Bharat Entrepreneurs

                                                                                                                                                                                                                 Insurance is a long term promise. There exists a healthy competition between the Insurance companies to make the customers trust their word and promise. It has been a problem for insurance companies to differentiate amongst themselves from one another when the market is not growing. Companies must be capable and should have the financial strength  to pay any kind of claims at any time.

            Whatever may be the product that is offered by the company it doesn’t matter too much. Only thing is, the agents must be in a good position to create awareness in the people towards insurance policies. The company must involve all people working in it to the best of their capabilities in furthering the interests of the insured public by providing efficient service with courtesy. Insurance company must bear in mind the investment of funds, the primary obligation to its policy holders whose money it holds in trust without losing sight of the interest of the community as a whole. The funds must be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities &obligations of attractive return .

         Generally in India we see a trend towards stock market driven unit linked insurance policies (ULIPS). Due to the lack of awareness people buy unit linked products more as an investment than insurance. This unit linked process depends on the stock market behaviour. If the stock market goes up, the customers buy unit linked products to get benefits. Here we can see two categories namely public traded companies and Mutual companies. Some examples for public traded companies are Met-life and Prudential.No doubt that life insurance is a long term business which make promises that are 30-40 years out. In-spite of that there companies trying to make short term decisions to look good for stock market ,keeping in mind about their earnings. 

                              A customer, being a policy holder will expect maximum capital, but some companies were trying to minimize it.This kind of scenario is seldom seen in Mutual companies when compared to public companies as, there public companies do not hold their amount of capital. A company must fund their business with regular injection of capital as and when required. But now in India with liberalisation of sector and entry of private players, customers are becoming more aware, of the role &scope of insurance. However a customer will expect the company to focus on protection & long term wealth creation. 

Popularity: 11%

                                    In 2006, SEBI(Securities & Exchange Board Of India), the market regulator came down hard on new offerings of mutual fund. At the same time SEBI even permitted the trustees to govern according to declared policies that to approve new funds saying that the fund house does not already have a similar type of fund. AMFI (Association Of Mutual Funds In India) also reduced the funds initial expense upfront as against  amortizing  it over  a 5 year period. Inspite of   these plans , mutual fund investor even at  additional  cost didn’t give up to switch between the funds

            Even in last economic year (2007 April 2-2008 march 31) investors haven’t seen any profits from equity Mutual funds. Same was the case in 2006 also. Nearly 64,000 odd crore was released from equity schemes by investors flipping out of funds.

            Apart from these discussions, two factors which lead investors to dissatisfaction are: subscribing to too many schemes and excessive churning of their funds. Former is proved to be fruitless diversification as the great performance of  one scheme is neutralized by the poor performance  of another .Later is proved to be worthless  if you are interested in long-term wealth building. Reasons for the investors  to churn are profit booking and bad returns.

          Coming to the case of equity funds Broad Market which represents BSE, NSE indicators  had performed well when compared to equity funds .Out of 163 equity funds it has been reported that only 27 funds have performed well than Broad Market .If such is the case then it is obvious that Investors interest may diminish to subscribe  under a particular scheme to fund manager even at the cost of losing  some money as fund management fees and it is the case where Index funds are congenial. But considering the previous year reports Index funds are also not performing well. In this regard fund managers pushing the cause of ill performance on to ‘Tracking Error’ which is acceptable upto 1 or 2 %points. But Tracking Error has been recorded upto 5 to 10 % points less with regard to Index funds’ performance index.

            In view of fund investors, what they think is  :

1)If the fund managers are investing as per the weightage of Index in all shares  

2)Maybe in selected shares these fund managers are investing small amounts or large amounts.

         Considering fund manager’s situation, excess of churning keeps a tremendous amount of pressure on fund manager to perform. Not only that, if a fund is lagging behind in performance, investors tend to cash out which therefore forces  a fund manager to go for riskier equity investments. In this regard Swaminathan National Head(Mutual Fund) FDBI Capital says “ It disturbs  the investment rhythm of the fund manager.” So an advice to the investors is that short-term churning erodes maximum gains for investor due to short-term tax of  10% & higher  loads .So churning should be considered as a tool to rebalance or realign an investors portfolio.

        Finally experts say that even Index funds are not performing upto the marked  level, it is very congenial to Indian  Market to have  a minimum  investment horizon of 3 years in Equity  Diversified funds. If you being an investor want to build wealth over the long-term, stay put. One research paper reports that in entire corpus in 2007 December on some percent basis it has a cash deposits of 7.6% and in 2008 January has increased to 8.7%.Thus with a thorough analysis of stock markets  the conclusion is that a declining market is a good time to pick value stocks, while a rising market is a sound time to invest in growth stocks.

Popularity: 9%