Mutual Fund - Concept, Organisational Structure, Advantages and Types

CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:
Organisation of a Mutal Fund

ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
Professional Management
Diversification
Convenient Administration
Return Potential
Low Costs
Liquidity
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated

TYPES OF MUTUAL FUND SCHEMES
Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

FREQUENTLY USED TERMS

Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.

Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load
Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’Load
Is a charge collected by a scheme when it buys back the units from the unitholders.

THE BUSINESS OF INSURANCE

Insurance companies are called insurers. The insurers (a) bring together persons with similar insurance interests (sharing the same risks), (b) collect the share or contribution (known as premium) from all of them,(c) pay out compensations (known as claims) to those who suffer.
Insurance is divided into two parts:
Life insurance: Life insurance included all risks related to the lives of human beings and general insurance covers the other aspects.
Non-life or General insurance: General insurance has three classifications viz., Fire (dealing with all fire related risks), Marine (dealing with all transport related risks and ships) and Miscellaneous (dealing will all others like liability, fidelity, motor, crop, personal accident, etc). Personal accident and sickness insurance, which are related to human beings, is classified as ‘non-life’ in India, but is classified as ‘life’ in many other countries.
The premium is based on expectations of the losses that are based on information through the study of occurrences in the past and the use of statistical principles. There is, in statistics, a “law of large numbers”. The variation will be less as a percentage. Therefore, the greater the number of risks included in the pool; the better the chances that the assumptions regarding the probability of the risk occurring (on which premium calculation is based) will be realized in practice. Hence, the greater the spread of the business, the better the expectations.
1. The insurer holds the position of a trustee as it is managing the common fund, for and on behalf the community of policyholders. It has to make certain that none is allowed to take unfair advantage of the arrangement. That means that the management of the insurance business requires care to prevent entry of individuals to the group, whose risks are not similar as well as paying claims on losses that are not accidental. The decision to allow entry is known as the process of underwriting of risk. Underwriting includes determining the risk, i.e., to evaluate how much risk exposure is involved. The premium that is charged is dependent on the determination of risk involved.

ROLE OF INSURANCE AS A SOCIAL SECURITY TOOL
The U.N. Declaration of Human Rights of 1948 states that “Everyone has a right to a standard of living adequate for the health and wellbeing of himself and his family, including food, clothing, housing and medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood or other lack of livelihood in circumstances beyond his control”.
Social security is a part of our Constitution in our country. According to Article 41 the State, within the limits of it’s economic capacity and development, should provide for the right to work, education, unemployment, old age, sickness and disablement. The state also has obligations towards the poorer sections of the society and they are met through the working of life insurance and the directions of the regulatory authorities extend insurance benefits to economically weaker sections of the society.
REINSURANCE :Insurance co. takes the risks they have to pay claims as and when there arise. Insurers are normally financially sound enough to be able to pay claims but there are limits, An catastrophic claim like tsunami or a hurricane may be to the tune of crores of rupees, and this may put a very heavy strain or the reserve of the insurances Insurers protect them selves against such situations which may be beyond their capacity by reinsuring the risk with other insurers if there is a claim the burden is shared by the primary insurers and the reinsurar there are some companies who do reinsurance business only. In India general insurance corporation of India is the national reinsurar. Reinsurance business is placed globally .

ROLE OF INSURANCE IN ECONOMIC DEVELOPMENT
Investments are made out of savings and they are necessary for furthering economic development. A life insurance company is a quit important in mobilizing savings of people, especially from the middle and lower income groups and these savings are channeled into investments for economic growth. Most of the life insurance companies have large funds that are accumulated through the payments of small amounts of premia of individuals and these funds further the economic development of the countries in which they do business. These funds are collected and held in trust for the benefit of the policyholders. The management of life insurance companies have to remember this aspect and take decisions keeping in mind the benefit of the community. Business and trade also benefit through insurance. Without insurance, trade and commerce is exposed to perils and it will find it difficult to face the impact of such events. Huge funds of Insurance companies can be used for economic development of country and national reconstruction. Express roads, rural electrification, dams and hospitals have been possible through Insurance funds.

ADVANTAGES OF LIFE INSURANCE
IT is incorrect to say that life insurance is investment or means of saving. The saving and investment options are deposit in the bank, in national savings certificates, in mutual funds and all other saving instruments. Money invested in buying shares and stocks are at risk of being lost in the fluctuations of the stock market. Assuming there is no loss, the money available at any time is the amount invested plus appreciation. In life insurance the fund available is not the total of the saving already made (premiums paid), but the amount one wished to have at the end of the saving period (which is the next 20 or 30 years) and the final fund secured from the very beginning. One is paying for it later, out of the savings. One has to pay for it only as long as one’s lifetime or for a lesser period according to his choice. Hence life insurance cannot be substituted as there are no other schemes that proved this kind of benefit.
Life insurance has the following advantages in comparison to other forms of savings. Settlement is easy in case of the event of death. Facility of nomination and assignment makes the collection of money by the heirs quicker. Now some bank accounts provide the facility of nomination. Creditors can be protected against attachment by courts but cannot claim the life insurance moneys. There are tax benefits in income tax and in capital gains. A life insurance policy is property and can be transferred or mortgaged and loans can be raised against the policy as marketability is better.
Tangible and Intangible
The things that we can touch or feel are tangibles. These tangible assets can be Insured. The things that we can not touch and can only feel about it are called intangibles. Now it is possible to insure intangible assets. Example of intangible assets are professional football players or the vocal chord of a musician. Fluctuations in the Dollar-rupee or pound-rupee can be insured as intangibles. In Insurance only a promise is sold and the insured only get the assurance of compensation should a loss occur. So Insurance product is intangible.
The Human Asset
A human being is an income generating asset, assets are mannel, professional, problem solving, entrepreneurial skills etc. The valve of these assets can be measured by the income generated by him. The human asset provides a scientific method to determine the asset value of human life and therefore the amount of ins. Required. The risks in the case of human beings are :-1. Early Death2. Living too long3. Disabilities, sickness4. Unemployment
Trustee –
The insurer is in the position of a trustee as is manages it common fund for and on behalf of the community of policyholders.

Indian Economy

India's GDP recently crossed the trillion-dollar mark for the first time and with this India has joined the elite club of 12 countries with a trillion dollar economy. Countries that have breached trillion-dollar GDP level in the past are he US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil and Russia

According to the data released for the year 2006-2007, India's GDP grew at an impressive 9.2 per cent. The share of different sectors of the economy in India's GDP is as follows: Agriculture - 18.5 per cent, Industry - 26.4 per cent, and Services - 55.1 per cent. The fact that the service sector now accounts for more than half the GDP is a milestone in India's economic history and takes it closer to the fundamentals of a developed economy. At the time of independence agriculture occupied the major share of GDP while the contribution of services was relatively very less.The government has set a target of an average annual GDP growth of 9 per cent for the Eleventh Five Year Plan. The target looks achievable as all the macroeconomic fundamentals are strong and the impressive growth rate of Indian GDP looks all set to continue.

Welcome to India
India is the second most populous country and the largest democracy in the world. The far reaching and sweeping economic reform undertaken since 1991 have unleashed the enormous growth potential of the economy. There has been a rapid, yet calibrated, move towards deregulation and liberalisation, which has resulted in India becoming a favourite destination for foreign investment. The mood is upbeat and the signals strong. Undoubtely. India has emerged as one of the most vibrant and dynamic of the developing economics.
What India Offers
One of the largest economies of the world, fourth largest economy in terms of purchasing power parity.
Large and rapidly growing consumer market-up to 300 million people constitute the market for branded consumer products.
Easy access to markets of the other nations belonging to the South Asian Association for Regional Cooperation (Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka).
Large and diversified infrastructure spread across the country.
Promising future in the Information technology industry.
Large manufacturing capability, spanning almost all areas of manufacturing activities.
Well-developed research and development (R&D) infrastructure and technical and marketing services.
Well established knowledge industry.
Abundance of natural resources (has a rich mineral base), and agricultural self-sufficiency.
Developed banking system-commercial banking network of over 63,000 branches supported by a number of National and State level financial institutions.
Vibrant capital market consisting of 22 stock exchanges with over 9,000 listed companies.
Skilled manpower and professional management including engineers, managerial personnel, accountants, and lawyers, available at competitive costs.
Conducive foreign investment environment that provides freedom of entry, investment, location, choice of technology, import and export.
The policy environment provides clear guidelines for entry, freedom of location, choice of technology, production, repatriation of capital, dividends, etc., which is specifically aimed of enhancing the flow of FDI.
Well-balanced package of fiscal incentives.
Stable democratic environment fostered by over 53 years of Independence.
Established, Independent judiciary.
English the preferred business language.
Business opportunities
The reform process has deregulated the economy and stimulated domestic and foreign investments, taking India firmly into the forefront of investment destinations. The Government, keen to promote investment in the country has radically simplified and rationalised polices, procedures and regulatory aspects, Foreign investment is welcome in almost all sectors, except those of strategic concern ( for instance, defence and atomic energy).
A series of incentives has been announced to promote investments. These include import of capital goods at concessional customs duty (subject to fulfillment of certain export obligations), liberalisation of external commercial borrowing norms, tax holiday, and concessional tax treatment for certain sector. In addition, several State Government offer incentives, such as subsidy on fixed capital, loans at concessional rates of interest, and attractive power rates, While several incentives are project specific, a number of firms have been successful in negotiating favourable investment terms with the State Government concerned.
Since the initiation of the economic liberalisation process in 1991, sectors such as automobiles, chemicals, food processing, oil & natural gas, petrochemicals, power, services, and telecommunications have attracted considerable investments. Today, in the changes investment climate, India offers exciting business opportunities in virtually every sector of the economy.
Energy
Power
Investment Policy
The 1991 Power Policy seeks to attract significant private sector investment in the Indian power sector. The key initiatives include:
Private sector permitted to set up cool, gas or liquid based thermal project, hydel projects and wind or solar projects of any size.
Foreign equity participation brought under automatic approval of generation, transmission and distribution of power generated in hydro-electric, oil based and coal/lignite based power projects.
Role of the Central Government curtailed and the State Governments and State Electricity Boards (SEBs) empowered to negotiate directly with developers, facilitating speedy clearances for the investor.
Ancillary sector such as cool significantly deregulated.
100% foreign equity permitted.
Opportunities
Demand is expected to grow to 570 billion Kwh by 2001-02 and to 782 billion Kwh by 2006-07. Over the 10 year period from 1997-2007, a total capacity addition of 98,000 MW is envisaged, entailing an investment of Rs. 5,750 billion in power generation, transmission and distribution.
The specific project opportunities expected in the near future include:
Liquid Fuel Based Projects using low sulphur heavy stock (LSHS), furnace oil (FO), heavy petroleum stock (HPS), Naphtha, Vacuum Residue, Condensate and Orimulsion are permitted by the Government. Import of liquified natural gas (LNG) is also being considered for setting up large capacity combined cycle power plants, Transmission projects for power transfer are available for competitive bidding by the Central Transmission Utility (Power Grid) and State Transmission Utilities (SEBs)/Grid Corporations). The transmission system project are being identified for competitive bidding by the Central and State Transmission Utilities.
Attractive investment opportunities are likely to develop in distribution of power as several State governments have agreed to allow the gradual entry of the private sector in distribution.
Non-Conventional Energy Sources
Investment Policy
Foreign Investors can enter into a joint venture with an Indian partner for financial and/or technical collaboration and also for setting up of renewable energy based power generation projects. The liberalised foreign investment approval regime is aimed at facilitating foreign investment and transfer of technology through joint ventures.
100% foreign investment as equity is permissible.
Government of India encouraging foreign investors to set up renewable energy based pwer generation project on Build-Own-Operate basis.
Opportunities
In India, investment opportunities are available for the following types of investors and users:-
Investment by foreign investors in renewable energy:
Wind, Solar Photo-voltaic, Solar Thermal, Small Hydro, Biomass, Co-generation, Geothermal, Tidal and Urban & Industrial Wastes based power projects.
Investment by foreign investors for manufacturing of renewable energy systems and devices based on:
Wide, Solar Photo-voltaic, Solar Thermal, Small Hydro, Biomass, Co-generation, Geothermal, Tidal and Urban & Industrial Wastes for their utilisation in India and also for exports to developing and Third World countries.
OIL & NATURAL GAS
Investment Policy
The Government has announced significant new policy initiatives to attract foreign investment:
In exploration and production, oil and gas fields are open to the private sector as well as for foreign participation under production sharing contracts. Foreign investment it to be permitted up to;
100% in small-sized oil fields
60% for unincorpoorated joint ventures and 51% for incorporated joint ventures
100% for exploration and production of blocks identified under the new Exploration Licensing Policy
In the case of private Indian companies, FDI in refining is permitted up to 49%. The level of FDI in the oil refining sector under automatic approval has been raised from 49% to 100% EOU refineries, 100% FDI is permitted.
For gas fields developed in the private sector, promoters are free to market the gas at market related prices.
For the petroleum products and pipeline sector, FDI is permitted up to 51%
FDI is permitted up to 74% in infrastructure related to marketing and marketing of petroleum products.
100% wholly owned subsidiary (WOS) is permitted for purpose of market study and formulatopn.
100% wholly owned subsidiary is permitted for investment /financing.
For actual trading and marketing, minimum 26% Indian equity is required over 5 years.
Opportunities
Total sedimentary basins, including deep waters; 3.14 million sq . kms (41% of this still unexplored)
Large demand for natural gas:
Year
Demand (MMSCMD)
1999
110
2002
151
2007
231
2012
313
2025
391
MMSCMD : Million Standard cubic Metres Per Day
The present domestic gas supply is only 65 MMSCMD. The increasing demand-supply gap is expected to be met by imports.
Development of infrastructure
1998-99
2024-25
Product Pipeline Capcaity (MMTpa)
Port Capacity (MMT)
22.85
111.00
166
361

Coal
Investment Policy
Private Indian companies setting up or operating power projects as well as cool or lignite mines for captive consumption are allowed FDI up to 100%.
100% FDI is allowed for setting up coal processing plants subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
FDI upto 74% is allowed for exploration or mining of coal or lignite for captive consumption. In all the above cases, FDI is allowed up to 50% under the Automatic Route subject to the condition that such investment shall not exceed 49% of the equity of a PSU.
Communication & Information Technology
TELECOMMUNICATION
Investment Policy
In Basic, cellular Mobile, Paging and Value Added Service, and Global mobile personnel communications by satellite, FDI is limited to 49% subject to grant of licence from the Department of Telecommunications and adherence by the companies (who are investing and the companies in which investment is being made) to the licence condition for foreign equity cap and lock-in-period for transfer and addition of equity and other licence provisions.
FDI upto 100% is allowed for the following activities in the telecom sector.
ISPs not providing gateways (both for satellite and submarine cables):
Infrastructure Providers providing dark fibre (IP category);
Electronic Mail; and
Voice Mail
Upto 100% FDI in telecom manufacturing activities on automatic approval basis.
Opportunities
There exists an enormous demand-supply gap for basic services, with the average waiting period for telephone connections exceeding one year.
Sector
Current Size
Projections
Basic Service
19 million lines
Additional 64 million lines required over the next 9 years to meet the demand for basic services; 20.4 million lines expected to be provided by the private sector
Cellular Services
0.9 million subscribers
Cellular subscribers expected to cross 1.6 million by March, 2000
Radio Paging
0.8 million subscribers
1.5 million subscribers expected by the end of financial year 2000
Very Small Apertue Terminal (VSAT)
6,000
VSAT demand estimated at 11,000 shared hubs and dedicated hub terminals by 2000
Internet
150,000
2 million Internet subscribers expected by the year 2000
Internet Services
There in no restriction on the number of Internet Service Providers (ISPs). No licence fee is payable up to October 31, 2003; thereafter a taken licence fee of Rs. 1 per annum is payable, ISP are free to fix their own tariff; ISPs have been permitted to establish their own international gateways for carrying internet traffic. They can obtain transmission link on lease from DTS, licensed basic service providers, railways, SEBs, Power Grid Corporation or any other operator specially authorised to lease such lines, ISPs can also establish their own transmission link within their service area if such links are not available from any of the authorised agencies.
Basic Telephone Services
Basic service providers are permitted to establish last mile linkages and carry their own long distance traffic within their service area. They are to be permitted direct interconnectivity and sharing of infrastructure with other basic service providers or any other type of service providers in their area of operation.
Cellular Mobile Services
Cellular service providers are permitted to carry their own long distance traffic within their service area. They are to be permitted direct interconnectivity and sharing of infrastructure with other cellular service providers or any other type of service providers in their area in their area of operation.
National Long Distance Services
As per the National Telecom policy `99, National Long Distance Services (NLD) beyond the service area shall be opened for competition. With a view to providing choice to consumers and promoting competition, all access provides would be mandatorily required to provide interconnection to all NLD providers.
Global Mobile Personal Communication By Satellite (GMPCS)
There is no restriction on the number of GMPCS licences and licences are issued on first-come-first-served basis. Gateways for GMPCS are to be located in India and operation and maintenance of the same are to be with an organisation designated by the Government. A two-tier licence fee is payable- a fixed component plus a variable component as percentage of revenues.
Other Value Added Services
As the telecommunications and Information Technology(IT) infrastructure in the country is expanding, there is a surge in demand for a range of value added services. The scheme for value added services has been considerably liberalised. These services include radio paging, public mobile radio trunking, and domestic data using VASTs, Evolving of new services- Tele-education, Tele-medicine, Tele-banking, Call Centre-is catching up with the Indian Industry and has recently witnessed significant investments from domestic and foreign investors.
INFORMATION TECHNOLOGY
Investment Policy
Automatic approval for foreign equity in software and almost all areas of electronics.
Automatic approval accorded for foreign technology agreements in all areas of electronics except aero-space and defence, subject to specified conditions.
100% foreign investment permitted in units set up exclusively for exports. Such units can be set up under any one of the following schemes; EHTPs, STPs, Free Trade Zones/EPZs, and 100% EOUs.
Opportunities
According to a recent World Bank study, India is the preferred location for software vendors for its quality and cost. India has strong Unix base which provides opportunity for the development of products for internet based applications. Further, India has global connectivity with international dialing facility from over 13220 locations, Leased/switched high-speed data links from major centres through STPs and VSNL for point-to-point communication are also available. Internet connectivity is provided through several networks. Abundant investment opportunities exist in the following thrust areas in India:
Communication Infrasture Optic Fibre CableGatewaysSatellite based Communication WirelessSoftware DevelopmentIT-enables ServicesIT Education (100,000 post graduate professionals in IT required annually by 2004)IT-enabled educationData Centres & Server Farms
E-commerce
Investment Policy
Upto 100% FDI is permitted for e-commerce, subject to the condition that the companies concerned would divest 26% of their equity in favour of the Indian public in five years, if the companies are listed in other parts of the world.
Opportunity
According to a study by ICRA Ltd., the volume of e-business in India is likely to increase from the level of Rs. 4.7 billion in 1999-00 to a level above Rs. 250 billion in the next three to four years, The figure makes a clear case for large scale investments in the Indian e-commerce sector.
Knowledge Based Industries
Pharmaceuticals
Investment Policy
Automatic approval for up to 74% foreign equity in the case of bulk drugs, their intermediates and formulations (except those produced by the use of recombinant DNA technology).
Opportunities
India pharmaceutical industry has shown tremendous progress in terms of infrastructure development, technology base and range of production, India derives its technological strengths in pharmaceuticals on the following bases:
Self reliance displayed by the production of 70% of bulk drugs and almost the entire requirement of formulations within the country.
Low cost of production
Low R&D Costs.
Innovative scientific manpower
Strength National Laboratories
Increasing balance of trade in Pharma sector.
Chemicals and biotechnology
Investment Policy
As referred t in section on Investment Policy
Opportunities
Chemicals
The chemical industry in India is well established and has recorded a steady growth in the overal Indian industrial scenario. The chemical and allied industries have been amongst the faster growing segments of the Indian industry. The Indian chemical industry had a turnover of around Rs. 900 billion in 1996-97. The chemicals industry also accounted for over 10% of total Indian exports during 1997-98. The chemical industry is highly heterogeneous encompassing many sector like organic and inorganic chemicals, dyestuffs, paints, pesticides, and specialty chemicals, Some of the prominent individual chemical industries are caustic soda, soda ash, carbon black, phenol, acetic acid, mathanol and azo dyes.
Currently, there is tremendous scope for growth in chemical sector. The per capita consumption of chemicals in India is well below the prevailing world level. For instance, in sulphuric acid, which is considered the barometer of growth in the chemical industry, the per capita consumption is only about 5kg per annum in India as compared to 40kg in industrially develoed countries.
Biotechnology
The setting up of a separate Department of Biotechnology (DBT) under the Ministry of Science and Technology in 1986 gave a new impetus to the development of modern biology and biotechnology in India. In more than a decade of its existence, the department has promoted and accelerated the pace of development of biotechnology in the country. In India, concerted efforts for over a decade in R&D in the identified areas of modern biology and biotechnology have paid rich dividends. The proven technologies at the laboratory level have been scaled up and demonstrated in field. Patenting of innovations, technology transfer to industries and close interaction with them have given a new direction to biotechnology research.
Necessary guidelines for transgenic plants, recombinant vaccines and drugs have also been evolved. A strong base of indigenous capabilities has been created.
Opportunities
Biotechnology industry serves as a research arm to Agritech, and Pharma industry with increased Potential for strategic alliances.
Global trends show that all large pharmaceutical players are putting their money in healthcare for long term benefits. It is expected that nearly half the drugs in the next decade would be biotech Products.
Tremendous potential in agri business in an agrarion economy like India.
Potential therefore for transgenic seeds, bio-fertilizers etc.
Number of small firms is high, knowledge based, research intensive industry, withlow capital Requirements.
Status and Scope
Sector
Turnover(1997)
Estimated Turnoverfor 2000(million USD)
Estimated Turnoverfor 2005(million)
Healthcare Products
650
800
1,300
Agriculture
480
650
1,110
Industrial Products
556
67
830
Total (including other)
1,790
2,100
3,240
The field of biotechnology both for new innovations and application would form a mojor research and commercial endeavour for socio economic development in this decade.
Infrastructure Sector
Roads
Investment Policy
FDI upto 100% under automatic route is permitted in projects for construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbours.
Opportunities
Investment worth an estimated US$34 billion needed, till 2005-06, for the development of National and Stte Highways. Of this figure, the requirement of private sector investment is US$8.3 billion.
Opportunities exists in :
Highway construction
Four-Laning of over 35,000 km of National Highways.
Highway related en route activities like restaurants, motels, and rest/parking areas as may be decided by the implementing agency.
Select project opportunities include :
Chennai-Nellor (US$ 350 million)
Bangalore-Chennai (US$ 305 million)
Surat-Manor (US$ 180 million)
Jaipur-Ajmer (US$ 147 million)
Ports
Investment Policy
The principal legislations governing Indian ports are The Indian Ports Act, 1908, and the Major Ports Trust Act, 1963, the Indian Government recently announced a series of measures to promote foreign investment in the port sector as listed below:
No approval required for foreign equity up to 51% in projects providing supporting services to water transport, such as operation and maintenance of piers, loading and discharging of vehicles.
Automatic approval for foreign equity upto 100% in construction and maintenance of ports and harbours, However, if the total foreign equity investment exceeds Rs. 15 billion, the proposal will be referred to the FIPB.
Open tenders are to be invited for private sector participation on a Build-Operate-Transfer (BOT) basis. Evaluation of bids will be based on the maximum licence period will not exceed 30 years and at the end of the BOT period all assets will revert to the port in accordance with the conditions of the agreement.
The Government has announced guidelines for private/foreign participation that permit formation of joint venture between major ports and foreign ports, between major ports and minor ports, and between major ports and companies.
The measures are aimed at attracting new technology, fostering strategic alliances with minor ports to create on optimal port infrastructure and enhancing private sector confidence in the funding of ports.
The guidelines permit the formation of a joint venture between :
a major port and foreign ports for the purposes of constructing new port facilities within existing ports, improving productivity of existing ports, and development of new port ;
a major port trust and a company or a consortium of companies where ;
a company or a consortium of companies, selected through a BOT bidding under the guidelines of private sector participation alliances with a major port trust for improving the viability of the scheme and/or to enhance the confidence of the private sector.
A company or a consortium of companies is selected under the scheme of innovative/unsolicited proposals
Oil PSUs/a joint venture company of oil PSUs are/is selected for oil related port facility as a port based industry.
Opportunities
The areas identified for privatisation or investment by the private sector include:
Leasing out of existing port assets
Creating of additional assets :
Construction or operation of container terminals
Construction or operation of break-bulk, multipurpose and specialised cargo berths
Warehousing, container freight stations, Storage facilities and tank farms
Cranage and handling equipment
Setting up captive power plants,
Dry docking and ship repair frailties
Leasing of equipment and floating craft from the private sector
Pilotages
Captive facilities for port based industries.
Civil Aviation
Investment Policy
The momopoly of public sector air carriers ended with the repenling of Air Corporarion Act, 1953 on March1,1994.
Automatic approval for foreign equity participation in Airport infrastructure upto100 percentForeign equity upto 40 per eent; investment by Non Resident Indians upto 100 per cent permitted In domestic air-transport services.Equity from foreign airlines not allowed in domestic air-transport services either or indirectly.Foreign Financial Institutions allowed to hold equity in the domestic air-transport sector provided they do not have foreign airlines as their shareholdersForeign Investors allowed to have representation (upto 33 per cent of total) on Board of Directors of the domestic airline company.Government to consider private sector participation construction and operation new airports on a BOT basis.Minimum fleet size for a scheduled operator raised from the existing 3 aircrafts to 5Management contract with a foreign airline is not permitted
Opportunities
Construction of world class international airports in five cities, permitting upto100% foreign equity investment announced.
Important private sector aided projects; New airport near Kochi (US$ 85.7 million). Projects for development of new airports at Bangalore and Mumbai with private sector participation are under consideration
Other private sector aided airports planned; Ahmedabad airport, Amritsar airport upgration, Chennai cargo complex, new international terminal and a second runway for Delhi airport, runway extension and international block for Jaipur airport
Private Sector-Where?
Restructuring & privatization through long term leaseGreen-field airportsConstruction of terminal/facilitiesGround handling

New Delhi, September 9: Powered by their robust revenue growth and profitability as well as shareholder returns, 12 Indian entities have made it to the list of Asia's 50 best performing companies the maximum for any country in the region.
The list, compiled by US magazine BusinessWeek includes housing finance giant HDFC, automakers Hero Honda and Tata Motors and two other Tata group firms software company TCS and world's sixth largest steelmaker Tata Steel.
Besides, three companies Siemens India (4th), Sterlite Industries (6th) and Cipla (10th) have made to the top ten of BusinessWeek Asia 50, which has been published in the latest September 17 issue of the magazine.
Among these 50 companies, Tata Consultancy Services (23rd) is on top in terms of stock market value with a market capitalisation of about 27.5 billion dollars. Besides, Sterlite, BHEL (44th) and ITC (24th) also figure in the list of top 10 firms in terms of market value.


Why Invest In India
There are several good reasons for investing in India.
One of the largest economies in the world.
Strategic location - access to the vast domestic and South Asian market.
A large and rapidly growing consumer market up to 300 million people, constitute the market for branded consumer goods - estimated to be growing at 8% per annum. Demand for several consumer products is growing at over 12% per annum.
Foreign investment is welcome, approval is required but is automatic in sixty categories of Industries.
Skilled man-power and professional managers are available at competitive cost.
One of the largest manufacturing sectors in the world, spanning almost all areas of manufacturing activities.
One of the largest pools of scientists, engineers, technicians and managers in the world.
Rich base of mineral and agricultural resources.
Long history of market economy infrastructure
Sophisticated financial sector.
Vibrant capital market with over 9,000 listed companies and market capitalisation of US$ 154 billion (March,1996)
Well developed R&D infrastructure and technical and marketing services.
Policy environment that provides freedom of entry, investment, location, choice of technology, production, import and export.
Well balanced package of fiscal incentives.
A sophisticated legal and accounting system.
English is widely spoken and understood.
Rupee is convertible on Current Account at market determined rate.
Free and full repatriation of capital, technical fee, royalty and dividends.
Foreign brand names are freely used.
No income tax on profits derived from export of goods.
Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for five years for 100 per cent Export Oriented units and units in Export Processing Zones.
Corporate Tax applicable to the foreign companies of a country with which agreement for avoidance of Double Taxation exists, can be one which is lower between the rates prevailing in any one of the two countries and the treaty rate.
A long history of stable parliamentary democracy.

Keep 3 things in mind when buying ULIPs

Three: Mis-selling by insurance agentsThe third point combines the first two. In all probability, most investors aren't made aware of the issues mentioned above. Which brings me to say that I don't have a problem with ULIPs being sold -- but I do have a problem with them being mis-sold. None, and I repeat, none of the ULIP investors that I have spoken to actually know the extent and details of the charges that they would be paying. When they come to know, their reaction ranges from downright disbelief to indignation and a feeling of being cheated. After all, who would want a large chunk of their money being expensed off even before the investment has taken place?
The problem is three-fold One: misrepresentation on the part of the agent. Two: lethargy on the part of the investor. Three: huge incentivisation on the part of the insurance company.
If you think about it, the solution is pretty simple. Stop over-incentivising. Automatically mis-selling will be discouraged.
Compare and contrast, before investingThough most insurance sellers tend to make tall claims about the return-generating potential of the product, IRDA has specified that a rate of 6% per annum (pa) and a rate of 10% pa are the only two rates that can be used to forecast the return potential. Therefore, first, before committing to any particular ULIP, check out what else is on the menu. Check out the products on offer by competing insurance companies. To be on the conservative side, direct the advisor concerned to use a return of 6% pa, over the entire tenure of the policy to ascertain the maturity value of the policy. This way, all expenses will have to be necessarily factored in. At the end of this exercise, you will have a much better picture in terms of the strengths and weaknesses of competing offers.
The bottom-lineA ULIP isn't a bad investment per se. There are a few ULIPs (and I cannot emphasise on 'few' enough) that actually make good investments. However, these are long-term wealth-building products where you break even, usually after six to eight years. And if used as short-term investments will almost always cause your financial health to suffer. So, just like buying any other product, do insist on complete information before committing your funds.

CAREER IN INSURANCE SECTOR

Insurance is one sector, which holds great future in India. The market is vast and there is a lot of cushion for new entrants to operate alongside our public sector giants viz. LIC & GIC. The industry is expected to grow at an average annual inflation adjusted rate of 7.6% and 14% in the non-life and life segment respectively. IRDA, whose exemplary contribution has made the privatization of the Insurance Industry a reality. In fact the largest number of registered players in the segment are from EU countries and surely Indian market will benefit a lot in terms of superior technology, improved customer servicing and newer products. The Market Capitalisation to GDP ratio in India is presently less than 30 per cent and with large international players active in the market this figure is likely to reach a level of over 60 per cent in the coming years. This is a trend observed in other emerging markets. And if we are looking at a trillion dollar GDP by 2007-08, the prospect for growth is indeed exciting. Economy growing at a rate of 6 per cent per annum and becoming a trillion dollar economy in a 7-8 years time, it is obvious that the potential is tremendous.
INSURANCE AGENTS:
An insurance agent is a person who takes up agency from the insurance company to sell their policy on a commission basis. He acts as an intermediary between the insurance company and the policy holder. But before doing so, he has to undergo training and get a certificate of proficiency from the insurance company. Mostly insurance policies are bought through agents. Agents help individuals and companies in selecting the right policy for their needs. They plan for the financial security of individuals, families and businesses and advise them about insurance protection. They also help the policy holders at the time of settlement of the claim. The job of agents is quite challenging as selling a product like insurance policy is not easy. For being successful, agents should be outgoing and social. They should have a knack of convincing people. .
A Day in an Insurance Sales Agent's Life: On a typical day an insurance sales agent might perform some of the following duties: · prepare reports and maintain records; · seek out new clients; · in the event of a loss, help policyholders settle insurance claims; · some may also offer their clients comprehensive financial planning services, such as retirement planning, estate planning, or assistance in setting up pension plans for businesses;
Today what we are excited and cheerful about is the fact that the entire sector has been privatised all over again! This has happened because all these years both the LIC & GIC have exercised the monopoly with a lacklustre attitude and the poor service standards. And now there is going to be healthy competition within the sector making it alluring as a career. As such the sector holds lot of promises & scope for all of us.
Remuneration will be linked with performance.
If you interested for becoming an agent or any query related agency feel free to contact thourgh email ; moneycontrolmaster@yahoo.co.in or sms +919988810024

“Other than Approved Investments”

GUIDELINES FOR MUTUAL FUND INVESTMENTS
1. As the term “Mutual Fund” is neither covered under Insurance Act, 1938 or by IRDA (Investment) Regulations, 2000 any Investment made in Mutual Funds will fall under the residuary category of investments namely “Other than Approved Investments” which in turn shall be subject to the limits prescribed in IRDA (Investment) Regulations, 2000 and the norms mentioned below. NORMS FOR MUTUAL FUND INVESTMENTS
2. The investment shall be restricted to Investment of temporary surpluses of the Insurer which may be placed in schemes of Mutual Funds comprising of Liquid Funds, Gilt or Debt Funds and the same shall be governed by the following norms:
i. The Mutual Fund should be registered with SEBI and be governed by SEBI (Mutual Funds) Regulations. 1996
ii. The insurer shall AT ALL TIMES ensure that the investments in Mutual Funds are diversified among the various Mutual Funds.
iii. The Board of the Insurer shall lay down proper Guidelines for selection of Mutual Funds and schemes permissible including exposure Norms to a Single Mutual Fund and to each Scheme of Mutual Fund so as to avoid concentration of Investment.
iv. Where, the schemes of mutual funds in which such investment is made by an by an Insurer is managed by an Investment Manager who is under the direct or indirect management or control of the Insurer or its promoter the same shall NOT exceed 20%* of the amount of Investments falling under “Other than approved Investments” subject to provision referred under Clause 5, pertaining to “Group” under IRDA (Investment) Regulations, 2000.
v. The Insurer shall NOT make any investment in shares or debentures of any private limited company in which investment, if any, is made by the Mutual Fund;
OVERALL INVESTMENT / EXPOSURE LIMIT
3. The investment in Mutual Funds AT ANY POINT OF TIME shall not exceed 50%* of Investment falling under “Other than Approved Investments” for both Life and General Insurance Companies
4. VALUATION OF MUTUAL FUND INVESTMENTS
4.1 For each of the Quarter, Mutual Fund units shall be reported at Weighted Average Cost. Also, the insurer shall mention the Market Value of such Mutual Funds (which shall reflect the increase / decrease in the NAV) in Form 3B of IRDA (Investment) Regulations, 2000,
4.2 A separate Fair Value Change Account segregated for each of the Mutual Fund Investment shall be maintained.
4.3 The unrealised gains / losses arising due to changes in fair value of the Mutual Funds shall be taken to “Fair Value Change – Mutual Fund” account. The Profit / Loss on sale of Mutual Fund units, shall include accumulated changes in the Fair value previously recognised in Mutual Funds under the heading “Fair Value Change – Mutual Fund” in respect of a particular Mutual Fund and being recycled to Revenue / Profit and Loss Account on actual sale of Mutual Fund units.
4.4 The Insurer shall assess, on each Balance Sheet date, whether any impairment has occurred to the Investment. An impairment loss shall be recognized as an expense in Revenue / Profit and Loss Account to the extent of the difference between the re-measured fair value of the Investment and its Weighted Average Cost as reduced by any previous impairment loss recognized as expenses in Revenue / Profit and Loss Account. Any reversal of impairment loss earlier recognized in Revenue / Profit and Loss Account shall be recognized in Revenue / Profit and Loss Account.
4.5 In the case of Unit Linked Business, Mutual Fund units shall be valued at NAV.
STATEMENT OF INVESTMENT RECONCILIATION
The Authority intends to establish the reconciliation between the Purchase and Sale of Investments made during the Quarter with the FORM-3B filed for that Quarter. In this regard all Insurers shall file with the Authority, a Reconciliation Statement on Purchase and Sale of Investments on a Quarterly basis.
SUBMISSION DETAILS
The Reconciliation Statement on Purchase and Sale of Investments, as per FORM -5 and FORM - 5A, shall be submitted within 21 days from the end of the Quarter. In relation to the Quarter ending on the Balance Sheet date, the return shall be furnished based on Provisional figures and subsequently be resubmitted with Audited figures which shall be in addition to other Returns.
METHOD OF PREPARATION
The statement shall be prepared in line with the major heads of FORM-3A and FORM-3B as applicable to Life and General Insurers namely;
1. Central Government Securities
2. State Government and Other Guaranteed Securities
3. Housing and Loans to State Government for Housing and Fire Fighting Equipments
4. Infrastructure Investments
5. Social Sector Investments
6. Investment subject to Exposure Norms
7. Other than Approved Investments
Note: For all securities, falling under the above heads, the respective Category Code shall be provided as shown in Category of Investments. In the case of Mutual Fund Investments, the respective “Brand Name” of the Fund shall be shown apart from Category Code.
SECURITIES LISTING METHOD AND VALUATION METHOD
The Opening Balance of EACH security pertaining to each of the following, namely;
1. Central Government Investments
2. State Government and Other Guaranteed Securities
3. Housing and Loans to State Government for Housing and Fire Fighting Equipments
4. Infrastructure Investments
5. Social Sector Investments
6. Investment subject to Exposure Norms
shall be the consolidated entry, shown at the Carrying cost of that particular security or at the Actual Cost of Purchases less amortization.
In respect of Mutual Fund Investments, the Opening Balance shall be calculated as a product of the number of units held and the weighted average value of NAV of all purchase made upto that period for each of the Mutual Fund. The information relating to Purchase and Sale of Mutual Fund Units, for the Quarter, shall be the consolidated Weighted Average Cost of each Mutual Fund, and be drawn as per the FORM-5A
PURCHASES FOR THE QUARTER
All purchases made during the period shall be shown at the consolidated Weighted Average Value, SECURITY WISE, and be listed as per the “Category of Investments” under the Groups of FORM-3A / FORM-3B. The Book Value shall be the consolidated Weighted Average Value of each security purchased during the Quarter.
COST OF SALES
Cost of sales shall be the Weighted Average Cost of the investment
CLOSING BALANCE
The Closing Balance shall be the sum of Weighted Average Cost of Opening Balance and Purchases made during the period reduced by the Cost of Sales for that period, which shall be listed security wise. This shall be the investment that will be carried forward to the next period.
OTHER POINTS RELATING TO MF UNITS
All Insurers are directed to adhere to the Guidelines with respect to the Mutual Funds Valuation.

Claims procedure in respect of a life insurance policy

(1) A life insurance policy shall state the primary documents which are normally required to be submitted by a claimant in support of a claim.
(2) A life insurance company, upon receiving a claim, shall process the claim without delay. Any queries or requirement of additional documents, to the extent possible, shall be raised all at once and not in a piece-meal manner, within a period of 15 days of the receipt of the claim.
(3) A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within 30 days from the date of receipt of all relevant papers and clarifications required. However, where the circumstances of a claim warrant an investigation in the opinion of the insurance company, it shall initiate and complete such investigation at the earliest. Where in the opinion of the insurance company the circumstances of a claim warrant an investigation, it shall initiate and complete such investigation at the earliest, in any case not later than 6 months from the time of lodging the claim.
(4) Subject to the provisions of section 47 of the Act, where a claim is ready for payment but the payment cannot be made due to any reasons of a proper identification of the payee, the life insurer shall hold the amount for the benefit of the payee and such an amount shall earn interest at the rate applicable to a savings bank account with a scheduled bank (effective from 30 days following the submission of all papers and information).
(5) Where there is a delay on the part of the insurer in processing a claim for a reason other than the one covered by sub-regulation (4), the life insurance company shall pay interest on the claim amount at a rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.

Claim procedure in respect of a general insurance policy

1) An insured or the claimant shall give notice to the insurer of any loss arising under contract of insurance at the earliest or within such extended time as may be allowed by the insurer. On receipt of such a communication, a general insurer shall respond immediately and give clear indication to the insured on the procedures that he should follow. In cases where a surveyor has to be appointed for assessing a loss/ claim, it shall be so done within 72 hours of the receipt of intimation from the insured.
(2) Where the insured is unable to furnish all the particulars required by the surveyor or where the surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as the case may be, shall inform in writing the insured about the delay that may result in the assessment of the claim. The surveyor shall be subjected to the code of conduct laid down by the Authority while assessing the loss, and shall communicate his findings to the insurer within 30 days of his appointment with a copy of the report being furnished to the insured, if he so desires. Where, in special circumstances of the case, either due to its special and complicated nature, the surveyor shall under intimation to the insured, seek an extension from the insurer for submission of his report. In no case shall a surveyor take more than six months from the date of his appointment to furnish his report.
(3) If an insurer, on the receipt of a survey report, finds that it is incomplete in any respect, he shall require the surveyor under intimation to the insured, to furnish an additional report on certain specific issues as may be required by the insurer. Such a request may be made by the insurer within 15 days of the receipt of the original survey report.
Provided that the facility of calling for an additional report by the insurer shall not be resorted to more than once in the case of a claim.
(4) The surveyor on receipt of this communication shall furnish an additional report within three weeks of the date of receipt of communication from the insurer.
(5) On receipt of the survey report or the additional survey report, as the case may be, an insurer shall within a period of 30 days offer a settlement of the claim to the insured. If the insurer, for any reasons to be recorded in writing and communicated to the insured, decides to reject a claim under the policy, it shall do so within a period of 30 days from the receipt of the survey report or the additional survey report, as the case may be.(6) Upon acceptance of an offer of settlement as stated in sub-regulation (5) by the insured, the payment of the amount due shall be made within 7 days from the date of acceptance of the offer by the insured. In the cases of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.
Policyholders’ Servicing
(1) An insurer carrying on life or general business, as the case may be, shall at all times, respond within 10 days of the receipt of any communication from its policyholders in all matters, such as:(a) recording change of address;(b) noting a new nomination or change of nomination under a policy;(c) noting an assignment on the policy;(d) providing information on the current status of a policy indicating matters, such as, accrued bonus, surrender value and entitlement to a loan;(e) processing papers and disbursal of a loan on security of policy;(f) issuance of duplicate policy;(g) issuance of an endorsement under the policy; noting a change of interest or sum assured or perils insured, financial interest of a bank and other interests; and(h) guidance on the procedure for registering a claim and early settlement thereof.General
(1) The requirements of disclosure of “material information” regarding a proposal or policy apply, under these regulations, both to the insurer and the insured.
(2) The policyholder shall assist the insurer, if the latter so requires, in the prosecution of a proceeding or in the matter of recovery of claims which the insurer has against third parties.
(3) The policyholder shall furnish all information that is sought from him by the insurer and also any other information which the insurer considers as having a bearing on the risk to enable the latter to assess properly the risk sought to be covered by a policy.
(4) Any breaches of the obligations cast on an insurer or insurance agent or insurance intermediary in terms of these regulations may enable the Authority to initiate action against each or all of them, jointly or severally, under the Act and/or the Insurance Regulatory and Development Authority Act, 1999.
The IRDA has a cell that receives and looks into complaints from policyholders—Life and Non-life grievances are handled separately.
The Cell plays a facilitative role by taking up such complaints with the respective insurers.
Cases of delay/non-response:
Cases of delay/non-response in matters relating to policies and claims are taken up with the insurers for speedy disposal.
Claims/policy contracts in dispute:
Complaints relating to these are analysed and insurers are advised to examine the same. If required, their attention is called to specific issues for examination/re-examination. However, if the insurer does not change its stand even after examination/re-examination, the complainant is informed of the same. The Authority does not carry out any adjudicaton. For this, the complainant would have to approach the appropriate judicial channel.

Contact information:
Complaints against Non-life insurance companies: Y.Priya Bharath,Deputy Director/ LVS Sunitha, Junior Officer, Insurance Regulatory and Development Authority, Parisrama Bhavanam, 5-9-58/B, Basheerbagh: 500 004 Phone: 040- 55820964, 55787938: Ext: 128/119 E-mail: ypriyab@irdaonline.org, sunithalvs@irdaonline.org
Complaints against Life Insurance Companies: Sanjay Nene, Officer on Special Duty, Insurance Regulatory and Development Authroity, Parisrama Bhavanam. 5-9-58/B, Basheerbagh: 500 004 Phone: 040- 55820964, 55787938 Ext: 131 E-mail: sanjay.nene@irdaonline.org
Insurance business is “people centric” in character.one is dealing with people who are our policy holders, claimants, beneficiaries and also intermediaries.
A great deal in sensitivity is needed in dealing with our customers and consumers of insurance policy
Any service rendered to a customers needs to be assessed.this also applies to insurance business.
“Under promise and over delivery” should be the motto rather than “over promise and under-delivery”.
Insurers need to offer seamless service to their customers and not service full of seams. Like any other commercial organization, Insurers need to develop a “grievance redressal mechanism” which is both cost effective and consumer friendly.
The grievance redressal mechanism should keep a record of all complaints received and action taken till disposal. A time schedule should be laid down by the management for customer grievances and this should be strictly adhered to by all the concerned in the organization.
A record of complaints received and disposed off every month should be reported to the insurers corporate office. The grievance mechanism at the corporate office would work directly under the chief executive who in turn should periodically apprise the regulator with regard to the effectiveness of the redressal mechanism.
Apart from the customer grievance cells reporting directly to the officer incharge at all operational centers, every insurer should have an Apex grievance redressal mechanism at its corporate office. This grievance mechanism should include a retired judge of high court,the chief operating officer or executive director incharge of insurers customer service and managing director or chief executive himself.Since this is a mechanism with in the insurer’s own organization,the cost of this mechanism is to be brone by the insurer himself.
In addition, a grievance redressal authority(GRA) be setup by the IRDA comprising of one judicial member(Who should be retired chief justice or retired judge of high court) and two technical members appointed by the insurance councils well versed in insurance management and practice.the judicial officer should be the presiding officer.
This scheme can replace the existing ombudsman scheme and is to be located at all states head quarters with juridication over the state and adjoining union territory.the cost of operation of this GRA may be brone by IRDA out of its own funds or a separate fund raised by contributions from all the insurers based on their premium income.The decision of the GRA be made enforceable by any civil court.
The central Government may also constitute an insurance appellate tribunal (IAT) comprising of a retire supreme court judge and two experts in the field of insurance. All appeals against the decisions of GRA and appeal against the orders of IRDA be handled by the tribunal
The tribunal shall have the power that are vested with the state commissions under the consumer protection ACT 1986 and shall be funded by the central government.
Further appeal against the order of IAT shall lie with the supreme court of India.
Any grievance of the policy holder on any matter relating to the functioning of an insurer will have to be first submitted to the internal grievance redressal mechanism of the insurer and only if the complainant is not satisfied with the decision of the grievance redressal mechanism of the insure, It can be taken of with the GRAIt is hoped that the above redressal mechanism would go a long way in mitigating the difficulties of the holders of insurance policies and would in turn help the insurers to spread the message of insurance to all parts of the country.

LAW AND REGULATIONS

INSURANCE ACT, 1938
The Insurance Act 1938, which came into effect from 1st July 1939, and was amended in 1950 and later in 1999, is the principal enactment relating to the business of insurance in India. The Act contains provisions regarding licensing of agents and their remunerations, prohibition of rebates, and protection of policyholder's interests. It also has provisions placing limits on the expenses of insurers, use of funds and patterns of investments, maintaining solvency levels, and constitution of Insurance Associations and Insurance Councils and the Tariff Advisory Committee for general insurance.
Section 2 (5A) defines 'chief agent' as a person who, not being a salaried employee of an insurer, in consideration of commission (i) performs any administrative and organizing functions for the insurer and (ii) procures life insurance business for the insurer by employing or causing to be employed, insurance agents on behalf of the insurer. Section 2 (17) defines a 'special agent' as one who procures life insurance business, in consideration of commission, employing or causing to be employed insurance agents on behalf of the insurer. He only procures business through agents but does not perform administrative functions like a chief agent. Special agents can work in the life insurance business, not in the general insurance business.
Individuals, companies or firms can be appointed as chief agents or special agents. The individuals, the directors of companies or partners of firms, wanting to become chief agents or special agents must be free of the disqualifications specified in connection with agents.
Section 42A provides for the registration of chief agents and special agents. Certificates to function as such are to be issued after registration. The certificates are valid for 12 months and may be renewed. The provisions also stipulate the number of insurance agents that a chief agent may employ directly or through special agents and the minimum business they have to do. Similarly, there are stipulations about the number of agents to be employed by a special agent and the minimum business to be done. Renewal of certificates is subject to compliance with these requirements. No chief agents or special agents were registered till the end of 2001.
The Act vests the IRDA with powers to inspect documents, to appoint additional directors, to issue directions, to take over the management of an insurer and to appoint administrators. The IRDA has powers to adjudicate on disputes between insurers and intermediaries or between intermediaries and to decide on disputes relating to settlement of claims of amounts not exceeding Rs. 2000. Not many disputes are likely to be referred to the Authority under this section, as the amount of Rs. 2000 is very small.
LIFE INSURANCE CORPORATION ACT, 1956
This Act was the basis for the establishment of the L.I.C. as a body corporate consisting of not more than 16 members appointed by the Central Government, one of them being the Chairman. The Corporation's duty was to carry on life insurance business to the best advantage of the community. Section 30 gave the L.I.C exclusive privilege to transact life insurance business in India. This exclusive privilege ceased as a result of the amendments made in 1999. These amendments were made in pursuance of the Government's policy of economic reforms and 11 insurance companies were registered and had commenced life insurance business till 31.3.2002.
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT 1999
This Act, passed in December 1999, provideed for the establishment of the IRDA to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of insurance industry and for matters connected therewith or incidental thereto. It also sought to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972.
The IRDA is a corporate body. It is advised by an Insurance Advisory Committee consisting of not more than 25 members to represent the interests of commerce, industry, transport, agriculture, consumer forums, surveyors, agents, intermediaries, organisations engaged in safety and loss prevention, research bodies and employees' associations in the insurance sector. It replaces the 'Controller of Insurance' to administer the provisions of the Insurance Act. That includes registrations, licensing, and laying down regulations for the proper conduct of the business and the protection of the interests of policy holders.
The Regulations framed by the IRDA, in so far as they affect the working of the agents, are reproduced in full at the end of this course.make its decision on the basis of documents submitted to it. The complainant and the insurer are allowed to make personal submissions. But lawyers are not permitted to argue the case.
Complaints to the Ombudsman lie only when the insurer had rejected the complaint or no reply was received within one month of the complaint or the reply was not satisfactory. A complaint can be made within one year after the insurer had rejected the representation. The subject matter should not be already before any court or consumers forum or arbitration.
The Ombudsman is expected to make a recommendation within one month from the date of receipt of complaint. If the complainant accepts this recommendation, the insurer has to comply within 15 days and inform the Ombudsman accordingly. If the complainant does not accept the Ombudsman's recommendation, the Ombudsman shall pass an award in writing, stating the amount awarded which shall not be in excess of what is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril or for an amount not exceeding Rs. 20,00,000, whichever is lower. The award has to be passed within 3 months. The complainant has to intimate his acceptance of the award within one month by a letter of acceptance to the insurer and the insurer has to comply within 15 days and inform the Ombudsman. If the complainant does not intimate acceptance, the award cannot be implemented.
OTHER ACTS
Income Tax Act
The tax laws in India have always encouraged people to save through life insurance or other instruments, by providing relief from tax liabilities. The details provided herein are, as on a date when the course was being written. These could change at any time, through budget provisions or otherwise. The agent should keep himself up to date with the changes. Offices of the insurance companies would normally communicate the effect of such changes for the benefit of the agents. Knowledge of tax provisions is essential for an agent as it affects the benefits under a policy.
Any sum received under a life insurance policy, including the bonus additions is exempt from income tax. That means that income tax does not have to paid on policy claim amounts. There are some exceptions to this rule. One is the amount to be refunded under 'Jeevan Adhaar' a plan of the L.I.C., meant for the handicapped dependents. The other is a claim under a key-man insurance policy.
Deductions (from taxable income) to the extent of Rs. 10,000 are allowed to an individual in respect of amounts paid or deposited in the Jeevan Suraksha annuity plan for receiving pension (from a fund setup by the L.I.C). Similarly, an amount not exceeding Rs. 40000 deposited with L.I.C under Jeevan Adhaar plan for maintenance of handicapped dependent is eligible for deduction from total income. This position has changed with amendment proposed in the Budget for 2003-2004, whereby maturity claims payments will be taxable if the premium paid in any one year exceeds 20% of the SA.
The amount of income tax payable on the total taxable income, is reduced by a percentage of the aggregate amount paid towards insurance premiums (on life of self, spouse or children), contribution to Provident Fund or approved Superannuation Fund, National Savings Certificates, etc. The percentage of deduction was a flat 20% of the aggregate subject to limits. Most of the assessees could get the rebate to the extent of Rs. 15000. Some could get more. This position has changed since 2002. The deduction reduces as the income slab goes up.
The Wealth Tax Act exempts life insurance policies totally provided premiums are payable for a period of 10 years or more. If the policy term is less than 10 years, proportionate value of the right or interest of the assessee in the policy will be exempted. Hence such policies will have to be included in the net wealth as on the date of valuation.
Insurance premiums paid under partnership or keyman insurances are allowed as expenses
Married Women 's Property Act 1874
Section 6 of the MWP Act provides that a policy of insurance effected by any married man on his own life and expressed on the face of it for the benefit of his wife and children shall be deemed to be a trust for the benefit of his wife and children and shall not be subject to the control of the life assured or his creditors or form part of his estate. The implications of this Act for life insurance policies have been discussed in an earlier chapter.