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HDFC Standard Life Insurance Company Ltd - IPO Note

HDFC Standard Life Insurance Company Ltd - IPO Note
by Nikita Bhoota 11/06/2017

Issue Opens- November 7, 2017

Issue Closes- November 9, 2017

Face Value- Rs 10

Price Band- Rs 275- 290

Issue Size – ~Rs 8,695 cr

Public Issue: ~29.98 cr shares (at upper price band)

Bid Lot- 50 Equity shares              

Issue Type- 100% Book Building



% shareholding


Post IPO







Source: RHP

Company Background

HDFC Standard Life Insurance Company Ltd were one of the most profitable life insurers, based on Value of New Business (VNB) margin, among the top five private life insurers in India (measured on total new business premium) in FY16 and FY17, according to CRISIL. Besides, consistently being among the top three private life insurers in terms of profitability based on VNB margin, the company has also consistently been among the top three private life insurers in terms of market share based on total new business premium over FY15-17, according to CRISIL. The company’s total new business premium for FY17 and H1FY18 was ~Rs 8,696 cr and ~Rs 4,403 cr. respectively. The company has a healthy balance sheet with total net worth of ~Rs 4,460 cr and a solvency ratio of 200.5% as at September 30, 2017, above the minimum 150% solvency ratio required under IRDAI regulations. As at September 30, 2017, the company had total AUM of Rs 99,530 cr and Indian embedded value of Rs 14,010 cr. As at September 30, 2017, the company’s product portfolio comprised 32 individual and 10 group products.

Objects of the Issue

The purpose of the offer is to carry out the sale of offered shares by the existing shareholders (HDFC Ltd and Standard Life Mauritius Holdings Ltd). The listing of equity shares will enhance the HDFC Life brand name and provide liquidity to the existing shareholders. HDFC Life Insurance Company will not receive any proceeds from the offer.

Key Points

  1. The company’s focused execution has continued to deliver consistent and profitable growth. It has a healthy balance sheet and delivered a return on equity of 25.6%, return on invested capital of 40.7% and operating return on embedded value of 21.7% during FY17. As at September 30, 2017, it had a solvency ratio of 200.5%, above the minimum 150% solvency ratio required under IRDAI regulations. Over FY15-17, its overall total premium grew by a CAGR of 14.5% to Rs 19,445 cr, driven by a CAGR of 12.6%, 43.6% and 7.3% in individual new business premiums, group new business premiums and renewal premiums, respectively. The company improved its VNB margins from 18.5% to 22.0% over FY15-17 by improving cost efficiencies, increasing its persistency ratios and selling a balanced product mix. Its share of protection in the individual and group new business premium increased from 12.0% in FY15 to 21.8% for FY17.


  2. The company offers its individual and group customers access to its products through their diversified distribution network which comprises four distribution channels, namely bancassurance, individual agents, direct, and brokers & others. The company’s distribution model within each distribution channel gives them a significant footprint across customer segments. As a result its focus on customer needs and distribution efficiencies, they have managed to build economies of scale across most of their distribution channels, while consistently maintaining profitability for each distribution channel over FY15-17 and H1FY18.


  3. HDFC and Standard Life Mauritius respectively hold 61.21% and 34.75% of HDFC Life Insurance Company equity shares (pre-offer). Over the years, the HDFC group has emerged as a recognised financial services conglomerate and was ranked as one of the best Indian brands in 2014 (according to Interbrand). We believe that the company has strong brand recall among Indian consumers.

Key Risk

As is customary in the life insurance industry, the company’s product pricing is based on assumptions and estimates for future claim payments and these assumptions are derived from the company’s historical experience. If the company’s actual claim payments are higher than expected, then the financial results from their operations could be adversely affected. 

Research Disclaimer 

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What is Exit Load in Mutual Funds?

What is Exit Load in Mutual Funds?
by Nutan Gupta 13/06/2017
New Page 1

Simplicity is the key to financial well-being. Whether it is investment products or financial decisions, life can be easy and uncomplicated if things are kept simple and easy to understand. This article is an attempt to make your financial decisions easy with respect to mutual funds. Mutual fund is a collective pool of money of multiple investors, invested in different financial products. Mutual fund companies collect a fee from investors for joining or exiting a fund. The fee charged is known as load. Exit load is the fee levied by the company at the time of an investor leaving a scheme or investment fund. Open ended funds allow the investor the option to exit the investment as per his choice.

Why is this exit load payable by the investor?

Free things are always taken for granted so is in the case of investments. Hence, mutual fund companies charge a commission from the investors for their exit from the mutual fund investment when they fail to honour the specified number of months that they agreed up on at the time of investment. To discourage investors from taking such a decision, an exit load is determined. The sole purpose of such a fee applicable at the time of exit is to reduce the number of withdrawals from the schemes of mutual funds. Exit load fee differs from one fund house to another.

The exit load is a percentage applied on the NAV (net asset value), and the reduction in the amount is credited back to the investor. For example, a mutual fund defines its exit load to be 1% on redemption within a year. If an investor invested his money in the beginning of the year on 10th January and he decides to redeem it on April 10th, when the fund’s NAV is at around Rs 25. Since April 10 is much before the agreed period of the redemption, the investor will attract an exit load on failing to honor his commitment. The amount returned to the investor post the exit load will be 24.75. The exit load amounts to Rs 0.25 (1% of Rs 25), which is deducted and credited back into the investor’s account. On completion of the agreed term, say the investor would want to redeem the load on 10th January the next year, then he is not entitled to pay any exit load on the same. It is to be noted that switching out of a fund from one to another is also qualified as a redemption. However, units that are under dividend reinvestment do not suffer exit loads.

Calculation of Exit Load in SIPs

Every installment of the Systematic Investment Plan is calculated for exit load. If the lock-in period for the SIP installment is agreed upon as 12 months than the load will be applied within the same time frame. The same rule of exit load is applicable when an investor makes multiple investments of varied sums at different points in the fund.

Every fund defines its own exit load and therefore investors are expected to read the terms and conditions carefully before investing in the mutual fund. Ideally, in most cases exit load is usually in the range of 0.25 to up to 3%. The rate and the lock-in time period differs too. For example, rate for redemption for 120 days can be different from rate applicable for redemption post six months.

For short-term funds the exit loads are for a short duration of 60 or 120 days, Exit load might not be charged for ultra-short term funds. Long term debt funds however follow the standard rule and have an exit load for around one year.

Merger of Schemes

In case of a merger of two funds for whatsoever reason, exit load will not be applicable in such a case. In such instances, investors are provided with the option of opting out from the fund and retrieve their amount in a specific time window. Failure to opt out within time window attracts an exit load.

We hope to have cleared most of your doubts on exit loads in the most simplified way possible. For more on the financial world, keep on reading.

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What are open-ended mutual fund & close-ended mutual fund?

What are open-ended mutual fund & close-ended mutual fund?
by Priyanka Sharma 13/06/2017

Financial world and its terminologies can leave the most intelligent people baffled with its nitty gritties. To a layman it all appears the same until he/she dwelves deeper to create a portfolio of their own. We simplify the financial terminology to help you understand this not so complex world of finance easily.

What are open-ended funds?

Open-Ended Funds are simply put a category of the mutual fund where there is no restriction on the number of shares issued. For example, when Mr X purchases shares in a mutual fund, the number of shares overall increases. But when Mr X sells his shares, those shares are taken out of circulation and if required for large dealings the fund manager may have to sell some of the investments to pay off Mr X’s money.

Funds and their managers are prone to seeing a continuous entry and exit of investors as the funds sell their shares on a regular basis. Open-ended funds allow the opportunity of purchasing and selling shares even after the initial offering (NFO) period. This is applicable only in the cases of new funds as the shares are bought and sold at the net asset value (NAV) declared by the fund.

Mutual funds are different from stocks in all respects and hence unlike your stocks you will not be able to monitor them or trade them in the open market. While the transactions happen on a daily basis on the fund with the selling and buying of new shares, in proportion to the same the total value of the fund or net asset value (NAV) is repriced accordingly.

What are closed-ended funds?

While the open-ended funds and closed-ended funds look similar, they're very different. To be precise a closed-ended fund is more like an exchange traded fund than a mutual fund. Like ETFs they are launched in the market through an IPO in order to raise money and then trade in the open market just like a stock or an ETF. The shares issues by this fund are limited and their value is estimated on the basis of the NAV. Though the value of these shares is based on the NAV, the actual price of the fund is determined by the supply and demand, and therefore the price of trading always differ according to the real market value.

Close-ended funds give a high dividend and therefore attract more investors. However, investors need to understand that though the borrowed money produce big returns on investment, using borrowed money for investment can get the fund under intense pressure in the long run.


While open-ended fund products are a safe choice for investment than closed-ended funds, the latter offers lucrative deal in terms offering higher dividend payments and capital appreciation.

We advise investors to be careful and come to any decision post a thorough weighing of all the pros and cons.

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Confused between ULIPs vs Mutual Fund? A Quick Guide

Confused between ULIPs vs Mutual Fund? A Quick Guide
by Nutan Gupta 13/06/2017
New Page 1

The moment when you have made up your mind to invest your money is clearly euphoric. You realize the potential of earning good profits in the near future and are satisfied with the way you are planning to secure your future. But this is just the beginning of the tough world decisions. Finance is complex and so are the decisions involved with it. Deciding on which product to invest is a long debate with yourself as well as your manager. Stocks, insurance, bonds, mutual funds or ULIPs, the list is endless. We help you resolve the long standing debate between investing in ULIPs or Mutual Fund with this article.

What is ULIP?

ULIP or Unit Linked Insurance Plan is a life insurance product. A ULIP ideally is an insurance cover plan for the policy holder with the benefit of opting to choose for any number of investment options such as stocks, bonds or mutual funds. The ULIP plan acts as a single integrated plan, so the dual benefits of investment and protection can be enjoyed according to the specific needs and choices of the investor.

ULIPs require the investor to pay a regular premium for the policy cover as well as the investment made in stocks and bonds for wealth appreciation. However, the premium amount is paid for both the parts only once. A part of the premium paid goes towards providing the policyholder insurance cover, and the other is invested in stocks and bonds for wealth appreciation.  A policyholder has the freedom to choose the financial product it would like to invest in as a part of the ULIP according to his risk appetite.

What is Mutual Fund?

Mutual fund is an investment scheme wherein many investors come together to invest their money through a collected pool. The collected corpus is under the care of a fund manager-a financial expert hired specifically to invest the collected money in different financial products such as stocks, bonds, and other asset classes. The investors in a mutual fund enjoy the dividends after a particular time frame. The dividends can be reinvested into the scheme to enjoy a greater profit at the time of exit.

While ULIPs and Mutual funds always keeps a smart investor busy with the thinking business, lets grab an overview on the similarities between the two.


Mutual Fund

There is definitely a risk involved in investing in ULIPs. ULIPs face the risk of defaults and changes in the rates of interest.

The risk involved in investing in this financial product is higher as the equity investment is dependent on market fluctuations and a fund manager’s decision.

An investor with the ULIP is awarded shares on the net asset value basis and the individual investor has the liberty to invest the money in any financial product of his choice.

While investors in mutual funds definitely have shares with them, the discretion to invest in a financial product solely lies with the fund manager.

While the similarities between the two are few, the points of contention are many and varied. Let’s look.


Mutual Fund

A ULIP is a two way investment into insurance as well as core investment product of an investor’s choice.

A mutual fund is a core investment product.

A ULIP is a carefully planned out financial investment with the help of a financial advisor who determines the monthly premium on the basis of the investor’s income and expenses for a specific time period.

A mutual fund investment can begin with as basic as an amount of 500 Rs per month for a minimum period of 12 months as a systematic investment plan (SIP).

The exit from the ULIP plan before its maturity requires the investor to bear the financial implication.

There are no penalty implications to be borne by the investor in case of the discontinuation of the SIP.

The expenses for ULIP are high as the Insurance Regulatory and Development Authority (IRDA)prescribe limits only in certain cases, thus an insurance company has an upper hand in determining the investor’s expenses. The high premium allocation charge is ruled to be not exceeding 10% of premium. With this are the additional charges of mortality, fund management charges, policy administration charges among others.

Expenses though seem to be lower for the mutual funds with the Securities and Exchange Board of India (SEBI) setting the upper limits for expenses, expenses charged by mutual funds to investors for a range of activities like fund management, sales and marketing, administration are subject to certain limits. Charges over and above the specified limit if any are borne by the fund house instead of investors.

ULIPs have an investment period determined, with a minimum of 5 years locked in from the very onset of the first transaction.

Mutual funds have the ease of being changed into liquid asset conveniently as they are traded in the market on a regular basis. However, all mutual funds are not liquid in nature with ELSS being the most apt example.

ULIPs are also expected to submit their quarterly reports before the investors.

Investors of the mutual funds, according to the SEBI guidelines need to quarterly updated on the numbers of their portfolio. However, a monthly practice is followed by industry to ensure a transparency between the fund manager and its investors.

ULIPs allow the investor to choose the sum that he wants to be invested in equities and in insurance cover. Investors are also given the option of entry and exit from a mutual fund whenever they want.

The decision of entry and the exit point of the investment relies with the fund manager with no flexibility to change the asset allocation midway.

ULIPs allow the investor tax relief up to a limit specified under the Section 80 C of income tax with the proceeds also remaining tax free in the hands of the investor.

ELSS is the only financial product while provides tax relief under the Section 80 C. A minimum of 1 lakh are allowed as deduction. The proceeds of the mutual fund

do not give the investor relief from tax payments and attract redemption charges. Non-ELSS funds have different terms and conditions for the tax implications depending on the nature of the mutual fund.

Making a decision between the two is indeed difficult, however if liquidity is a cause of concern for you then mutual fund is a safer bet with no lock-in period. ULIP should ideally be an option for an investor if he wishes to switch funds in between or aims for lower costs with less risks in the long run.

Whatever the choice, we wish you the best in all your financial planning.

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Essential Financial Planning Steps in your 40s

Essential Financial Planning Steps in your 40s
by Nutan Gupta 20/06/2017

The value of the wine increases with time and so is the situation in a man’s life. He spends his youth in achieving his dreams, failing; rising and learning from his innumerable experiences. In his middle-age at around 40 years of age he becomes wise, learning from each phase and every mistake in his life. 40 is no more about himself but collectively about him and his family. And now is the time when he should be seriously thinking about his and his family’s future.

Financial planning is often prolonged until all the responsibilities of the family are met. Education fees of children, buying a house, medical bills of parents… all this seem to be a far bigger priority than saving in the correct financial plan. Retirement seems to be still very far and expert opinion from financial managers will be sought when one is ready for saving.

Not having a financial plan in place is a bad decision. 40 is the age when you should get your priorities set and begin saving for your different needs. We help you with simple tips to plan out your financial future in a secured manner in the ripe age of 40.

Do not delay the saving period any longer than 40. Time is crucial and ensure that all the aspects of your life are finely secured in your plan.

Planning for Emergency

At 40, you seem to be fit and fine and while you will always be young at heart, you cannot ignore the need for planning for an emergency and that emergency could be anything. Your financial plan should include a liquid fund that will take care of all your emergency needs, if such a situation arises.

Clearing Your Debts

A car loan, house loan, foreign trip loan…everything seems to be an immediate requirement at the young age of 20. 20 is all about spending and living in the moment. However, 40 is all about channelizing your income into savings and investments. Therefore, you should on a priority basis make an effort to reduce all your debt.

Reduce Non-Committed Expenses

At 40, your ideal goal should be achieving an increase in your savings. Therefore planning a budget is optimum to reduce your unnecessary luxury expenses. Ensure all your expenses are for your basic necessities.

Education Expenses

Saving for your child’s education is the most important goal in your financial planning. You want to give the best education to your kids so that they are able to fulfill their future dreams. In order to achieve all this, you need to start your preparation now. Make the right investments to meet your child’s education goals.

Retirement Planning

At 40s you still have to achieve a lot on the professional front and create milestones in your career. But 40 is perhaps the earliest and best age to start contributing towards your bright retired future. The returns you achieve should be able to beat the inflation rate to meet your old-age needs. Ideally every individual should take an informed decision on his retirement.

Life Insurance Plan

Securing the future of your loved ones in your absence is the best safety you could ensure for them. Invest in life insurance to make sure your family remains independent even without you. Go for insurance plans such as health insurance, disability insurance, home insurance, auto insurance, to get the right and maximum coverage plan in case of any unfortunate event.

Concisely speaking, financial planning in 40 is as much about your family as it is about yourself. Get a good plan that is derived post all the consideration of your expenses, goals and risk profile.

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What should I know about Indian share market?

What should I know about Indian share market?
by Prasanth Menon 20/06/2017

The Indian share market is a place where shares of public companies are listed for trading. Here, trading shares bifurcate to two sub-categories; the primary market and the secondary market. Investors buy shares directly from the companies in the primary market. In the secondary market, investors trade shares amongst themselves.

In recent times, India had always been a leader as per the GDP rate that averaged around 7-7.5%. The world GDP rate languishes at 2.5%. This portrays India as a growing and lucrative market. Worldwide, the USA contributes 23% of the global GDP, Europe does 20%, China provides 9.3%, Japan provides 8.7% and India provides 2.4%.

The Inside Story

As is the case, any person through a broker can purchase or sell stocks pertaining to one or many companies. This exchange takes place at primary stock exchanges in India; the Bombay Stock Exchange (BSE) and the National Stock Exchange(NSE). Both are situated in the financial capital of India, Mumbai. The Bombay Stock Exchange claims to be the world's fastest stock exchange while the National Stock Exchange was the first exchange in India that provided a computer based electronic trading system. As of March 2017, the BSE and NSE rank 11th and 12th worldwide, respectively.

The market opens for trading at 9.30am and shuts down at 3.30pm, with a pre-open trade session from 9.00am-9.15am. Trade in both the exchange processes through the electronic order book, which is like an electronic shopping list for shares, sorted by their prices. These markets follow a T+2 day settlement cycle period, where T is the day a share got traded and T+2 is the day when the order got settled.

More About Trading Shares

Typically, trading has to be done by choosing an appropriate SEBI registered broker. The broker can be an individual, investment firm or a corporate body. An investor must have a Demat(Dematerialized) account, which is required to trade shares. An order can be placed with the order, with instructions specifying details about buying/selling shares such as price range, stop loss etc. After the trade is executed and a contract has been signed, it would take T+2 days to settle the trade.

After the 1990s, India let in foreign companies to invest here. The investment by foreign companies is possible only after it is registered under the Foreign Institutional Investor(FII) or as a sub to an FII registered company. Lately, the government of India's 'Make In India' initiative has increased the FDI rate to 48%.

Summing It Up

It is to be noted that India is a service driven country. And it is only when the value of other currencies rise( specifically dollar) that many Indian IT/Service oriented companies would reap profits. More profit is equal to a greater capability of expansion, which is again equal to more employment. At present, as the rupee strengthens the IT and Pharmaceutical companies are making losses.

With the world making efforts towards shifting to non-renewable energy sources as primary energy source, prices of crude oil is unlikely to shoot up that adversely affects the Indian economy since India is a heavy importer of crude oil. Latest measures by the central government such as Make in India, Startup India, Skill India and Digital India provides a potential investor with optimism. India's fiscal deficit is around 3.2%, which perfectly in par with the international standard fiscal deficit of 3%. The Indian share market does look like it is heading towards creating another golden year.