kshitija project

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A

PROJECT REPORTON

“THE ROLE OF FINANCIAL PLANNING IN

PORTFOLIO MANAGEMENT”

FOR

HDFC STANDARD LIFE INSURANCE COMPANY

SUBMITTED TOUNIVERSITY OF PUNE

IN PARTIAL FULFILLMENT OF THE REQUIREMENTOF

BACHELOR OF BUSINESS ADMINISTRATION (BBA)

SUBMITTED BYKSHITIJA.AVINASH.LONDHAY

UNDER THE GUIDANCE OF:

Mrs.BHUSHNA.BHAGAT

RNC Arts, JDC Commerce & NSC Science College, NASHIK ROAD. – 422101.



RESEARCH METHODOLOGY

1. EXECUTIVE SUMMARY

The project gave me a great experience and it has taught me many things which

will be very much helpful for my future at the same time it gave me enough

scope to implement my analytical ability.

.The second part consist of Financial Planning .

It is purely based on whatever I learned at HDFC Standard Life insurance

company. All the topics have been covered in a very systematic way.

HDFC Standard Life is an insurance company . While choosing this firm I was

very happy and excited as HDFC is a big group and the trust of the people are with

them . As it is the first private company to start its own insurance company .

I was having keen interest in knowing :

How the financial planning is done for their customer ?

How the need of the customer is fulfilled ?

As the customer or investor are very much confused in investing their money as itshould be save and also to get good amount of returns .

In the today’s days near about 35 to 36 mutual fund companies are operating in India and

in same number insurance companies are also operating in India. A lot of product and



near about 1000 schemes are available in mutual fund, and insurance. Both of the term

have a complex product, and that time the investor become confuse and get attracted

towards the product and forget about the essential requirements so needs have a proper

portfolio management or Financial planner who identify a proper need of investor and

create a plan which are related to need and select a product which will give a positive

return to the investor in future..

I was very happy working with them . I also want to get knowledge of Financial

Planning and I can use this knowledge to do my own financial planning.

Sometimes people have a lot of money but they don’t know where to invest this

money that will give a higher return on investment. And sometime people who

does not have a lot of money but they don’t know how to use this money for

achieving future goal’s at that time a need arises of a better financial consultant

who manage a portfolio of individual.



OBJECTIVES

I. PRIMARY OBJECTIVES :

.

2 To study Financial Planning in individual’s life.

.

II. SECONDARY OBJECTIVES :

1. To study investment

.

2. To study the financial planning as effective tool in maintaining standard of

living in individual’s life for achieving his financial goal’s.

3. To study various planning done by financial consultant for the customer.



3. INDUTRY PROFILE

INSURANCE:-

Insurance can be defined as assurance of uncertainty . Insurance is about

something going wrong . It’s about things going ; One of the Wonders of human

nature that never believe anything can actually go wrong .

The insurance sector in India has come a full circle from being an open

competitive market to nationalization and back to liberalized market again

Tracking the development in Indian insurance sector reveals 360 degree turn

witnessed over a period of almost two centuries .

The business of life insurance in Indian in its existing form started in India in the

year 1818 with the establishment Oriental Life Insurance in Calcutta..

Some of the important milestone in life insurance business in India are.

1912 : The Indian Life Insurance Companies Act enacted as first statue to

Regulate the life insurance business.

1928: The Insurance Companies Act enacted to enable the government to

Collect statistical information about life and non-life insurance business.



1938: Earlier legislation consolidated and amended to by the insurance Act

With the objective of protecting the interests of the insuring public.

1965: 245 Indian and insurers and provident societies take over by the central

Government and nationalized. LIC formed by an act of parliament viz.

LIC. Act .1956, with capital contribution of Rs. 5 Crores from

Government of India

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

Reforms in the Insurance sector were initiated with the passes of IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory

body in April 2000 has fastidiously such to its schedule of framing regulations and

registering the private sector insurance companies.

The other decision taken simultaneously to provide the supporting systems to the

insurance sector and in particular the life insurance companies was the launch of

the IRDA online service for issue and renewal of licenses to agents.

COMPANY PROFILE

HDFC STANDARD LIFE INSURANCE COMPANY LTD.

HDFC Incorporated in 1977 with a share capital of Rs 10 Cores , HDFC has since

emerged as the largest residential mortgage finance institution in the country . The

corporation has had a series of share issues raising its capital to Rs 119 cores .The

gross premium income for the year ending March 31, 2007.



HDFC operates through almost 450 locations throughout the country with its

corporate hea quarters in Mumbai, India .HDFC also has an international office in

Dubai, UAE, with services associates in Kuwait, Oman and Qatar.

HDFC is the largest housing Company in India for the last 27 years.



KEY PLAYERS

Mr. Deepak .S. Parekh is the Chairman of the Company. He is also the Executive

Chairman of Housing Development Finance Corporation Limited (HDFC Ltd.) .

He joined HDFC Ltd. In a senior management position in 1978.

He was inducted as whole-time director of HDFC Limited in 1985 and was

appointed as its Executive Chairman in 1993.

Mr. Deepak M Stalker is the Managing Director and CEO of the company since

November , 2000. Prior to this, he was the Managing Director of HDFC Limited

since 1993.



What is investing?

Investment refers to a commitment of funds to one or more assets that will be held

over some future time period. Almost all individuals have wealth of some kind,

ranging from the value of their services in the workplace to tangible assets to

monetary assets. Anything not consumed today and saved for future use can be

considered an investment. For our purposes, investment will mean a measurable

asset retained in order to increase one’s personal wealth.

Why to invest?We invest to improve our future welfare. Funds to be invested come from assets

already owned, borrowed money, and savings or foregone consumption. By

foregoing consumption today and investing the savings, we expect to enhance our

future consumption possibilities. Anticipated future consumption may be by other

family members, such as education funds for children or by ourselves, possibly in

retirement when we are less able to work and produce for our daily needs.

Regardless of why we invest we should all seek to manage our wealth effectively,

obtaining the most from it. This includes protecting our assets from inflation, taxes

and other factors.

What Process Do We Use to Invest?

The financial planning process consists of six steps that help you take a "big

picture" look at where you are financially. Using these six steps, you can work out



where you are now, what you may need in the future and what you must do to

reach your goals. These six steps are:

1. Establishing and defining the client-planner relationship

The financial planner should clearly explain or document the services to be

provided to you and define both his and your responsibilities. The planner should

explain fully how he will be paid and by whom. You and the planner should agree

on how long the professional relationship should last and on how decisions will be

made.

2. Gathering client data, including goals

The financial planner should ask for information about your financial situation.

You and the planner should mutually define your personal and financial goals,

understand your time frame for results and discuss, if relevant, how you feel aboutrisk. The financial planner should gather all the necessary documents before

giving you the advice you need.

3. Analyzing and evaluating your financial status

The financial planner should analyze your information to assess your current

situation and determine what you must do to meet your goals. Depending on what

services you have asked for, this could include analyzing your assets, liabilities

and cash flow, current insurance coverage, investments or tax strategies.



4.Developing & presenting financial planning

recommendations

The financial planner should offer financial planning recommendations that

address your goals, based on the information you provide. The planner should

go over the recommendations with you to help you understand them so that

you can make informed decisions. The planner should also listen to your

concerns and revise the recommendations as appropriate.

5. Implementing the financial planning recommendations.

You and the planner should agree on how the recommendations will be carried out

.The planner may carry out the recommendations or serve as your "coach,"

coordinating the whole process with you and other professionals such as attorneys

or stockbrokers.

6. Monitoring the financial planning recommendations.

You and the planner should agree on who will monitor your progress towards your

goals. If the planner is in charge of the process, she should report to you

periodically to review your situation and adjust the recommendations, if needed,

as your life changes.



Method of data collection:

A. Primary Data:

Data from primary source collected sitting with financial consultant and askedquestions (interview) to the client.

B. Secondary Data:

The main source secondary data for insurance, is the Name, Address of the

Company Customers for whom insurance the has to be made. This was available

for the Company System.

• Scope of the Study



The scope of my project was to study the Role of financial planning in

Portfolio Management of the HDFC Standard Life Insurance. For that

Company had assigned me their Financial Consultant as a Trainee. In today’s area

as, the Portfolio Management is really important element of Financial Planning.

While working on Portfolio Management System, I understand the various

factors like, Nature, purpose, conditions, and income level of each and every

customer

Firstly I need to understand what kind of services offered by the Company to their

customers and accordingly I need to take the steps towards the designing the

Portfolio for the individual customers (which includes, salary earner, businessman,

self employed etc.

Limitations of study

• Time period was limited for the project so it was not possible to learn

whole things in the financial planning.

• Client’s interaction was not permitted all the time and on all the topics.

• Wrong information given by the client cannot be result in achieving the

objective of financial planning.

• Time period given by the expertise was very limited to cover the

comprehensive.

•

Concept of financial planning.



. INTRODUCTION

Mr. Sham, 42 years old, married to Mrs. Gayatri age 39 recently.

Currently earning Rs. 1352000/- p.a. and main support for the family. Gayatri’s

income in mainly for her own savings and personal use. Within next 2-3 yrs she

will stop her consultancy and focus on your children’s education and home.

You are very keen on insurance part. And paying almost 200000/- premium p.a.

Total 14 policies with sum assured Rs. 3815000. Majority of the policies are

Endowment and few Term Insurances.

Net worth analysis shows a net worth of Rs. 4590000/- Total Assets now in July

2008 are Rs. 8182000/- and liabilities of Rs. 3592000/-

2. GOALS & OBJECTIVES

1. Cash Flow & Net worth Management

To have a significant cash flow surplus annually of around 15-18% of household

gross income in order to provide a funding source for all future wealth change

your accumulation targets. Any cash flow review should not significantly lifestyle.

1. Risk planning & ManagementYou want to have a complete family’s personal insurance program. This includes

covering all debts and having lump sums for generating income for the surviving

family members.



3. Education of both the children.

You have 2 sons. Your goal is to give them the Best quality of Education in best

colleges in India. By, retirement, you expect both of them to be independent and

do not need financial support.

4. Retirement Planning

You have some personal savings. Your goal is to retire at age 60. At that time you

want maintain the standard of living same as before retirement for yourself andspouse. Lowering the standard is unacceptable. You are however not aware

whether the current recourses are adequate to provide retirement needs.

5. Investment Planning

Asset portfolio should grow at a rate, which supports the realization of the wealth

accumulation goals for financial freedom (retirement) and education for children.

6. Estate Planning

To have wills written for both husband and wife and to have a trust set up for the

child.

7. Tax Planning

To optimize tax savings under the Indian tax system. You are keen on using up

all personal tax relieves and rebates and to have good income reallocation

planning.



Sub-Objectives

1. Good long term capital appreciation.

2. Returns from investment should be tax free or with minimum tax.

Insurance

Insurance is a basic form of risk management, which provides protection against

possible loss to life or physical assets. A person who seeks protection against such

loss is termed as insured, and the company that promises to honor the claim, in

case such loss is actually incurred by the insured, is termed as Insurer. In order to

get the insurance, the insured is required to pay to the insurance company (i.e. the

insurer) a certain amount, termed as premium, on a periodical basis (say monthly,

quarterly, annually, or even one-time).

Concept of Insurance / How Insurance Works

The concept behind insurance is that a group of people exposed to similar risk

come together and make contributions towards formation of a pool of funds. In

case a person actually suffers a loss on account of such risk, he is compensated

out of the same pool of funds. Contribution to the pool is made by a group of

people sharing common risks and collected by the insurance companies in the

form of premiums.

Insurance Covers



Depending on the circumstances, you may need insurance in the following areas:

• Life

• Health

• Home

• Motor

• Personal Liability

• Professional Liability

• Business

• Disability

• LIFE INSURANCE:

Life insurance is a risk sharing mechanism whereby a policy owner (the insured)

agrees to invest some money with an insurance company that obligates itself to

pay money to a beneficiary on the insured’s death. It is a legal contract between an

insurance company and policy owner.

Life insurance needs analysis:

The first in determining what type of insurance to buy is a ‘needs analyses. You

need to assess the financial impact on your family if the breadwinner should die.

You can assess the in different ways.

I. The Multiple Earning Method:



The amount of life cover you should buy should be 3 to 10 times of your gross

annual earnings. It completely ignores your financial resources and needs.

The ‘ Human Life Value’ Method:

This method values human life at the present value of all future earnings potential.

The steps for calculating the amount of cover under this method are as below:

• Deduct your personal expenses from your total income. This is the

surplus that you leave for your family and for your investments.

• Calculate the number of years left in your earning life

• Retirement age-Current age.

• Project family expenses up to retirement, allowing for increases due

to inflation and other factors.

• Subtract any pension benefits that they might get at your death.

• Add non-recurring expenses like children’s marriage.

• Calculate the shortfall in the total expenses and income.

• Calculate the present value of the shortfall.

The ‘Needs’ Method:

This method tries to calculate the amount required by your family to maintain their

existing lifestyle and their financial goals. The amount of the life cover under this

Method is calculated by subtracting the total of your current financial resources

from the present value of your family’s projected expenses.



II. Forms of life cover:

Life insurance covers are availably three forms. Each form exists for a different

objective. These are:

A. Term plan

In the event of death in the policy period, your nominees receive the amount of

your cover i.e. the sum assured. You get nothing if you survive beyond the policy

period.

B. Pension plans

Pension plans are actually pure investment products. They provide with an

alternate income stream after your retirement.

C. Endowment plan

They also offer some returns on the premiums paid by you. So if you die during

the policy Term, your nominee’s get the sum assured plus some returns. Even if

you survive the term, you still get back the sum assures and the returns. However,

the premium charged for endowment plans is 5-6 times higher than the premium

for term plan.

D. Money-back plans:

Money-back plans are a variant of endowment plans. In case of the endowment

plans, the survival benefits are disbursed at the end of the policy term, while in

money-back plans the payback is staggered through the policy period.



Money back policy is a policy opted by people who want periodical payments. A

money back policy is generally issued for a particular period, and the sum assured

is paid through periodical payments to the insured, spread over this time period. In

case of death of the insured within the term of the policy, full sum assured alongwith bonus accruing on it is payable by the insurance company to the nominee of

the deceased.

E. WHOLE-LIFE PLANS:

The term plan, endowment plans and money back plan provide cover only till a

specified age. Whole life plan provides cover till end of life. The insured has to

pay premium till a specified age. On reaching that age, the insured has the option

to encash the maturity benefits pr continue the cover for his entire lifetime.

F. Unit link insurance plans:

It can be considered as a combination of mutual funds and term plans. Part of the

premium paid is linked to the policy period and the sum assured and the rest is

invested.



NON-LIFE INSURANCE

Types of non life insurance:

1. Personal-

a. Medical

b. Disability

2. Property-

a. Damage to property

b. Loss of income

c. Indirect losses

3. Liability-

a. Under statute

b Under common law

c Under contract



SUGGESTIONS

• Company should have to increase awareness in the customers.

• Create a new tools and techniques which will be easy to understand for

clients.

• Company has to use effective Medias that can appeal to the masses.

• Make those ads, which can educate customers about financial planning.



CONCLUSION

• Most of people are unaware about Financial Planning.

• Mainly businessman & salaried person are more interested to do Financial

Planning.

•Insurance advertisement not succeeds in creating awareness in the people.

People are more interested in investing in traditional Investment options like

insurance, FD, post.

BIBILOGRAPHY



BOOKS

V.A. AVADHANI, Securities Analysis and Portfolio Management,

Himalaya Publishing House, 9th revised edition.

WEB

http:// www.hdfcsl.com

3. CURRENT FINANCIAL SITUATION

Cash Flow Analysis

In-Flow Rs Out-Flow Rs.

Sham’s Income (after tax)1,352,040 Tax Payment

Gayatri's Income (after tax) 165,000 Sham’s Tax 225,000

http://www.hdfcsl.com/





LIC Maturity 134,000 Gayatri's Tax 0

Dividend Received 20,000

Bank Interest 2,100 Subtotal 225,000

Standard of Living

Car loan installments (HondaCity) 212,400

Car loan installments (Wagon R) 79,764

House loan installments 225,144

Personal Loan 235,392

Car maintenance 19,000

House maintenance 12,000

Credit Card payments 6,122

Eating out 48,000

Groceries 12,000

Travel 50,000

Utilities 60,000

Miscellaneous 69,500

Subtotal 1,029,322

Insurance Premium

Sham’s life insurance 108,264

Gayatri's life insurance 57,901

Vehicle Insurance 12,686Other Insurance 21,000

Subtotal 199,851

Total

1,673,14

0 Total 1,454,173

Difference 218,967

Cash out Flow is



15%

15%

5%

15% 16%

1%

1%

0%

3%

1%

3%

4%

5%

7%

4%

1%

1%

Sham’s

Car loan installments

Car loan installments

House loan

Personal

Car

House

Credit Card

Eating

Grocerie

Travel

Utilitie

Miscellaneo

Sham’s life

Gayatri’s life

Vehicle

Other

4. ASSUMPTIONS



Following are the assumptions based on the facts and discussions with

you.

Your income will increase at the rate of 10 % per annum until age 60.

Spouse’s income will stop within next 3 years.

Rate of inflation at 7 % per annum based on government official rate on Consumer

Price Index.

Equities investment rate of return at 18% p.a. on long-term basis.

Property investment rate of return at 10 % p.a. covering capital gain.

Investment-linked equities funds at rate of return of 15% p.a.

Investment-linked bond funds at rate of return of 7.5 % p.a.

Pre-retirement investment portfolio rate of return should be 12%

Post-retirement investment portfolio rate of return = 10%



5. CASH FLOW MANAGEMENT

Net worth Statement – Current

Assets Rs. Liabilities Rs.

Liquid assets: Home Loan 1780000

Cash in hand 20000 Car loans 456000

Saving account 116950 Personal Loan 1356000

Fixed Deposits 0

Mutual Funds 776000

Sub Total 912950

Non-liquid assets:Properties 3500000

Equities 200000

PPF 1005789

Cars 800000

Life insurance cash value 764053

Other Assets 1000000

Sub Total 7269842

TOTAL 8182792 TOTAL 3592000

NETWORTH 4590792

6.RISK MANAGEMENT/INSURANCE PLANNING

The current personal insurance summary is as follows:

Person Plan type Premium p.a. Insurance Cover

Mr. Sham Endowment + Term Insurance 92533/- 3815001/-

Mrs. Gayatri Endowment 56550/- 1142653/-

Master Raj Unit Linked 6395/- 75000/-

Miss Stuti Unit Linked 6351/- 100000/-



7. EDUCATION PLANNING

It seems that you have not specifically allocated funds for education funding of your one son and one daughter..

8. RETIREMENT PLANNING

There is currently no clear plan on retirement. You have not really focused on this

aspect. It seems that your major focus is on your current profession and you havenot given a thought on Retirement Planning

9. INVESTMENT PLANNING

The following table lists out the portfolio of investment-grade assets currently

owned and the portfolio return rate:

Asset Rs Return Rate Weighted Return Rate

Saving Account 116,950 3.50% 0.14%

Equities 200,000 18.00% 1.26%

Life insurance Value 764,053 4.50% 1.20%

Mutual funds 776,000 15.00% 4.07%

PPF 1,005,789 8.00% 2.81%

Total: 2,862,792 Portfolio Return: 9.48%



Investments

4% 7%

27%

27%

35% Saving Account Equities Life insurance Mutual funds PPF

STANDARD LIFE



Standard Life is Europe’s largest mutual life assurance company. Standard Life

which has been in the life insurance business from the past 185 years is a modern

company surviving quite a few changes since selling its first policy in 1825.The

company expanded in the 19

th

century from its original Edinburgh premises ,opening offices in other towns and acquitting other similar businesses.

Standard Life current assests exceeding over $ 70 billion under its managementand has the distinction of being recorded “

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