3
1.2 PROFILE OF THE COMPANY

HOUSING DEVELOPMENT FINANCE CORPORATION:

HDFC was started by Hasmukh Bhai Parekh in 1977 with the formation of Malhotra
Committee. HDFC was incorporated with the primary objective of meeting a social need that
of promoting home ownership by providing long-term finance to households for their housing
needs. HDFC was promoted with an initial share capital of Rs. 10 crores. HDFC has since
emerged as the largest residential mortgage finance institution in the country.

HDFC operates through 75 locations throughout the country with its Corporate Headquarters
in Mumbai, India. HDFC also has an international office in Dubai, U.A.E., with service
associates in Kuwait, Oman and Qatar.

HDFC’s main goals are to:

a) Develop close relationships with individual households.

b) Maintain its position as the premier housing finance institution in the country.

c) Transform ideas into viable and creative solutions.

d) Provide consistently high returns to shareholders.

e) To grow through diversification by leveraging off the existing client base.

STANDARD LIFE:
The Standard Life Assurance Company ("Standard Life") was established in 1825 and the first
Standard Life Assurance Company Act was passed by Parliament in 1832. Standard Life was
reincorporated as a mutual assurance company in 1925.

Standard Life is Europe's largest mutual life assurance company. Standard Life, which has
been in the life insurance business for the past 182 years, is a modern company surviving quite
a few changes since selling its first policy in 1825.

Standard Life currently has assets exceeding over £125 billion under its management and has
the distinction of being accorded "AAA" rating consequently for the past six years by Standard
& Poor.

4
INCORPORATION OF HDFC STANDARD LIFE INSURANCE CO. LTD.:

The company was incorporated on 14th August 2000 under the name of HDFC Standard Life
Insurance Company Limited.

Their ambition from the beginning was to be the first private company to re-enter the life
insurance market in India. On the 23rd of October 2000, this ambition was realized when
HDFC Standard Life was the first life company to be granted a certificate of registration.

HDFC are the main shareholders in HDFC Standard Life, with 74%, while Standard Life owns
26%. Given Standard Life's existing investment in the HDFC Group, this is the maximum
investment allowed under current regulations.

HDFC and Standard Life have a long and close relationship built upon shared values and trust.
The ambition of HDFC Standard Life is to mirror the success of the parent companies and be
the yardstick by which all other insurance companies in India are measured.

HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance
companies, which offers a range of individual and group insurance solutions. It is a joint
venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India’s
leading housing finance institution and one of the subsidiaries of Standard Life plc, leading
providers of financial services in the United Kingdom.

Both the promoters are well known for their ethical dealings and financial strength and are
thus committed to being a long-term player in the life insurance industry.

5
VISION, MISSION AND VALUES

VISION:

The most successful and admired life insurance company, which means that we are the most
trusted company, the easiest to deal with, offer the best value for money, and set the standards
in the industry'.

'The most obvious choice for all'.

MISSION:

To be the top new life insurance company in the market. This does not just mean being
the largest or the most productive company in the market, rather it is a combination of
several things like –

• Customer service of the highest order.

• Value for money for customers

• Professionalism in carrying out business

• Innovative products to cater to different needs of different customers

• Use of technology to improve service standards

• Increasing market share.

VALUES:

Values that we observe while we work:

• Integrity
• Innovation
• Customer centric
• People Care “One for all and all for one”
• Team work
• Joy and Simplicity

6
PRODUCTS OF HDFC STANDARD LIFE INSURANCE:

HDFC Standard Life offers a bouquet of insurance solutions to meet every need. The products
of the company are categorized into various sections which are as follows:

A. INDIVIDUAL PRODUCTS
B. GROUP PRODUCTS

For Individuals, HDFC Standard Life has a range of protection, investment, pension and
savings plans that assist and nurture dreams apart from providing protection. Customer can
choose from a range of products to suit his life-stage and needs.

For Organizations, HDFC Standard Life has a host of customized solutions that range from
Group Term Insurance, Gratuity, Leave Encashment and Superannuation Products. These
affordable plans apart from providing long term value to the employees help in enhancing
goodwill of the company.
In this project I, as a trainee was dealing with Individual Products. The various
products and plans under this category are:

Individual Products:
1. HDFC Children's Plan,
2. HDFC Endowment Assurance Plan,
3. HDFC Loan Cover Term Assurance Plan,
4. HDFC Money Back Plan,
5. HDFC Personal Pension Plan,
6. HDFC Single Premium Whole Of Life Plan,
7. HDFC Term Assurance Plan,
8. HDFC Unit Linked Endowment,
9. HDFC Unit Linked Endowment Plus,
10. HDFC Unit Linked Pension,
11. HDFC Unit Linked Pension Plus,
12. HDFC Unit Linked Young Star,

7
 13. HDFC Unit Linked Young Star Plus
At HDFC Standard Life realize that not everyone has the same kind of needs. Keeping this in
mind, varied range of products that customer can choose from to suit all needs. These will help
secure customer future as well as the future of family.

Protection Plans:
Customer can protect his family against the loss of his income or the burden of a loan in the
event of his unfortunate demise, disability or sickness. These plans offer valuable peace of
mind at a small price.
HDFC Standard Life Protection range includes Term Assurance Plan & Loan Cover Term
Assurance Plan.

Investment Plans:
HDFC Standard Life Single Premium Whole of Life plan is well suited to meet long term
investment needs. HDFC Standard Life provides with attractive long term returns through
regular bonuses.

Pension Plans:
HDFC Standard Life Pension Plans help secure financial independence even after retirement.
Pension range includes Personal Pension Plan, Unit Linked Pension, and Unit Linked Pension
Plus Savings Plans.

Savings Plans:
HDFC Standard Life Savings Plans offer flexible options to build savings for future needs
such as buying a dream home or fulfilling children’s immediate and future needs.

Group Products:
1. Group Term Insurance,
2. Group Variable Term Insurance,
3. Group Unit Linked Plan,
4. Gratuity Group Unit Linked Plan,
5. Superannuation Group Unit Linked Plan ,
8
 6. Leave Encashment
PRODUCT PORTFOLIO
HDFC offers products as per the life stages of the customers and their respective needs.
Your insurance need will change as your life goes, from starting to work to enjoying your
golden years and all the stages in between. Each one of these stages may pose a different
insurance need/cover for you. In this section, we have drawn up the basic life stages and help
you analyze various insurance needs accordingly.

LIFE STAGES & NEEDS IN THE DIFFERENT STAGES

STAGE 1: YOUNG & SINGLE

An important stage where one lays down the foundation of a successful life
ahead. Take advantage of the time and power of compounding to ensure that
you build up your dreams. Start saving early.

NEEDS:
 Save for Home & Wedding
 Tax Planning
 Save for Golden Years

STAGE 2: JUST MARRIED

Marriage brings about a significant change. New dreams and new

opportunities also bring in additional responsibilities. While both of you
look forward to a happy and secure life, it is equally important to ensure that
eventualities don’t come in the way of shaping your dreams.

NEEDS:
 Planning for home / securing your home loan liability.
 Save for vacation.

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  Save for your first child.

STAGE 3: PROUD PARENTS

Once you have children, your need for life insurance is even more. You
need to protect your family from an untoward incident. Ensure your
protection umbrella takes into account the future cost of securing your
child’s dream. You will want life to go on for your loved ones, and having
enough life insurance is a way to help ensure that.

NEEDS:
 Provide for children's education
 Safeguarding family against loan liabilities
 Savings for post-retirement

STAGE 4: PLANNING FOR RETIREMENT

While you are busy climbing the ladder of success today, it is important for
you to take time and plan for your life after retirement. Having an early
start for retirement planning can make a significant difference to your
savings. Think about your golden years even before you have reached
them. The key is to think ahead and plan well using your time and money.

NEEDS –
 Provide for regular income post retirement
 Immediate Tax benefits
 Lead a secure, independent and comfortable life style in your retirement years.

10
MILESTONES IN THE HISTORY

• HDFC is India’s leading housing finance institution and has helped build more than
23, 00,000 houses since its incorporation in 1977.
• In Financial Year 2003-04 its assets under management crossed Rs.36, 000Cr.
• As at March 31, 2004, outstanding deposits stood at Rs. 7,840 crores. The depositor
base now stands at around 1 million depositors.
• Rated ‘AAA’ by CRISIL and ICRA for the 10th consecutive year
• Awarded The Economic Times Corporate Citizen of the year Award for its long-
standing commitment to community development.
• Presented the ‘Dream Home’ award for the best housing finance provider in 2004 at
the third Annual Outlook Money Awards
• HDFC Standard Life Insurance is the first private life insurance company to be
granted a license by IRDA
• Rated as the "Best New Insurer - 2003" by Outlook Money magazine, India’s
number 1 personal finance magazine
• Rated by ‘Business world’ as ‘India’s Most Respected Private Life Insurance
Company’ in 2004.
• Has the highest brand recall, close to 80% (Source: AC Neilson ORG MARG, April
2005)
• Has one of the widest branch networks with offices in over 100 cities servicing over
440 towns

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 ORGANIZATION CHART:

CHAIRMAN

M.D.

ZONAL MANAGER

REGIONAL MANAGER

Retail Marketing Alternative Channel Operation Channel Human Resource

Territory Manager Territory Manager Team Manager HR Executive

Branch Manager Branch Manager Operation Manager

Assistant Branch Channel

Manager Executive

Business
Development
Manager

Sales Development
Manager

12
1.3 COMPETITOR INFORMATION

As we know that this time insurance sector is on boom. Reason is that it gives more profit
not only to the company but also to the investor. Today company invest money not only in
government securities and bonds but also in the equity which gives more return than the
government securities and bonds, and bank deposits. In the market there are lots of insurance
companies which are trying to capture more and more market share. The information
regarding competitors of HDFC Standard Life Insurance are:-

Life Insurance Corporation of India

Every day the company wake up to the fact that more than 220 million lives are part of our
family called LIC. We are humbled by the magnitude of the responsibility we carry and
realize that the lives that are associated with us are very valuable indeed. Although this
journey started five decades ago, we are still conscious of the fact that, while insurance may be
a business for us, being part of millions of lives every day for the past 50 years has been a
process called TRUST.

Kotak Mahindra Insurance Company Limited

Kotak Mahindra Insurance Company or Om Kotak Mahindra Life Insurance is a 74:26 joint
venture between Kotak Mahindra Bank Limited India and Old Mutual PLC- a leading
global financial services provider. Kotak Mahindra Bank Limited (KMBL) is the flagship
venture of Kotak Mahindra Group. The group is a full-services financial group providing a
wide array of services and products to institutions, banks, corporates and individuals.

Reliance General Life Insurance Company

Reliance General Life Insurance Company is a Reliance Capital Ltd. product. Under the
guidance of Anil Dhirubhi Ambani Group, reliance insurance company has secured the
position of the top insurers in India. Reliance General Insurance is one of the first non-life

13
companies to get the license from the IRDA. The risks covered under general insurance
include property, marine, casualty and liability. Wide ranges of products are available at
Reliance Standard Insurance for both group and individual customers.

SBI Life Insurance

SBI Life Insurance offers Personal Insurance and related services in order to enable us plan
our life for contingencies and unforeseen events. SBI Life Insurance is a product of the
collaboration of the State Bank of India and the French Insurance company, the Cardiff SA.
SBI Life Insurance offers Insurance Benefits and pension services based on the case and the
portfolio of the clients.

Metlife Insurance Company Limited

MetLife India Insurance Company Private Limited was incorporated in April 2001 as a
joint venture between MetLife International Holdings, Inc., The Jammu and Kashmir Bank,
M.Pallonji and Co. Private Limited and other private investors. Metlife India insurance
company is a subsidiary of US based metropolitan life insurance company.

General Insurance Corporation of India

General Insurance Corporation of India or GIC of India was incorporated in 1972 to supervise
and control the general insurance business in India. All the general insurance companies
were merged into four main subsidiaries of GIC namely: National Insurance Company,New
India Assurance Company Ltd, Oriental Insurance Company Ltd, United India Insurance
Company Ltd. These four companies were renotified independent business activities in
November 2000 after the implementation of IRDA(Insurance Regulatory and development
Authority) Act. In 2002, the General Insurance Corporation of India ownership was ceased
and the holding was vested to the Government of India.

Birla sun life insurance

Birla Sun Life Insurance Co. Ltd is a 26:74 joint venture between Sun Life Financial Services
Canada and Aditya Birla Group.

Bharti AXA Life Insurance company Ltd.

14
Bharti AXA Life Insurance Company Limited is a 74:26 joint venture between Bharti
Group - one of India's leading Multi-business groups and AXA - a world leader in financial
protection and wealth management services. Bharti AXA was established in end 2006
with head office at Mumbai.
ING Vysya Life Insurance Company Limited
ING Vysya Life Insurance Company Limited established its foothold in the private life
insurance industry in India in September 2001.ING Vysya Life Insurance Co Ltd is the
result of a joint venture between the world's second largest life insurance company - ING
Insurance and one of the largest private sector banks in India - Vysya Bank. Another
stakeholder in the JV is GMR Group.

Royal Sundaram Insurance

Royal Sundaram Alliance Insurance Company Limited is the outcome of a 74:26 joint venture
between Sundaram Finance Ltd India and Royal & Sun Alliance PLC London. Royal
Sundaram Alliance Insurance Co Ltd was the first foreign joint venture to obtain a license for
operating non-life insurance businesses in India.Royal Sundaram began their official operations
on 12th march'2001 with their head office in Chennai. Today they have four regional offices in
Chennai, Mumbai, Gurgaon and Kolkata along with 35 branch offices.

AMP Sanmar Life Insurance Company Limited

AMP Sanmar Life Insurance Company Limited was a 26:74 joint venture between AMP
Australia and Sanmar Group. In 2005, Reliance Life Insurance Company Limited, a
subsidiary of Reliance Capital Limited under Anil Dhirubhi Ambani acquired AMP Life
Assurance Co. Ltd. this made Reliance Life Insurance the very first private sector life
insurance company to start business in India without any foreign collaborator.

ICICI Prudential Life Insurance Company

ICICI Insurance has two faces-ICICI Prudential Life Insurance Company and ICICI Lombard
General Insurance Company Limited. ICICI Prudential Life Insurance is a 74:26 joint venture
between ICICI Bank India Ltd. and Prudential PLC based in UK. Established in 2000.
ICICI Lombard General Insurance Company Limited is a 74:26 JV between ICICI Bank
India ltd. - the second largest private sector bank in India and Lombard Canada Ltd. – a
15
Fairfax Financial Holdings Ltd group company that is a 26 billion USD Company. ICICI
Lombard started their general insurance businesses in August 2001. It is India's No. l private
general insurance company. It is also the first general insurance company to be awarded ISO
9001:2000 certification.
These companies are giving tough competition to each other in acquiring market share and
adopting new marketing strategy for it. The main competitor of HDFCSL is LIC,
Reliance life insurance ltd, and ICICI Prudential.
Today LIC Insurance product likes "JIVAN ANAND", Reliance life Insurance product
like "Alternate Investment plan and investment and medic lame plan" and HDFC Standard life
Product like "Young Star Plan and pension Plus Plan" is running in the market and helping
to the industry to capture more market share. In this stuff market HDFCSL need to adopt new
marketing strategy, new innovative policy, and new idea of policy, and advertisement so
that it can get the potential market share.

16
1.4 SWOT ANALYSIS

STRENGTHS:
1. Domestic image of HDFC supported by Prudential’s international image is strength of the
company.
2. Strong and well spread network of qualified intermediaries and sales person.
3. Strong capital and reserve base.
4. The company provides customer service of the highest order.
5. Huge basket of product range which are suitable to all age and income groups.
6. Large pool of technically skilled manpower with in depth knowledge and understanding of
the market.
7. The company also provides innovative products to cater to different needs of different
customers.

WEAKNESSES:
1. Heavy management expenses and administrative costs.
2. Low customer confidence on the private players.
3. Vertical hierarchical reporting structure with many designations and cadres leading to power
politics at all levels without any exception.
4. Poor retention percentage of tied up agents.

17
OPPORTUNITIES:
1. Insurable population –According to IRDA only 10% of the population is insured, which
represents around 30% of the insurable population. This suggests more than 300m people, with
the potential to buy insurance, remain uninsured.
2. There will be inflow of managerial and financial expertise from the world’s leading
insurance markets. Further the burden of educating consumers will also be shared among
many players.
3. International companies will help in building world class expertise in local market by
introducing the best global practices.

THREATS:
1. Other private insurance companies also trying to capture the same uninsured population.
2. Big public sector insurance companies like Life Insurance Corporation of India (LIC),
National Insurance Company Limited, Oriental Insurance Limited, New India Assurance
Company Limited and United India Insurance Company Limited. People trust them more.
3. Poaching of customer base by other companies.
4. Most of the people don’t understand the need or are not willing to take insurance policies in
general.

18
 CHAPTER – II

RESEARCH METHODOLOGY

19
MEANING:
Research methodology is a way to systematically solve the research problem. I may be
understood as a science of how research is done scientifically. Under it I study the various
steps that are generally adopted by a researcher in studying the research problem along with
the logic behind them. It is necessary for the researcher to know not only the research
methods/ techniques but also the methodology.

2.1 OBJECTIVES OF THE STUDY

1. To gain an insight about the Financial Instruments available for investment in the
market.

2. To know what are the objectives which are kept in mind by the investors before
investing in Financial Instruments.

3. To know for how much time investors generally invest their money so that they can
earn good returns.

4. To know which is the better investment option which can generate good returns for the
investor and will give the benefit of Tax Saving.

20
2.2 SCOPE OF THE STUDY

1. This study is carried out in Delhi that covers the investors who use to invest their
money in the financial instruments for tax saving purposes.

2. This study has been done to see the perception of investors about the various factors
which should be keep in mind at the time of investment.

3. This study has been carried out to know for what purpose the investors invest their
money in the financial instruments.

2.3 MANAGERIAL USEFULLNESS OF THE STUDY

1. This study is helpful in understanding about the various investment opportunities

available in the market.

2. This study helps the investors whom to consult before making any investment.

3. This study is useful to company in understanding the investors’ perception to devise

the suitable product/marketing strategies in order to attract them.

4. Financial planner get advantage to make portfolio according to response given by

respondents/investors, which belong to different occupations, having different income
level, different age level or which instrument is mostly like by the investors for
investment.

21
2.4 METHODOLODY

In this project the Primary method of data collection used is

• Questionnaire Method

In this method, the investigator prepares a Questionnaire and sends it to the informants by post
with the request that the Questionnaires may be filled up and sent back by a specified date. In
this method, a large geographical area can be easily covered and the informant also can fill up
the questionnaire according to his convenience.
In this Project, I have prepared a Questionnaire, which is given in the annexure section, and
this Questionnaire is filled by investors living in the Delhi.

In this project the Secondary method of data collection used are

• Websites
• Books

In this method of data collection, the investigator uses the data that is already available.
In this project, I have collected the data with the help of websites, search engines and books.

SAMPLE SIZE:

Sample size used in this project is 50 respondents of Delhi.

22
2.5 LIMITATIONS

 The project was constrained by time limit of two months.

 Mindset of people may vary depending upon their age, gender, income etc.

 People mind set about the survey was an obstacle in acquiring complete
information & positive interaction.

 Respondents were very busy in their schedule. So it was very time taken in every
Questionnaire response by them.

 Sometimes due to negativity in their mind regarding insurance, they never use to
take interest in giving correct information.

23
 CHAPTER – III

CONCEPTUAL DISCUSSIONS

24
The money an individual earn is partly spent and the rest is saved for meeting future expenses.
Instead of keeping the savings idle he/she may like to use savings in order to get return on it in
the future. This is called Investment.
Investment is ‘the act of committing money or capital to an endeavor with the expectation of
obtaining an additional income or profit.’
There are ample Financial Instruments available in the market for investment; each instrument
has its own features. To invest money in financial instruments is not so easy.It needs depth
study where to invest so that their investment could be safe along with the growth of money.
In present scenario everyone wants to invest his money but having their own different
objectives. It may be growth of capital, tax minimization, retirement planning, to balance out
inflation rate, safety etc. The investors always mess with these objectives which creates
confusion of where to invest, which tendency they have to prefer at the time of investment,
which factors influence their investment decisions, how to plan their investment portfolio and
to whom to consult for taking that all decisions. So this study is based on investor’s perception
regarding their investment. It includes what they think at the time of investment, what are the
various factors they keep in mind at investment or affects their decisions regarding investment.

Types of Investments / Various Financial instruments

There are many ways to invest money. In order to decide which investment vehicle is suitable
for investor, he/she needs to know their characteristics and why they may be suitable for a
particular investing objective.
• Fixed Deposits
• Public Provident Fund
• National Savings Certificate and Government Bonds
• Mutual Funds and ELSS
• Retirement Plans
• Equity Market
25
• Insurance and ULIP

1. Fixed Deposits
A Fixed Deposit also known as a Term Deposit is an account which allows us to deposit
money for a fixed time period. When the deposit period elapses, the depositors get interest on
the amount deposited. The fixed deposit interest rates can be as high as 9.5%. Money may be
placed with a bank, merchant bank, building, society or credit union for a fixed term at a fixed
rate of interest which remains unchanged during the period of the deposit. Depositors may
have to accept an interest penalty if they break the deposit, ie ask to take the money out before
the agreed period has expired.
Few points which FD investors must consider at the time of investment.

1. Safety
FDs have conventionally been the premier choice for investors with a low risk appetite;
assured returns is the key factor which attracts investors towards deposits. Stick to FDs of the
highest credit rating i.e. those with a “AAA” rating even if their rates seem modest vis-à-vis
those offered by company deposits.
2. Tenure
Short tenured fixed deposits continue to be your best bet. With interest rates on the ascent, a
further hike in rates offered by fixed deposits cannot be ruled out. Locking your investments in
longer tenured instruments may lead to an opportunity loss.
3. Additional benefits
Fixed deposits from reputed entities offer additional benefits, e.g. they can be used as
collateral against which loans can be raised. Select a fixed deposit scheme which scores
favourably on such parameters.

Any investment portfolio should comprise the right mix of safe, moderate and risky
investments. While mutual funds and stocks are the favorite contenders for moderate and risky
investments, fixed deposits, government bonds etc. are considered safe investments. Fixed
deposits have been particularly popular among a large section of investors in India as a safe
investment option for a long period.

26
With fixed deposits or FDs as they are popularly known, a person can invest an amount for a
fixed duration. The banks provide interest rates depending on this loan amount and the tenure
of deposit.
4.Tax-savingFDs
Tax-saving is no longer the guarded domain of Public Provident Fund (PPF) and National
Savings Certificate (NSC). Tax-saving FDs offered by banks are also eligible for deduction
under Section 80C. The deposits are subject to a 5-Yr lock-in period. Presently, the returns on
tax-saving FDs vary between 7.50%-8.50% per annum. The minimum and maximum
investment amounts (per annum) have been pegged at Rs 100 and Rs 100,000 respectively.
Introduction of tax-saving FDs offers risk-averse investors the opportunity to diversify across
instruments while conducting the tax-planning exercise.

27
2. Public Provident fund
• The Public Provident Fund Scheme is a statutory scheme of the Central GOI.
• The Scheme is for 15 years. The rate of interest is 8% compounded annually.
• The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year.
• One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
• The deposit can be in lump sum or in installments, not more than 12 Installments in a
year or two installments in a month subject to total deposit of Rs.70,000/-.
• It is not necessary to make a deposit in every month of the year. The amount of deposit
can be varied to suit the convenience of the account holders.
• The account in which deposits are not made for any reasons is treated as discontinued
account and such account can not be closed before maturity. The discontinued account
can be activated by payment of minimum deposit of Rs.500/- with default fee of
Rs.50/- for each defaulted year.
• Account can be opened by an individual or a minor through the guardian. The grand
father/mother cannot open a PPF behalf of their minor grand son/daughter.
• The facility of first withdrawal in the 7th year of the account subject to a limit of 50%
of the amount at credit preceding three year balance. Thereafter one withdrawal in
every year is permissible in such account.
• Pre-mature closure of a PPF Account is not permissible except in case of death.
• Nominee/legal heir of PPF Account holder on death of the account holder can not
continue the account, but account had to be closed.
• The account holder has an option to extend the PPF account for any period in a block
of 5 years on each time.
• The account holder can retain the account after maturity for any period without making
any further deposits. The balance in the account will continue to earn interest at normal
rate as admissible on PPF account till the account is closed.
• The PPF scheme is operated through Post Office and Nationalized banks.
• Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
• The interest on deposits is totally tax free. Deposits are exempt from wealth tax.

28
 • Nomination facility available. Best for long term investment.

3.1 National Savings Certificate

• Minimum investment Rs. 500/- No maximum limit. Rs. 1000/- grow to Rs. 1601/- in
six years.
• Rate of interest 8% compounded half yearly.
• Two adults, Individuals, and minor through guardian can purchase.Companies, Trusts,
Societies and any other Institutions not eligible to purchase.Non-resident Indian/HUF
can not purchase.
• No pre-mature encashment.
• Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first
5 years under section 80 C of Income Tax Act.
• Maturity proceeds not drawn are eligible to Post Office Savings account interest for a
maximum period of two years.
• Facility of reinvestment on maturity.
• Certificate can be pledged as security against a loan to banks/ Govt. Institutions.
• Facility of encashment of certificates through banks.
• Certificates are encashable any Post office in India before maturity by way of transfer
to desired post office.
• Certificates are transferable from one Post office to any Post office.
• Certificates are transferable from one person to another person before maturity.
• Duplicate Certificate can be issued for lost, stolen, destroyed, mutilated or defaced
certificate.
• Nomination facility available.

• Tax Saving instrument - Rebate admissible under section 80 C of Income Tax Act.
Interest income is taxable but no TDS. Deposits are exempt from Wealth tax.

29
3.2 Government Bonds

A government bond is a bond issued by a national government denominated in the country's

own currency. Bonds issued by national governments in foreign currencies are normally
referred to as sovereign bonds.

Government bonds are usually referred to as risk-free bonds, because the government can raise
taxes to redeem the bond at maturity. Some counter examples do exist where a government has
defaulted on its domestic currency debt, such as Russia in 1998, though this is very rare. As an
example, in the US, Treasury securities are denominated in US dollars. In this instance, the
term "risk-free" means free of credit risk. However, other risks still exist, such as currency risk
for foreign investors. Secondly, there is inflation risk, in that the principal repaid at maturity
will have less purchasing power than anticipated if the inflation outturn is higher than
expected. Many governments issue inflation-indexed bonds, which should protect investors
against inflation risk.

Bonds are issued by public authorities, credit institutions, companies and supranational
institutions in the primary markets. The most common process of issuing bonds is through
underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy
an entire issue of bonds from an issuer and re-sell them to investors. The security firm takes
the risk of being unable to sell on the issue to end investors. However government bonds are
instead typically auctioned. A bond is a debt security, in which the authorized issuer owes the
holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon)
and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to
repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is
the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds
provide the borrower with external funds to finance long-term investments, or, in the case of
government bonds, to finance current expenditure. Bonds must be repaid at fixed intervals
over a period of time.

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 4. Mutual Funds

A mutual fund is a body corporate registered with SEBI that pools money from the
Individuals/corporate investors and invests the same in a variety of different financial
Instruments or securities such as Equity Shares, Government Securities, Bonds, Debentures,
etc. The income earned through these investments and the capital appreciations realized are
shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an opportunity to invest
in a diversified, professionally managed basket of securities at a relatively low cost. Mutual
fund units are issued and redeemed by the Asset Management Company (AMC) based on the
fund’s net asset value (NAV), which is determined at the end of each trading session. Mutual
funds are considered to be the best investments as on one hand it provides good returns and on
the other hand it gives us safety in comparison to other investments avenues.

Figure: Below describes broadly the working of a mutual fund:-

Equity Linked Saving Scheme

Equity linked saving schemes are a kind of mutual funds like diversified equity funds with Tax
benefits. It is just like other tax saving instruments like National Savings Certificate and Public
Provident Fund. Main advantage with ELSS is lock-in period is only 3 years while for NSC it

31
is 6 years and for PPF it is 15 years. At the same time risk factor is high in ELSS.

As per Income Tax act 80C investment up to Rs 1,00,000 are eligible for deduction from the
gross total income hence reducing the total taxable income. For example if your total annual
income is Rs 3,00,000 and you invest Rs 1,00,000 in ELSS then your taxable income will
become Rs 2,00,000.

Previously there was an upper limit for investing in tax saving instruments like ELSS of
5,00,000. Only individuals with less than 5,00,000 annual income are allowed to invest in tax
saving instruments. But last year financial budget removed this restriction and now any
individual can invest in ELSS irrespective of their income level.

Advantages of ELSS

1. Main advantage of ELSS is its short lock-in period. Maturity period of NSC is 6 years and
PPF is 15 years.
2. Since it is an equity linked scheme earning potential is very high.
3. Investor can opt for dividend option and get some gains during the lock-in period
4. Investor can opt for Systematic Investment Plan
5. Some ELSS schemes also offer personal accident death cover insurance
6. Provides 30 to 40% returns compared to 8% in NSC and PPF

Disadvantages of ELSS

1. Risk factor is high compared to NSC and PPF

2. Premature withdrawal is not allowed but it is allowed in other instruments in some specific
conditions.

Diversified Equity Schemes and ELSS

Both Equity linked saving scheme and diversified equity scheme operates in same way. Both
are high return and high risk schemes. But there is a 3 year lock in period of ELSS and it

32
provides tax benefits too.

Systematic Investment Plan

Best way to invest in ELSS is through Systematic Investment Plan(SIP). With SIP you can
invest a small amount every month for a specific time period. With SIP investor can take
advantage of fluctuations in the stock market. So investor will get more units when the market
is down and get less units when the market is up. For eg if you are investing Rs 1000 every
month and you will get 100 units for when Net Asset Value (NAV) is 10 and will get 50 units
when NAV is 20. So investing a fixed sum regularly helps to cover the market fluctuations by
rupee costs averaging. Also most of the Asset Management Companies (AMC) charges less
entry load for SIP compared to normal purchase.

5. Retirement Plans

A retirement plan is an assurance that you will continue to earn a satisfying income and enjoy
a comfortable lifestyle, even when you are no longer working. An increasing number of
individuals have already started planning for their retirement so that they can live their life
happily even after getting retired.

Independence is the new way of life: An increasing number of young Indian professionals are
moving away from the traditional joint family structure. Since support no longer comes easily,
parents have realized the need to provide for themselves during their retirement years.

Skyrocketing costs throw even a well-salaried person off balance. With rates rising everyday,
you can imagine how high they will be when you are ready to retire. A retirement
plan provides you with a steady income every month, to arm you in the face of rising costs.

The key to retirement planning success is to start early and gain the benefit of the power of
compounding. The person should start planning for retirement at a very young age because of
many reasons:

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 1. Life expectancy: As of 2007 the life expectancy at birth for males is 67 years
and 71 years for females. With advancement in technology life expectancy is
likely to increase. Result: You will have to fend for more number of years post
retirement.

2. Medical emergencies: With age come health problems. With health problems, come
medical expenditure which may make a huge dent in your income post retirement. Failure here
could lead you to liquidate (sell) your assets in order to meet such expenses. Remember
mediclaims do not always suffice.

3. Nuclear families: Gone are the days when people use to have an entire cricket team making
a family. Today's youth prefer not more than two children. With westernisation coming in, the
culture of joint family is changing. They prefer independence and stay away from their
family. Hence people have to develop a corpus to last them through their retirement without
any help from family.

4. No government sponsored pension plan: Unlike the US and UK where they have IRA and
state pension respectively as social security benefit during retirement, the government of India
does not provide such benefits. So again you are on your own and planning for retirement will
play a major role.

5. Job hopping: With youngsters hopping jobs regularly they do not get benefit of plans like
super annuity and gratuity. Both these require certain number of working years spent in the
service of a particular employer.

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6.Equity

Equities are often regarded as the best performing asset class vis-à-vis its peers over longer
time frames. However equity-oriented investments are also capable of exposing investors to
the highest degree of volatility and risk. There are a number of factors, which affect the
performance of equities ad studying and understanding all of them on an ongoing basis, can be
challenging for most.

Stock markets have always been a draw for investors for their ability to generate wealth over
the long-term. Fear, greed and a short-term investment approach act as hurdles that frustrate
the investor from achieving his/her investment goals. You need to keep in mind the risk
associated with the stocks. You also need to diversify your equity portfolio i.e., include more
stocks. This helps you diversify your investment risk, so even if something were to go wrong
with a stock in your portfolio, other stocks/industries should help you shore up your portfolio.

Two important resources that are critical to investing directly in stock markets are quality
stock research and a reliable and inexpensive stock broker. The first one – research on stocks
is the most critical input that investors need to identify before they begin investing in stock
markets. This is because even while you may have the risk appetite for equities, you still need
credible, stock market related research that can help you make the right investment decision.

The good thing about the Indian market, riding on the back of an economy that has grown by
over 7% in the last few years, is that you can’t miss being part of growth if you invest in the
stock markets carefully. The bad part is the CHOICE! Of the listed 4,758 stocks on BSE and
the NSE, how do you even get close to taking a call? Here comes the need of a financial

35
advisor who can make your investment decisions and monitor your funds. Clearly, as Indians
earn more, save more and accumulate more, financial advisors will play a crucial role in
helping individuals create, protect and manage wealth.

7. Insurance and ULIP

Life insurance has traditionally been looked upon pre-dominantly as an avenue that offers tax
benefits while also doubling up as a saving instrument. The purpose of life insurance is to
indemnify the nominees in case of an eventuality to the insured. In other words, life insurance
is intended to secure the financial future of the nominees in the absence of the person insured.

The purpose of buying a life insurance is to protect your dependants from any financial
difficulties in your absence. It helps individuals in providing them with the twin benefits of
insuring themselves while at the same time acting as a compulsory savings instrument to take
care of their future needs. Life insurance can aid your family on a rainy day, at a time when
help from every quarter is welcome and of course, since some plans also double up as a
savings instrument, they assist you in planning for such future needs like children’s marriage,
purchase of various household items, gold purchases or as seed capital for starting a business.

Traditionally, buying life insurance has always formed an integral part of an individual’s
annual tax planning exercise. While it is important for individuals to have life cover, it is
equally important that they buy insurance keeping both their long-term financial goals and
their tax planning in mind. This note explains the role of life insurance in an individual’s tax
planning exercise while also evaluating the various options available at one’s disposal.

Life is full of dangers, but with insurance, you can at least ensure that you and your
dependents don’t suffer. It’s easier to walk the tightrope if you know there is a safety net. You
should try and take cover for all insurable risks. If you are aware of the major risks and buy the
right products, you can cover quite a few bases. The major insurable risks are as follows:
 L ife

36
Health
Income
Professional Hazards
Assets
Outliving Wealth
Debt Repayment.

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38
39
40
CHAPTER – IV

DATA ANALYSIS

41
NOTE: All the information related to Questionnaire is given in Chapter III Conceptual
Discussions.

Ques1. Do you invest your money in any kind of Financial Instruments?

Yes 85%

No 15%

INTERPRETATION

42
According to this graph, it is interpreted that 85% people invest their money in financial
instruments to get good returns and with the purpose of tax saving too. There are 15% people
who do not invest their money in financial instruments due to many reasons like they do not
believe in saving money for investment and in some cases, they like to save but their high
expenses and financial commitments do not permit them to invest.

Ques2. Which one you prefer the most and why?

F.D., Govt. Bonds, PPF 23%

Insurance and ULIP 30%
Equity Trading 26%
Retirement Plans 9%
Mutual Funds 12%

43
INTERPRETATION

According to this figure, it has been analyzed that most of the people i.e. 30% prefer ULIP and
Insurance as an investment tool because ULIP combines the benefit of Insurance and
Investment both and Insurance save human life against death and avail tax benefit too.
Secondly,26% of the people prefer to invest in Equity because they want to earn higher
returns.23% of the people still prefer F.Ds and investments in govt. bonds because they prefer
safety of the principal and tax saving/benefits.

Ques3. What is the main objective of your investment?

Protection (Life Insurance) 23%

Returns 32%
Safety 13%
Retirement Planning 9%
To reduce tax liability / tax saving 15%
Beating Inflation 8%

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INTERPRETATION

It is found that growth of capital/returns is the most important objective which investors
consider while investing. It is also seen that 23% of the investors prefer to secure their life
against death. Safety of their capital is also considered to be important. Inflation has only been
given 8% which reflects that people are still not giving much consideration to inflation even
due to a sharp rise in the inflation rate. The people who are business man are generally seen
returns/growth and tax benefits at the time of investment. Serviceman generally gives
preference to safety and retirement benefits.

Ques4. Which Tendency do you prefer the most?

45
 High risk, high return 39%

Moderate risk, moderate return 35%

Low risk, low return 26%

INTERPRETATION

It is found that 39% people like the tendency high risk high return, as they believe unless and
until we would not take risk how can we earn or get return more. That tendency is generally
prefer by business and servicemen whose income level is more than 5 lac. The investor with
low income level generally prefer moderate risk or low risk to invest in insurance, Government
bonds, bank savings, Debt etc. The age level also influence the tendency, the age level
between 18 –30 likes to take risks but above 45 they prefer low risk low return.

46
Ques5. For what term do you generally invest?

Less than10years 60%

10-15 years 35%

More than 15 years 5%

INTERPRETATION

By looking at this graph, it has been analyzed that most of the people take the time horizon of
less than 10 years which is followed by 35% of the investors investing for 10-15 years.
Investors investing for 10-15 years in order to earn better returns because most of the times
long term investment generate good returns over the investments. ULIPs are the best products
for Long-Term Investors. Investors investing for more than 15 years go for insurance,
retirement plans etc.

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Ques6. Why do you save and invest?

To meet day to day expenses 56%

To achieve future goals. 44%

INTERPRETATION

It is found that 56% of the investor invest their money to meet day to day expenses and like to
invest for a short period of time. These investors use to invest mostly in Equity shares, Mutual
Funds (ELSS)etc. There are 44% of the investors who invest their money to achieve future
goals and invest for long period of time like in ULIP, Retirement Plans, LifeInsurance etc. The
investors’ perception investing to achieve future goals is different from the investors investing
to meet day to day expenses.
48
Ques7. At what time you prefer to invest in the financial instruments?

At the beginning/middle of the financial year 55%

At the end of the financial year 45%

INTERPRETATION

49
It is found that 55% of the investors go for investment in financial instruments at the beginning
and middle of the financial year because they want peace of mind and they think that they will
be able to save small
amount of money till Independently 40%

the end of year and will Tax Consultants/CAs 35%

not be able to save and Advise from friends/Relatives 7%
invest more. While Financial Consultants. 18%
45% of the investors invest at the end of the year in order to save tax or to take advantage of
tax benefits and use to take financial decisions from CAs /Tax Consultants.

Ques8. Whom do you consult before going for any kind of tax saving investment?

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INTERPRETATION

It is found that 40% of the respondents take their financial decisions independently which
depicts they are not taking any advisory services from financial experts and they feel that they
can handle their portfolio on their own and hence make their own decisions regarding
investments. while 35% of the respondents make investment decisions from Tax Consultants
and CAs so that they can save their huge amount of tax by investing their money and 18% of
the investors take their investment decisions by consulting financial consultants. This opens up
the door for various financial advisors who can target these investors and can give advisory
services.

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 CHAPTER – V

FINDINGS

FINDINGS

On the basis of Data Analysis of the project titled “Study of various financial instruments as
tax saving options”. The following findings have been observed:

52
• 85% of the people invest their money in financial instruments and 15% of the people
do not invest their money because they are not able to save for investment i.e. they
spend whatever amount of money they earn.
• It has been observed that most of the people i.e. 40% invest their money into insurance
with the main objective of availing Tax Benefits.
• Most of the respondents i.e. 35% invest their money with a long term view i.e. 10 – 15
years.
• Before choosing an investment option, most of the respondents i.e. 32% look for how
quickly they will be able to increase their wealth i.e. returns and a large proportion of
respondents look for both the safety of principal and tax benefits.
• Most of the respondents i.e. 30% invest in ULIP because it is a combination of
Insurance and Investment.
• 39% people like the tendency high risk high return because they prefer to earn higher
returns.
• 56% of the investor invests their money to meet day to day expenses and like to invest
for a short period of time.

• 45% of the respondents go for investment in financial instruments at the end of the
financial year to avail tax benefits and use to take financial decisions from CAs /Tax
Consultants.

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 CHAPTER – VI

CONCLUSIONS AND SUGGESTIONS

CONCLUSION

On the basis of Data Analysis of the project titled “Study of various financial instruments as
tax saving options”. I can conclude that:

54
 • Investment in various financial instruments is affected by the perception of the people
and their tendency towards risk and return.

• The age of the investor also affects the investment decision. The younger investors like
to take risk and generally invest in more in equity than the people who are between
45–60.

• While investing into ULIPs, Insurance, Retirement plans and PPF people invests with
the main objective of taking the Tax Benefit the government offers while in Mutual
Funds and equity shares people invests with the main objective of the appreciation of
capital.

• People generally invest for the period of 10–15 years, take a long term view for
investment in order to grow their money.

• Most of the people prefer ULIP as an investment option because ULIPs offer the
benefits of both Insurance and Investment.

SUGGESTIONS

After doing a survey on “Study of various financial instruments as tax saving options”.The
following suggestions can be made:

55
• Many of the investors take their investment decisions independently but they should
consult CAs, Tax consultants if they are investing with the main purpose of tax saving.

• People are insured but there is still high uninsured population so the insurance
companies should tap the highly uninsured area in order to increase their market share.
HDFC SLIC being the private player, must use aggressive marketing strategies to
capture the more market because LIC is a public company and people have more trust
on it. So, HDFC SLIC has to do a lot in order to build a trust in the customers.

• Mutual Funds are not so popular because there are lot of charges deducted every year
for example Fund Management charge, entry load, exit load in case of premature
withdrawls etc. So these entry and exit loads must be abolished by the mutual fund
companies.

• Somewhere ULIPs are criticized for charging heavy charges in the initial 2 – 3 years,
for example policy administration charges, premium allocation charge. So these
charges must be reduced in order to attract more customers.

• It is suggested that if the investor is investing in ULIPs then invest for long period of
time to earn high returns.
• Investors should not put all the eggs into one basket but should diversify its portfolio to
minimize the risk. Investors who prefer equity investment should also include debt in
their portfolio because share market is totally unpredictable and can lead to heavy
losses in bear situation.
• Investors investing with the main purpose of tax saving should consult their consultants
to know where to invest so that investment leads to higher returns as well as tax saving
too.

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 APPENDICES

QUESTIONNAIRE

Personal Information
Name : __________________________________________________
Telephone No : __________________________________________________
Age Group

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 • 18-25 years

• 25-35 years

• 35-45 years

• 45-60 years
• Above 60 years

Income Group (per annum):

• <3 lacs

• 3-5lacs

• >5 lacs

Ques1. Do you invest your money in any kind of Financial Instruments?

• Yes
• No

Ques2. Which one you prefer the most and why?

• Fixed Deposit, Post Office Savings, Government Bonds

• Retirement Plans

• Equity Trading

• Insurance and ULIP

• Bank Savings

• PPF

• Mutual Funds

Ques3. What is the main objective of your investment?

• Protection (Life Insurance)
• Returns
• Safety
• Retirement Planning
• To reduce tax liability / tax saving
• Beating Inflation
• Others (please specify).

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Ques4. Which Tendency do you prefer the most?
• Low risk, low return
• Moderate risk, moderate return
• High risk, high return

Ques5. For what term do you generally invest?

• Less than 10years
• 10-15 years
• More than 15 years

Ques6. Why do you save and invest?

• To meet day to day expenses

• To achieve future goals.

Ques7. At what time you prefer to invest in the financial instruments?

• At the beginning of the financial year

• At the end of the financial year

Ques8. Whom do you consult before going for any kind of tax saving investment?
• Independently

• Tax Consultants/CAs

• Advise from friends/Relatives

• Financial Consultants.

Your overall experience regarding investment in various financial Instruments…………...

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

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 BIBLIOGRAPHY

BOOKS

• Khan M.Y. and Jain P.K (2001), Financial Management, Tata McGraw Hill.
• Kothari C.R., Research Methodology: Methods and Techniques, Edition-2005,
Published by WISHWA PRAKASHAN 1990.
• Pandey I.M. (2003), Financial Management, Tata McGraw Hill.

WEBSITES

• www.google.co.in
• www.hdfcinsurance.com

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