PROJECT REPORT ON MUTUAL FUND

PROJECT REPORT ONWORKING CAPITALWORKING CAPITAL

Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc.

These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the enterprises current assets are those

Assets which can convert in to cash within a short period normally one accounting year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working capital is the excess of current assets over current liability, or, say:

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following reasons:

1. It enables the enterprise to provide correct amount of working capital at correct time.

2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital.

4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons:

It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities.

IT indicates the margin of protection available to the short term creditors.

It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as:

Permanent or fixed working capital. Temporary or variable working capitalPERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assts is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the depression.

Quick And Regular Return On Investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future.

High Morale: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business.EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores and spares and finished stock.

For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and ambitions of its promoters. Greater the size of the business unit, generally larger will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth and expensing of the business till it gains maturity. At maturity the amount of working capital required is called normal working capital.

There are others factors also influence the need of working capital in a business.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

DEBTORS

CASH FINISHED GOODS

RAW MATERIAL WORK IN PROGRESS

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover wuill needs lower amt. of working capital as compared to a firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.

Others FACTORS: These are:

Operating efficiency. Management ability. Irregularities of supply. Import policy. Asset structure. Importance of labor. Banking facilities, etc.MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.

2. It is concerned with the decision about the composition and level of current assets.

3. It is concerned with the decision about the composition and level of current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSISA ratio is a simple arithmetical expression one number to another. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios can be calculated for these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSISFund flow analysis is a technical device designated to the study the source from which additional funds were derived and the use to which these sources were put. The fund flow analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates.

3. WORKING CAPITAL BUDGETA budget is a financial and / or quantitative expression of business plans and polices to be pursued in the future period time. Working capital budget as a part of the total budge ting process of a business is prepared estimating future long term and short term working capital needs and sources to finance them, and then comparing the budgeted figures with actual performance for calculating the variances, if any, so that corrective actions may be taken in future. He objective working capital budget is to ensure availability of funds as and needed, and to ensure effective utilization of these resources. The successful implementation of working capital budget involves the preparing of separate budget for each element of working capital, such as, cash, inventories and receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF LIQUIDITY

The short term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. But a very high degree of liquidity of the firm being tied up in current assets. Therefore, it is important proper balance in regard to the liquidity of the firm. Two types of ratios can be calculated for measuring short-term financial position or short-term solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ratios.

A) LIQUIDITY RATIOSLiquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The current assets should either be liquid or near about liquidity. These should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.

CALCULATION OF CURRENT RATIO

(Rupees in crore)

e.g.

Year201120122013

Current Assets81.2983.1213,6.57

Current Liabilities27.4220.5833.48

Current Ratio2.96:14.03:14.08:1

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last three years it has increased from 2011 to 2013. The current ratio of company is more than the ideal ratio. This depicts that companys liquidity position is sound. Its current assets are more than its current liabilities.

2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash with a short period without loss of value. It measures the firms capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.

A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short-term obligations. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

e.g. (Rupees in Crore)

Year201120122013

Quick Assets44.1447.4361.55

Current Liabilities27.4220.5833.48

Quick Ratio1.6 : 12.3 : 11.8 : 1

Interpretation :

A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is more than ideal ratio. This shows company has no liquidity problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute Liquid Assets includes :

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

e.g. (Rupees in Crore)

Year201120122013

Absolute Liquid Assets4.691.795.06

Current Liabilities27.4220.5833.48

Absolute Liquid Ratio.17 : 1.09 : 1.15 : 1

Interpretation :

These ratio shows that company carries a small amount of cash. But there is nothing to be worried about the lack of cash because company has reserve, borrowing power & long term investment. In India, firms have credit limits sanctioned from banks and can easily draw cash.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, large is the amount of sales and profits. Current assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated. These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount of debtors due to slow credit collections and moreover if the assets include high amount of slow moving inventories. As both the ratios ignore the movement of current assets, it is important to calculate the turnover ratio.

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it. It will therefore be advisable to dispose the inventory as soon as possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the stock is converted into sales. Usually a high inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold ; the lesser amount of money is required to finance the inventory. Where as low inventory turnover ratio indicates the inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accumulations and slow moving goods and low profits as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

(Rupees in Crore)

Year201120122013

Cost of Goods sold110.6103.296.8

Average Stock73.5936.4255.35

Inventory Turnover Ratio1.5 times2.8 times1.75 times

Interpretation :

These ratio shows how rapidly the inventory is turning into receivable through sales. In 2012 the company has high inventory turnover ratio but in 2013 it has reduced to 1.75 times. This shows that the companys inventory management technique is less efficient as compare to last year.

2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

e.g.

Year201120122013

Days365365365

Inventory Turnover Ratio1.52.81.8

Inventory Conversion Period243 days130 days202 days

Interpretation :

Inventory conversion period shows that how many days inventories takes to convert from raw material to finished goods. In the company inventory conversion period is decreasing. This shows the efficiency of management to convert the inventory into cash.

3. DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. So liquidity position of a concern also depends upon the quality of trade debtors. Two types of ratio can be calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS

Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover ratio the more efficient is the management of debtors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors. This ratio should be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

e.g.

Year201120122013

Sales166.0151.5169.5

Average Debtors17.3318.1922.50

Debtor Turnover Ratio9.6 times8.3 times7.5 times

Interpretation :

This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher the values or turnover into sales. The higher the values of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing year to year. This shows that company is not utilizing its debtors efficiency. Now their credit policy become liberal as compare to previous year.

4. AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of days for which a firm has to wait before its receivables are converted into cash. It measures the quality of debtors. Generally, shorter the average collection period the better is the quality of debtors as a short collection period implies quick payment by debtors and vice-versa.

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

Year201120122013

Days365365365

Debtor Turnover Ratio9.68.37.5

Average Collection Period38 days44 days49 days

Interpretation :

The average collection period measures the quality of debtors and it helps in analyzing the efficiency of collection efforts. It also helps to analysis the credit policy adopted by company. In the firm average collection period increasing year to year. It shows that the firm has Liberal Credit policy. These changes in policy are due to competitors credit policy.

5. WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of the year. This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Cost of Sales

Net Working Capital

Working Capital Turnover = Sales

Networking Capital

e.g.

Year201120122013

Sales166.0151.5169.5

Networking Capital53.8762.52103.09

Working Capital Turnover3.082.41.64

Interpretation :

This ratio indicates low much net working capital requires for sales. In 2013, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the company requires 60 paisa as working capital. Thus this ratio is helpful to forecast the working capital requirement on the basis of sale.

INVENTORIES

(Rs. in Crores)

Year2010-20112011-20122012-2013

Inventories37.1535.6975.01

Interpretation :

Inventories is a major part of current assets. If any company wants to manage its working capital efficiency, it has to manage its inventories efficiently. The graph shows that inventory in 2010-2011 is 45%, in 2011-2012 is 43% and in 2012-2013 is 54% of their current assets. The company should try to reduce the inventory upto 10% or 20% of current assets.

CASH BANK BALANCE :

(Rs. in Crores)

Year2010-20112011-20122012-2013

Cash Bank Balance4.691.795.05

Interpretation:

Cash is basic input or component of working capital. Cash is needed to keep the business running on a continuous basis. So the organization should have sufficient cash to meet various requirements. The above graph is indicate that in 2011 the cash is 4.69 crores but in 2012 it has decrease to 1.79. The result of that it disturb the firms manufacturing operations. In 2013, it is increased upto approx. 5.1% cash balance. So in 2013, the company has no problem for meeting its requirement as compare to 2012.

DEBTORS :

(Rs. in Crores)

Year2010-20112011-20122012-2013

Debtors17.3319.0525.94

Interpretation :

Debtors constitute a substantial portion of total current assets. In India it constitute one third of current assets. The above graph is depict that there is increase in debtors. It represents an extension of credit to customers. The reason for increasing credit is competition and company liberal credit policy.

CURRENT ASSETS :

(Rs. in Crores)

Year2010-20112011-20122012-2013

Current Assets81.2983.15136.57

Interpretation :

This graph shows that there is 64% increase in current assets in 2013. This increase is arise because there is approx. 50% increase in inventories. Increase in current assets shows the liquidity soundness of company.

CURRENT LIABILITY :

(Rs. in Crores)

Year2010-20112011-20122012-2013

Current Liability27.4220.5833.48

Interpretation :

Current liabilities shows company short term debts pay to outsiders. In 2013 the current liabilities of the company increased. But still increase in current assets are more than its current liabilities.

NET WORKING CAPITAL :

(Rs. in Crores)

Year2010-20112011-20122012-2013

Net Working Capital53.8762.53103.09

Interpretation :

Working capital is required to finance day to day operations of a firm. There should be an optimum level of working capital. It should not be too less or not too excess. In the company there is increase in working capital. The increase in working capital arises because the company has expanded its business.

RESEARCH METHODOLOGY

The methodology, I have adopted for my study is the various tools, which basically analyze critically financial position of to the organization:

I. COMMON-SIZE P/L A/C

II. COMMON-SIZE BALANCE SHEET

III. COMPARTIVE P/L A/C

IV. COMPARTIVE BALANCE SHEET

V. TREND ANALYSIS

VI. RATIO ANALYSIS

The above parameters are used for critical analysis of financial position. With the evaluation of each component, the financial position from different angles is tried to be presented in well and systematic manner. By critical analysis with the help of different tools, it becomes clear how the financial manager handles the finance matters in profitable manner in the critical challenging atmosphere, the recommendation are made which would suggest the organization in formulation of a healthy and strong position financially with proper management system.

I sincerely hope, through the evaluation of various percentage, ratios and comparative analysis, the organization would be able to conquer its in efficiencies and makes the desired changes.

ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to logical and consistent accounting procedure to convey an under-standing of some financial aspects of a business firm. It may show position at a moment in time, as in the case of balance sheet or may reveal a series of activities over a given period of time, as in the case of an income statement. Thus, the term financial statements generally refers to the two statements

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB) states

The following objectives of financial statements: -

1. To provide reliable financial information about economic resources and obligation of a business firm.

2. To provide other needed information about charges in such economic resources and obligation.

3. To provide reliable information about change in net resources (recourses less obligations) missing out of business activities.

4. To provide financial information that assets in estimating the learning potential of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do not present a final picture a final picture of a concern. The utility of these statements is dependent upon a number of factors. The analysis and interpretation of these statements must be done carefully otherwise misleading conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the concern. The data given in these statements is only approximate. The actual value can only be determined when the business is sold or liquidated.

2. Financial statements have been prepared for different accounting periods, generally one year, during the life of a concern. The costs and incomes are apportioned to different periods with a view to determine profits etc. The allocation of expenses and income depends upon the personal judgment of the accountant. The existence of contingent assets and liabilities also make the statements imprecise. So financial statement are at the most interim reports rather than the final picture of the firm.

3. The financial statements are expressed in monetary value, so they appear to give final and accurate position. The value of fixed assets in the balance sheet neither represent the value for which fixed assets can be sold nor the amount which will be required to replace these assets. The balance sheet is prepared on the presumption of a going concern. The concern is expected to continue in future. So fixed assets are shown at cost less accumulated deprecation. Moreover, there are certain assets in the balance sheet which will realize nothing at the time of liquidation but they are shown in the balance sheets.

4. The financial statements are prepared on the basis of historical costs Or original costs. The value of assets decreases with the passage of time current price changes are not taken into account. The statement are not prepared with the keeping in view the economic conditions. the balance sheet loses the significance of being an index of current economics realities. Similarly, the profitability shown by the income statements may be represent the earning capacity of the concern.

5. There are certain factors which have a bearing on the financial position and operating result of the business but they do not become a part of these statements because they cannot be measured in monetary terms. The basic limitation of the traditional financial statements comprising the balance sheet, profit & loss A/c is that they do not give all the information regarding the financial operation of the firm. Nevertheless, they provide some extremely useful information to the extent the balance sheet mirrors the financial position on a particular data in lines of the structure of assets, liabilities etc. and the profit & loss A/c shows the result of operation during a certain period in terms revenue obtained and cost incurred during the year. Thus, the financial position and operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm from the available accounting data and financial statements. The analysis is done

CALCULATIONS OF RATIOS

Ratios are relationship expressed in mathematical terms between figures, which are connected with each other in some manner.

CLASSIFICATION OF RATIOS

Ratios can be classified in to different categories depending upon the basis of classification

The traditional classification has been on the basis of the financial statement to which the determination of ratios belongs.

These are:-

Profit & Loss account ratios

Balance Sheet ratios

Composite ratios

PROJECT REPORT ON

LIFE INSURANCE POLICY

INTRODUCTION

Life Insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insureds death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals. Life Insurance is a contract for payment of money to the person assured (or to the person entitled to receive the same) on the occurrence of

the event insured against.

Usually the contract provides for:

1. Payment of an amount on the date of maturity or at specified periodic intervals or at death if it occurs earlier.

2. Periodical payment of insurance premium by the assured, to the corporation who provides the insurance.

Who can take Life insurance policy?

1. Any person above 18 years of age, who is eligible to enter into valid contract,

2. Subject to certain conditions a policy can be taken on the life of a spouse or children.

Now life insurance policies are available in two types:

1. Traditional policies:

2. Unit linked insurance plans(ULIP5):

Now ULIPs are food in market:

ULlP stands for Unit Linked Insurance Plan. It provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. The investment is d8noted as units and is represented by the value that it has attained called as Net Asset Value (NAV). ULIP came into play in the 1960s and became very popular in Western Europe and Americas. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In todays times, ULIP provides solutions for

insurance planning, financial needs, financial planning for childrens future and retirement planning. These are provided by the insurance companies or even banks. These investments can also be used for tax benefit under section 80C.

PURPOSE OF STUDY:

To study the concept and working mechanism of ULIPs

Reasons why ULIPs get thumps up

Reasons for investing systematically

To study in detail about two ULIP product of Bajaj Allianz Life Insurance Co Ltd

To make a comparison between Mutual Funds & ULIPs

To study the comparison between Traditional Policies & ULIPs

To understand the relationship between Mutual Funds & ULIPs and Traditional

Policies & ULIPs

To have an awareness of IRDA Guidelines with respect to ULIPs

SCOPE OF STUDY:

The project entitled ULIP as an Investment Avenue is a detailed study about the inception of the concept of Unit linked insurance policies and its working mechanism. The study is confined only to the analysis about the ULIPS and its effectiveness in comparison with the traditional policies and the Mutual funds. The Scope is limited only to the detailed understanding of the two products of

the Bajaj Allianz.

RESEARCH METHODOLOGY

Sources of data

Data collection is of two types as follows:

Primary data:

The primary data refers to the data collected from direct questioning and which has not been collected or gathered earlier by any other research study. The data for this study

was collected by interacting with insurance trainers and sales managers.

Secondary data:

This type of data refers to the gathering of information from the sources that have readymade data already in possession. This data has already been collected and

complied. This data has been collected from the existing surveys in the company. Information has been gathered from the company brouchers, periodicals, websites and other books. After gathering the data from the Sources, the data was analyzed, tabulated, interpreted and finally conclusions were made regarding the entire project.

LIMITATIONS OF THE STUDY:

The study is limited only to Bajaj Allianz.

The study does not include any comparison with product of other companies.

More focused on ULIPs only.

Insurance Overview

This is the current scenario of the Global Insurance Industry and now let us looks at the basic function of insurance. While conceding that insurance is a risk-transfer tool, corporate should be made to understand that it does not suffice merely to transfer the risk but they have to participate in the effort of loss prevention. New techniques and technology have to be adapted from them to time in order to improve performance and

this has special significance to the order to improve performance and this has special significance to the Indian insurance Industry. The Indian insurance industry has always suffered from drawbacks like lack of proper understanding of the purpose of insurance, lopsided growth etc., with the opening up of the industry, it is hoped that the row entrants with their better channels would spread to the real message of insurance, leading to a dynamic growth. Emphasis should be on finding new technological avenues, although it has been observed world over that for selling insurance, an eye to eye contact is essential. Internet can be used for better servicing which would eventually, lead to business development. With the entry of foreign companies into the insurance arena, a fresh life has been inducted and there is a great deal of optimism in the air that the market would automatically create a vibrant competition leading to the customer being the ultimate winner.

Insurance in India:

Insurance in India started without any regulation in the nineteenth century. It was a typical story of a colonial era: a few British Insurance companies dominating the market

sewing mostly large urban centers. After the independence, it took a dramatic turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general business was nationalized in 1972. Only in 1999 private insurance companies have been allowed back into the business of insurance with a maximum of 26% of foreign holding.

We describe how and why of regulation and deregulation. The entry of the State Bank of India with its proposal of bank assurance brings a new dynamic in the game.

We study the collective experience of other countries in Asia already deregulated their market and have allowed foreign companies to participate. If the experience of other

countries is any guide, the dominance of Life Insurance Corporation is not going to disappear any time soon.

The Indian insurance market, with a population of over one million, offers tremendous opportunities and can easily sustain 100 insurers. This article analyses the

development of the insurance sector, which will result in higher domestic savings and investments, significant expansion of flue capital market, enhanced insurance

infrastructure financing and increased foreign capital inflow and employment. The opening up of the Indian insurance sector has been hailed tie a groundbreaking move towards further liberalization of the Indian economy. The size of the existing insurance market is growing at a rate of ten percent per year. The estimated

potential of the Indian insurance market in terms of premium was around Rs. 344000 crores (US$66 billion) in 1999. The Indian players have tapped only tent per cent of the market share and the remaining 90 per cent of the market remain untapped. The Indian Government has recently enacted the insurance Regulatory

Development Authority Act 1999, which amends existing Insurance laws dating from 1936. The act establishes an authority called the Insurance Regulatory Development

Authority, designed to regulate the Insurance sector. This article examines the provisions of the new Act from the point of view of a company with diverse business

interests wishing to establish a joint venture with an Indian company.

Insurance under the British Raj:

Life insurance in modern form was first set up in India through a British company called the Oriental Life Insurance Company in 1818 followed by the Bombay Assurance Company in 1623 and Madras Equitable Life Insurance Society in 1829. All of these companies operated in India but did not insure the lives of Indians. They were there insuring the lives of Europeans living in India. Some of the companies that started later did provide insurance for Indians. But they were treated as substandard and therefore had to pay an extra premium of 20% or more. The first company that had 3 policies that could be bought by Indians with fair value was the Bombay Mutual Life Assurance Society starting in 1871. By 1938, the insurance market in India was buzzing with 176 companies (both

life and non-life). However, the industry was plagued by fraud. Hence a comprehensive set of regulations was put in place to stem this problem. By 1956, there were 154 Indian companies, 16 non-Indian insurance companies and 75 provident societies that were

issuing life insurance policies. Most of these policies were entered in the cities (especially around big cities like Bombay, Calcutta, Delhi and Madras). In 1956, the finance minister Sri S D. Deshmukh announced nationalization of the life insurance business.

Milestones of Insurance Regulations in the 20th Century Year Significant Regulatory Event

1912 The Indian Life Insurance Company Act enacted.

1928 The Indian Insurance Companies Act enhanced to enable the government to collect statistical information about both life and non-life insurance business.

1938 The Insurance Act: Comprehensive Act to regulate insurance business in India 1956. The Indian and foreign insurers and provident societies taken over by the Central government and nationalized. LIC formed by an act of parliament. VIZ. LIC Act, 1956, with a capital contribution of Rs.5 crore from the government of India.

1972 Nationalization of general insurance business in India.

1993 Setting up of Malhotra Committee.

1994 Recommendations of Malhotra Committee.

1995 Setting up of Mukherjee Committee

1996 The government gives greater autonomy to LIC, GIC and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector.

1998 The cabinet decides to allow 40% foreign equity in private insurance companres-26% to foreign companies and 14% to NRIs and FIIs.

1999 The standing committee headed by Murali Deora decides that foreign equity in Private insurance should be limited to 26%. The IRA bill is renamed the Insurance Regulatory and Development Authority (IRDA)

Bill. Also, Cabinet clears IRDA Bill 2000 President gives assent to the IRDA Bill.

Regulations:

In India insurance is a federal subject. The primary legislation that deals with insurance business in India is:

Insurance Regulatory Authority:

On the recommendation of Malhotra committee an Insurance Regulatory Development Act (IRDA) passed by Indian Parliament in 1993. Its main aim was to activate an

insurance regulatory apparatus essential for proper monitoring and control of the insurance Industry. Due to this Act Several Indian private companies have entered into the insurance market, and some companies have joined with foreign partners. In economic reform process, the insurance Companies have given boost to the

socio - economic development process. The huge amount of funds that are disposal of insurance are directed as desired avenues like housing safe drinking water, electricity primary education and infrastructure. Above all the policyholders gets better pricing of products from competitive insurance companies.

Liberalization:

The opening up of insurance Sector was a part of the ongoing liberalization in the financial sector of India. The domain of state-run insurance companies was thrown open to private enterprise on December 7, 1999, with the introduction of the Insurance Regulatory Authority (IRDA) Bill. The opening up of the sector gave way to the world known names in the industry to enter the Indian market through tie-ups with the eminent business houses. What was once a quiet business is becoming one of the hottest businesses today?

Post Liberalization:

The changing face of financial sector and the entry of several companies in the field of life insurance segment are one of the key results of these liberalization efforts. Insurance business by way of generating premium income adds significantly to the GDP. Estimates show that a meager 35-40 million, out of a population of 950 million, have come so far under the Insurance industry. The potential market is so huge that it can grow by 15 to 17 per annum. With the entry of private players the Indian insurance market may finally be able to make deeper penetration in to newer segments and expand the market size manifold. The quality of service will also improve and there will be wide range of product catering to the needs of different customers. The pace for claims settlements is also expected to improve due to increased competition. The life insurance market in India is likely to be risky in the initial stages, but this will improve in the next three to five years. Therefore it may be advantageous to be a second round entrant. In the life insurance market the need to build trust over time becomes important

because the risk assessment systems and data that are a key to success in the insurance market are significantly underdeveloped in India even today.

Reforms and Implications:

The liberalization of the Indian insurance sector has been the subject of much heated debate for some years. The sector is finally set to open up to private competition. The

Insurance Regulatory and Development Authority bill cleared the way for private entry into insurance, as the government was keen to invite private sector participation into insurance. To address those concerns, the bill requires direct insurers to have a minimum paid-up capital of Rs. 1 billion; to invest policy holders funds only in India;

and to restrict international companies to a minority equity holding of 26 percent in any new company. Indian promoters will also have to dilute their equity holding to 26 percent over a 10-year period. Over the past three years, around 30 companies have expressed interest in

entering the sector and many foreign and Indian companies have arranged alliances. Whether the insurer is old or new, private or public, expanding the market will present challenges. A number of foreign insurance companies have set up representative offices in India and have also tied up various asset management companies. They have either signed MOUs with Indian companies or are trying to do the same. Some have carried out extensive research on the Indian insurance sector. Others have set up liaison offices.

Major Players In Indian Insurance

Life Insurance:

Public:

Life Insurance Corporation of India

Private:

HDFC Standard Life Insurance

Max New York Life Insurance

ICICI Prudential Life Insurance

Kotak Mahindra Life Insurance

Birla Sun-Life Insurance

TATA AIG Life Insurance SBI Life Insurance

ING Vysya Life Insurance

Bajaj Allianz Life Insurance

MetLife Insurance

AMP Sanmar Life insurance

Aviva Life Insurance

Sahara India Life Insurance

Shriram Life Insurance

BharathiAXA Life Insurance

General Insurers

Public:

National Insurance

New India Assurance

Oriental Insurance

United India Insurance

Private:

Bajaj Allianz General Insurance

ICICI Lombard General Insurance

IFFCO-Tokyo General Insurance

Reliance General Insurance

Royal Sundaram Alliance Insurance

TATA AIG General Insurance

Cholamandalam General Insurance

Export Credit Guarantee Corporation

HDFC Chubb General Insurance

Re-insurer

General Insurance Corporation of India

Types of Life Insurance Policies

Your family counts on you every day for financial support: food, shelter transportation, education, and much more. Insurance provides you with that unique sense of security that no other form of investment provides. It gives you a sense of financial support especially during that time of crisis irrespective of the fluctuations in the stock market. Insurance provides for your career goals right from your childhood years. Insurance is all about making sure your family has adequate financial to make

those plans and dreams come true. It provides financial protection to help your family or business to manage after your death.

Few of the Life insurance policies are:

Life policies - Cover the insured for life. The insured does not receive money while he is alive; the nominee receives the sum assured plus bonus upon death of the insured.

Endowment policies - Cover the insured for a specific period. The insured receives money on survival of the term and is not covered thereafter.

Money back policies - The nominee receives money immediately on death of the insured. On survival the insured receives money at regular intervals during the term. These policies cost more than endowment with profit policies.

Annuities / Childrens policies - The nominee receives a guaranteed amount of money at a pre-determined time and not immediately on death of the Insured. On survival the insured receives money at the same pre-determined time. These policies are best suited for planning childrens future, education and marriage costs.

Unit Linked Insurance Plan - ULIP provides for life insurance and at the same time provides suitable Investment avenues. The policy value is the sum assured plus the appreciation of the underlying assets; it is life insurance solution that provides for the benefits of protection and capital appreciation at the same time. The product is quite similar to a mutual fund in the sense that the investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV), and apart from the insurance benefit the structure and functioning of ULIP is exactly like a mutual fund.

BAJAJ ALLIANZ LIFE INSURANCE

Profiles

Bajaj Allianz Life Insurance Co. Ltd. is a joint venture between two leading companies- Allianz AG, one of the worlds largest insurance companies, and Bajaj Auto, one of the biggest 2 and 3 wheeler manufacturers in the world. Bajaj Allianz Life Insurance is the fastest growing private life. Insurance Company in India Currently has over 440,000 satisfied customers. We have a presence in more than 550 locations with 60,000 Insurance Consultant providing the finest customer service. One of Indias leading private life insurance companies

Indian Operations:

Growing at a breakneck pace with a strong pan Indian presence Bajaj Allianz has emerged as a strong player in India. Bajaj Allianz Life Insurance Company Limited is a

joint venture between two leading conglomerates Allianz AG and Bajaj Auto Limited. Characterized by global presence with a local focus and driven by customer

orientation to establish high earnings potential and financial strength, Bajaj Allianz Life Insurance Co. Ltd. was incorporated on 12th March 2001. The company received the Insurance Regulatory and Development Authority (IRDA) certificate of Registrahon (R3)

No 116 on 3rd August 2001 to conduct Life Insurance business in India.

Shared Vision:

Bajaj Auto Ltd. the Flagship Company of the Rs. 8000crore Bajaj group is the largest manufacturer of two-wheelers and three- Wheelers in India and one of the largest in the

world. A household name in India, Bajaj Auto has a strong brand image & brand loyalty synonymous with quality & customer focus. With over 1 5.000 employees, the company is a Rs. 4000 crore-auto giant, is the largest 2/3-wheeler manufacturer in India and the 4th largest in the world. AAA rated by CRISIL, Bajaj Auto has been in operation for over 55 years. It has joined hands with Allianz to provide the Indian consumers with a

distinct spoon in terms of life insurance products.

As a promoter of Bajaj Allianz Life Insurance Co. Ltd. Bajaj Auto has the following to offer:

Financial strength and stability to support the Insurance Business.

Strong brand-equity.

Has good market reputation, as a world-class organization.

Has an extensive distribution network.

Have adequate experience of running a large organization.

A 10 million strong base of retail customers using Bajaj products.

Extensive use of advanced Information Technology.

Experience in the financial services industry through Bajaj Auto Finance Ltd.

Allianz Group

Allianz Group is one of the worlds leading insurers and financial services providers. Founded in 1890 in Berlin, Allianz is now present in over 70 countries with almost

174,000 employees. At the top of the international group is the holding company, Allianz AG, with its head office in Munich. Allianz Group provides its more than 60 million customers worldwide with a comprehensive range of services in the areas of:

Property and Casualty Insurance

Life and Health Insurance

Asset Management and Banking.

Allianz AG- A Global Financial Powerhouse

Worldwide 2nd by Gross Written Premiums - Rs.4, 46654 Cr.

3rd largest Assets under Management (AUM) & largest amongst insurance-AUM of Rs.51, 96,959cr.

12th largest corporation in the world

49.8 % of global business from Life Insurance

Established in 1890, 110 yrs of insurance expertise

70 countries, 173,750 employees worldwide

Bajaj Auto:

Bajaj Auto Ltd., the Flagship Company of the Rs. 8000 crore Bajaj group is the largest manufacturer of two-wheelers and three-wheelers in India and one of the largest in the world. A household name in India, Bajaj Auto has a strong brand image & brand loyalty

synonymous with quality & customer focus.

A strong Indian brand- Hamara Bajaj:

One of the largest 2 & 3 wheeler manufacturers in the world

21 million+ vehicles on the roads across the globe

Managing funds of over Rs. 4000 Cr.

Bajaj Auto finance one of the largest auto finance cos. in India

Rs. 4,744 Cr. Turnover & Profits of 538 Cr. in 2002-03

It has joined hands with Allianz to provide the Indian consumers with a distinct option in terms of life insurance products.

As a promoter of Bajaj Allianz Life Insurance Co. Ltd., Bajaj Auto has the following

to offer -Worldwide financial strength and stability to support the insurance business.

A strong brand-equity.

A good market reputation as a world class organization.

An extensive distribution network.

Why Bajaj Allianz?

It provides an impeccable track record across the globe in providing security and cover for you and your family. We, at Bajaj Allianz, realize that you seek an insurer who you

can trust your hard-earned money with. Allianz AG with over 110 years of experience in over 70 countries and Baja) auto, trusted for over 55 years in the Indian market, together are committed to offering you financial solutions that provide all the security you need for your t4mily and yourself. Bajaj Allianz brings to you several innovative products, the details of which you can browse in this section.

Key Achievements:

Races past GWP of over Re. 1 001Cr, with growth of over 357% over previous years GWP of Rs. 219 Crores

FYP of Rs 860cr a 380% growth over last years FYP of Rs 179 or.

Rocketed to No. 2 position as against No 6 at the end of last financial year amongst Pvt. Life Insurance cos., with a clear lead of Rs 240 Cr.

Fastest growing insurance company with 380% growth

Market share jumps almost 4 times from 0.95 % to 3.39 % amongst all life Insurance cos.

Increased its product portfolio from 7 to 19 simple and flexible productsLaunched complete suite of employee benefit solutions (Group products for Corporate)

No.1 Pvt. Life Insurer FY 20006. Leading by RS. 78Cr.

No.1 Pvt. Life Insurer in Retail Business Leading by RS 339 Cr.

Whopping growth of 216% for the FY 2005-06

Have sold over 13,00,000 policies to satiated customers

Is backed by a network of 550 offices spanning the country

Accelerated Growth

Assets under management Rs 3,324 Cr.

Shareholder capital base of Rs 500 Cr.

No of Policies No of policies sold in FY GWP in FY

2001-2002(6monts) 21,376 Rs. 7 Cr.

2002-2003 1,15,965 Rs. 69 Cr.

2003-2004 1,86,443 Rs. 221 Cr.

2004-2005 2,88,189 Rs. 1002 Cr.

2005-2006 7,81,685 Rs. 3134 Cr.

2006-2007 9,32,545 Rs. 4251 Cr.

Bajaj Allianz -The Present

Product tailored to suit your needs

Decentralized organization structure for faster response

Wide reach to serve you better a nationwide network of 700 + branches

Specialized departments for Banc assurance, Corporate Agency and Group Business

Well networked Customer Care Centers (CCC5) with state of art IT systems

Highest standard of customer service & simplified claims process in the Industry

Website to provide all assistance and information on products and services, online buying and online renewals.

Toll-free number to answer all your queries, accessible from anywhere in the country.

Swift and easy claim settlement process experience of running a large organization.

Unit Linked Insurance Plans

ULIP is a market linked investment where the premium paid is invested in funds. Different options are available, like 100% Equity, Balanced, Debt, Liquid etc and

according to the fund selected, the risks and returns vary.

The costs are upfront and are transparent, the investment made is known to the investor (As he is the one who decides where his money should be invested). There is a

greater flexibility in terms of premium payments i.e. A premium holiday is possible. You can also invest surplus money by way of top ups which will increase your

investment in the fund and thereby provide a push to returns as well. There is no assured Sum on survival, the higher of the Sum Assured or Fund Value is paid at the maturity or incase of death. Few reasons why we think ULIPs are better:

1. Free insurance cover: As seen in the above example, the insurance cover is free; the policy even provides better returns

2. Best solution for childrens education/future needs ULIPs not only help save money systematically for a particular goal, but also helps protect that goal

3. Switches without capital gains and entry loads: Unlike equity and mutual fund investments which are subject to capital gains when sale is made; ULIPs have the

convenience of switching among the funds without any entry loads or capital gains

4. The Mortality charges are lower than traditional policies.

Unit-linked insurance plans (ULIPs) are the flavor of the season. Launched a couple of years ago, these plans have contributed over 50 percent of the new business of insurance companies such as ICICI Prudential, Birla Sun Life and Bajaj Allianz Life Insurance Co Ltd. Encouraged by the response, other players, too, are launching variants of savings and endowment plans in the unit-linked format, a recent addition to the range of insurance products. The introduction of unit-linked insurance plans (ULIPs) has been, possibly, the single-largest innovation in the field of life insurance in the past several decades. In a

swoop, it has addressed and overcome several concerns that customers had about life insurance -- liquidity, flexibility and transparency and the lack thereof. These benefits are possible because ULIPs are differently structured products and leave many choices to the policyholder. Hence, as a customer, you must carefully consider whether you can make such a product work well for you. Broadly speaking, I believe that ULIPs are best

suited for those who have a conceptual understanding of financial markets and are genuinely looking for a flexible, long-term savings-cum-insurance solution. Put simply, ULIPs are structured such that the protection (insurance) element and the savings element can be distinguished and hence managed according to one's specific needs. Traditionally, the savings element of insurance has been opaque, giving policyholders no control over asset allocation, no transparency, no flexibility to match

one's lifestyle, inexplicable returns and an expensive, complicated exit. ULIPs, by separating the two parts within the same product, and managing them

independently, offer insurance buyers what no traditional policy had continuous information about how their policy is working for them. Often, people wonder whether

it's better to purchase separate financial products for their protection and savings needs. Certainly, this is a viable option for those who have the time and skill to manage several products separately. However, for those who want a convenient, economical, one-stop solution, ULIPs are the best bet. To understand how a ULIP meets the multiple needs of protection of both health and life; and savings in the same policy, let us take the example of a 35-year-old man with 2 young children. With a premium of, say, Rs 30,000 p.a. he could begin with a sum assured of Rs 5

lakh, for which the life insurer would set aside a nominal amount of the premium to cover this risk. The balance could be invested in a fund of his choice, possibly a balanced or growth option. As the children grow, he might want to increase the level of protection, which

could be done by liquidating some of the units to pay for a risk premium. On the other hand, if he gets a significant raise, he could increase the savings element in the policy by topping it up. The key to good financial planning is to understand one's current and future financial goals, risk appetite and portfolio mix. This done, the next step is to allocate assets across different categories and systematically adhere to an investment pattern, so

that they work in tandem to meet one's requirements over the next month, year or decade. Because of their flexibility to adjust to different lifestage needs, ULIPs fit in very

well with financial planning efforts. Moreover, as a systematic investment plan, ULIPs greatly diminish the hazards of investing in a volatile market, and using the concept of 'Rupee Cost Averaging', allow the policyholder to earn real returns over the long term.When you're buying a ULIP, make sure you select one that works well for you. The important thing is to look for and understand the nuances, which can considerably alter the way the product works for you. Take the following into consideration.

Charges: Understand all the charges levied on the product over its tenure, not just the initial charges. A complete charge structure would include the initial charges, the fixed administrative charges, the fund management charges, mortality charges and spreads, and that too, not only in the first year but also through the term of the policy. It might seem confusing at first, but a company provided benefit illustration should help make this clearer. Some companies levy a spread between the buy and sell rates of the units, which can significantly reduce the value of the investment over the long-term. Close examination and questioning of such aspects will reveal the growing power of your investment.

Fund Options and Management: Understand the various fund options available to you and the fund management philosophy and objectives of each of them. Examine the track record of the funds thus far and how they are performing in comparison to benchmarks. Who manages the funds and what experience do they have? Are there adequate controls? Importantly, look at how easily you can access information about your fund's performance when you need it -- are their daily NAVs? Is the portfolio disclosed regularly?

Features: Most ULIPs are rich in features such as allowing one to top-up or switch between funds, increase or decrease the protection level, or premium holidays.

Carefully understand the conditions and charges associated with each of these. For instance, is there a minimum amount that must be switched? Is there a charge on the same? Must you go through medical underwriting if you want to increase the sum assured?

Company: Last but not least, insure with a brand you can trust to honor its commitment and service you according to your requirements. Having bought a ULIP, its important that you monitor it on a regular basis, though not as frequently as you would a stock or mutual fund. Your ULIP is a long-term investment and daily fluctuations in the NAV should not impact you. Check once a quarter to see how your fund is performing, and consider a switch if there is a change in the level of

risk you are willing to take or in your personal market view. Monitor your fund; value it in the few weeks or months before a planned withdrawal or top-up, or a change in your life stage or lifestyle. For those who are still finding their feet with their ULIP and its multitude of options, the best thing to do is to consult your advisor.

Life insurance as a form of protection is the single-most important financial product any earning member of a family must have. Having said this, a well-diversified

portfolio is one of the first rules of financial planning, and as such one should consider different instruments as the ability to save increases. Certainly ULIPs successfully

combine the first and most important need of protection, with savings, and hence are an excellent addition to your portfolio. These can be combined with various other products, after taking into account your risk appetite, financial goals and need for portfolio diversification.

Possible investment options range from bank deposits and government small saving schemes to mutual funds, stocks and property. Buying a ULIP is quite different from buying a traditional insurance product; and sometimes there are cases of people who believe they have been mis-sold a ULIP, the complaint most often being that they were not aware of the risks or the charges. All financial products have a certain amount of risk and charges, be it a mutual fund, property, or even a bank deposit. It would be unrealistic to assume that the features and benefits of a ULIP come at no cost, though the charges are considerably lower than that of a traditional product. In fact, the very reason the product is transparent is because the customer knows the charges and risks. Further, unlike other financial products, all life insurance plans come with a 15-day free look, which allows you to return the policy if you believe it does not meet your needs or expectations.

Objectives of ULIPS:

1. To give customer flexibility 10 Choose

Sum Assured

Premium

payment term

Increase sum assured

Add riders and,

Customize the policy according to needs.

2. To give customer a decent inflation beating returns, in accordance with market returns.

3. To protect the purchasing power of customers money in future times and to protect them against inflation and constant erosion in moneys value there of.

4. To give a broader fund choices to customers according to their risk appetite.5. To give customers a transparency and keep them fully informed about fund, management and expenses involved.

6. Ability to increase / decrease sum assured according to changing life situations (such as loans) and increasing Human Life value.

7. To provide liquidity to the customers in cases of emergency

8. To enable customers to actively manage their own funds according to their perceptions and changing market situations.

Disadvantages of ULIPs:

1. Wide choice of fund options.

2. Ability to withdraw money after some time, to avoid long lock, Bird in hand is worth 2 in the bush.

3. To get inflation beating returns on investment

4. Breaking up of premium into insurance and investments.

5. Ability to make the ULIP as mainly insurance oriented (low premium and high sum assured) or predominantly Investment oriented (reverse)

6. Enables customers / policy holders to understand the companys Investment style, through investment reports.

7. Premium holidays - accommodating fluctuating and unpredictable incomes.

8. Policy never lapses, thus , making the optimum usage of insurance benefit

9. Flexibility.

10. Suitable to business classes with unsure incomes.

11. Blending of safety, attractive returns and liquidity.

The following points before going in for a ULIP:

1. It is prudent to make equity-oriented investments based on an established track record of at least three years over different market cycles. ULIPs do not fulfill this

criterion now.

2. Insurance and savings are two different goals and it is better to address them separately rather than bundle them into a single product. A combination of a term plan and a mutual fund could give better results over the long term

3. If investment returns are your priority, you should compare alternative investment products before locking in your money.

4. Tax advantages do work in favor of ULIPs for debt-oriented funds. For equityoriented funds, equity-linked savings products, which enjoy tax advantages and

provide market-linked returns, are comparable.

5. The expense structure of insurance products does significantly dent returns.

4 Reasons why ULIPs get the thumbs up:

Ask any individual who has purchased a life insurance policy in the past year or so and chances are high that the policy will be a unit linked insurance plan (ULIP). ULIPs have been selling like proverbial hot cakes in the recent past and they are likely to continue to outsell their plain vanilla counterparts going ahead. So what is it that makes ULIPs so attractive to the individual? Here, we have explored some reasons, which have made ULIPs so irresistible.

1. Insurance cover plus savings: To begin with, ULIPs serve the purpose of providing life insurance combined with savings at market-linked returns. To that extent, ULIPs can be termed as a two-in-one plan in terms of giving an individual the twin benefits of life Insurance plus savings. This is unlike comparable instruments like a mutual fund for instance, which does not offer a life cover.

2. Multiple investment options: ULIPs offer a lot more variety than traditional life insurance plans. So there are multiple options at the individuals disposal ULIPs

generally come in three broad variants:

Aggressive ULIPs (which can typically invest 80%-100% in equities, balance in debt)

Balanced ULIPs (can typically invest around 40%-60% in equities)

Conservative ULIPs (can typically invest up to 20% in equities) Although this is how the ULIP options are generally designed, the exact debt/equity allocations may vary across insurance companies. Individuals can opt for a variant based on their risk profile. For example, a 30-Yr old individual looking at buying a life insurance plan that also helps him build a corpus for retirement can consider

investing in the Balanced or even the Aggressive ULIP. Likewise, a risk-averse individual who is not comfortable with a high equity allocation can opt for the Conservative ULIP.

3. Flexibility: Individuals may well ask how ULIPs are any different from mutual funds. After all, mutual funds also offer hybrid/balanced schemes that allow an

individual to select a plan according to his risk profile. The difference lies in the flexibility that ULIPs afford the individual; Individuals can switch between the ULIP

variants outlined above to capitalize on investment opportunities across the equity and debt markets. Some insurance companies allow a certain number of free

switches. This is an important feature that allows the informed individual/investor to benefit from the vagaries of stock/debt markets. For instance, when stock markets

were on the brink of 7,000 points (Sensex), the informed investor could have shifted his assets from an Aggressive ULIP to a low-risk Conservative ULIP. Switching also

helps individuals on another front. They can shift from an Aggressive to a Balanced or a Conservative ULIP as they approach retirement. This is a reflection of the

change in their risk appetite as they grow older.

4. Works like an SIP: Rupee cost-averaging is another important benefit associated with ULIPs. Individuals have probably already heard of the Systematic Investment

Plan (SIP) which is increasingly being advocated by the mutual fund industry, With an SIP, individuals invest their monies regularly over time intervals of a

Month/quarter and dont have to worry about timing the stock markets. These are not benefits peculiar to mutual funds. Not many realize that ULIPs also tend to do

the same, albeit on a quarterly/half-yearly basis. As a matter of fact, even the annual premium in a ULIP works on the rupee cost-averaging principle. An added benefit

with ULIPs is that individuals can also invest a one-time amount in the ULIP either to benefit from opportunities in the stock markets or if they have an investible surplus in a particular year that they wish to put aside for the future.

Five Reasons for Investing Systematically

Over the last 12 months investors in equity markets have seen it all, from all time high level of 6200 levels to dismal low level of 4200. A lot of investors who entered at

6,200 expecting the market to go even higher are very upset. Most investors cannot really stomach the kind of volatility that is inherent in equity markets. At the end of the day, investors who can take some risk are actually shunning equities only because they entered equity markets at the wrong time Systematic investment plans (SIPs) take care of this problem. But market timing is not the only reason for you to plump for SIPs, there are other advantages.

1. Light on the wallet: Given that average per capital income of an Indian is approximately only Rs. 25,000 (i.e. monthly income of Rs 2,083), a Rs 5,000 one-time

entry in a mutual hind is still asking for a lot (2.4 times the monthly income). And mutual funds were never meant to be elitist; far from it, the retail investor is as much

a part of the mutual fund target audience as the next high networth investor (HNI). So if you cannot shell out Rs 5,000, thats not a huge stumbling block, take the SIP

route and trigger your mutual fund Investment with as low as Rs. 500 (in most cases).

2. Makes market timing irrelevant: If market lows give you the jitters and make you wish you had never invested in equity markets, then SIPs can help you blunt that

depression. Most retail investors are not experts on stocks and are even more out-ofsorts with stock market oscillations. But that does not necessarily make stocks a lossmaking investment proposition. Studies have repeatedly highlighted the ability of stocks to outperform other asset classes (debt, gold, property) over the long-term (at least 5 years) as also to effectively counter inflation. So if stocks are such a great thing, why are so many investors complaining? Its because they either got the stock wrong or the timing wrong. Both these problems can be solved through an SIP in a mutual fund with a study track record.

3. Helps you build for the future: Most of us have needs that involve significant amounts of money, like childs education, daughters marriage, buying a house or a

car. If you had to save for these milestones overnight or even a couple of years in advance, you are unlikely to meet your objective (wedding, education, house, etc).

But if you start saving a small amount every month/quarter through SIPs that is treated as sacred and that is set aside for some purpose, you have a far better chance of making that down payment on your house or getting your daughter married without drawing on your PF (provident fund).

4. Compounds returns: The early bird gets the worm, is not just a part of the jungle folklore; even the early investor gets a lions share of the investment booty via-a-via the investor who comes in later. This is mainly due to a thumb rule of finance called compounding. According to a study by Principal Mutual Fund if Investor Early and

Investor Late begin investing Rs 1,000 monthly in a balanced fund (50:50 equity: debt) at 25 years and 30 years of age respectively, Investor early will build a corpus of Rs 8 m (Rs 80 lakhs) at 60 years, which is twice the corpus of Rs 4 m that Investor Late will accumulate. A gap of 5 only years results in a doubling of the investment

corpus! That is why SIPs should become an investment habit. SIPs run over a period of time (decided by you) and help you avail of compounding.

5. Lowers the average cost: SIPs work better as opposed to one-time investing. This is because of rupee-cost averaging. Under rupee-cost averaging an investor typically buys more of a mutual fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline since it forces the investor to commit cash at market lows, when other investors around him are wary and exiting the market. Inventors may even be pleased when prices fall

because the fixed rupee investment mould now fetches more units.

Working Mechanism

Working Mechanism of ULIPs includes the following steps:

Sales: Agents and other channel sales people collect premium from customers.

Allocation: Once sales people collect premium from customers, all that money is not invested at once. Part of it is deducted towards administration expenses, insurance

expenses (Mortality Charges as they are usually called), and management expenses. After deducting money for the AIM (admin, insurance, management expenses),

the rest of the money is invested into the fund choice chosen by the customer.

Administration Expenses: is the expense for making the policy document / bond making Stamp duty (insurance is a legal document subject to Indian stamp act), agent

commission and other fixed over heads spread. Admin charges are deducted IMMEDIATELY after premium is paid. Not at the end of the year.

Insurance Expenses or mortality charges: These are nothing but the Term Insurance Charges chosen by the customer (for example, let us say, Rs.10 lakh), for a given

premium (for example, let us say, Rs.70, 000/-). Mortality charges (and any rider benefit premium) are deducted AT THE BEGINNING of the policy year and not at the end.

Fund Management charges: When company invests money into equity markets, they incur brokerage etc expenses. When they invest into debt based /gilt scurrilities and other interest yielding instruments, they have to spend of bond trading charges. All these expenses are passed on to the policy holders by the way of Fund

Management Charges. This is done AT THE END of policy year. After money is deducted for AIM, the rest is invested into different funds, (MetLife has 6, and Bata (has

4 or 5 customers choice and agents discretion. This fund is unitized and a face value of Rs.10/- is given to each un