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Relevant Input
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Premium Componen
Mortality
Overheads
Savings
Components of Premium and their
impact on return
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Capability in Maximising returns
Clear Underwriting Norms
Effective Cost Control
Efficiency in Fund Management
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Revise
Mortality
Overhead
Savings
Which leads to
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IT IS NOT POSSIBLE TO INDICATEIT IS NOT POSSIBLE TO INDICATE
RETURNS, LEAVE ALONERETURNS, LEAVE ALONE
GUARANTEEING IN THE LONG RUNGUARANTEEING IN THE LONG RUN
The reasons are :
Government has decided to reduce its interest burden on its
borrowings
Interest Rate on Government borrowings depends on
Domestic Inflation Rate
Government Borrowing Program & Fiscal Deficit
Global Interest Rate Scenario
Prevailing Exchange Rates ie. Rs Vz $ etc.
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94-95 95-96 96-97 97-98 98-99 99-00 00-01 NO WINFLATIO N -W PI
(%) 12 .50 8 .10 4 .60 4 .40 5 .90 3 .30 7 .10 5 .03PPF (%) 12 .00 12 .00 12 .00 12 .00 12 .00 12 .00 11 .00 9 .50Post Office Month
Incom e Scheme
(%) 13 .00 13 .00 13 .00 13 .00 13 .00 13 .00 11 .00 9 .25Kisan Vikas Patra
(% C ompounded) 13 .43 13 .43 13 .43 13 .43 13 .43 13 .43 12 .25 9 .50Gold Prices
($/Ounce) 384 .10387.90331 .30294.10278 .60279.10263 .50263.5So urce : Busine ss W orld - 6th a ugu
REAL RET URNS T AKE A HIT
Any projection on PPF interest rate in 2005 ?
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0 . 0 0
2 . 0 04 . 0 06 . 0 08 . 0 0
1 0 . 0 01 2 . 0 01 4 . 0 01 6 . 0 0
94-95
95-96
96-97
97-98
98-99
99-00
00-01
NOW
IN F L A T IO N - W
P P F ( % )
P o s t O f f ic e M oIn c o m e S c h e m
K is a n V i k a s P aC o m p o u n d e d )
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GOVT SECURITIES 50%
( INCLUDING CENTRAL GOVT SECURITIES)
INFRASTRUCUTRE 15%
OTHER APPROVED SECURITIES 20%
OTHER INVESTMENT AS PER PRU. NORMS 15%
This is applicable to all Life Insurance Companies
TO POLICY HOLDERS 90%
TO EQUITY OWNERS OF THE LIFE CO10%
SURPLUS DISTRIBUTION REGULATION
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Q : You may get the returns, but you may decide not to pass
on to Policyholders
Q: Pvt Cos are profit driven, the promoters may take all the
benefits ?
The policy holders funds and the Promoters funds
are two separate pools.
Surplus arising out of Policyholders fund has to be
necessarily distributed as Per IRDA guidelines
Pvt Cos are profit driven and it actually benefits the
policyholders.
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Other arguments
Is it possible for any one to tell what will be the
government borrowing rate , five years from now ?
Mutual fund debt products dont guarantee any
returns NOT even Principal
In mutual fund industry, Debt funds ,the owners are
making losses but the schemes are doing well.
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RISKS OF GUARNATEED RETURNS TO THERISKS OF GUARNATEED RETURNS TO THE
CUSTOMERCUSTOMER
When Interest Rate comes down, in order to maintain
the rate, funds get invested at Higher Risk Instrument
Higher Returns may be paid at the cost of others-
Leading to Unfair practices - Regulator will step in
Higher Assured Returns means Promoters may need to
pump in additional money. ( CanBank MF Schemes,MIPs of UTI etc..)
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Income for a Life Insurance company Expenses for Life Insurance Company
Premium Income Commission
Interest Income from Investments Overhead expenses
Claims Payment
Provision for reserves***
Balance - Surplus for distribution as Bonus & Divide
*** -Life insurance cos having guaranteed product have to make higher provision
means = less surplus for distribution as BONUS in the current year
Guaranteed Returns - How it affects current and future bonus
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RISKS OF GUARNATEED RETURNS TO THERISKS OF GUARNATEED RETURNS TO THE
CUSTOMERCUSTOMER
When Interest Rate comes down, in order to maintain
the rate, funds get invested at Higher Risk Instrument
Higher Returns may be paid at the cost of others-
Leading to Unfair practices - Regulator will step in
Higher Assured Returns means Promoters may need to
pump in additional money. ( CanBank MF Schemes,MIPs of UTI etc..)
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