The Hindu Business Line : LIC profits from capital market

If premiums from the policyholders can have a multiplier effect in the hands of the Government, why can not the same policy and principles be repeated to build a nation and increase national wealth?

T. V. Jayaprakash, tv.jayaprakash@rediffmail.com

All the major development financial institutions, including the Life Insurance Corporation (LIC), have developed a broad portfolio of equities over a period of time through investments and conversions of their debt into equity, many of them at low price levels. With the economy and markets booming, they are reaping the benefits of their long-term investments. For the market to progress, these institutions need to enter as basic long-term and consistent players.

S. Krithivasan, SBI, s.krithivasan@sbi.co.in

In the present capital market scenario, investing a small portion of the surplus fund is not a risky business. As on March 31, 2005, LIC had invested only 17.74 per cent in the private sector. That means a major portion of the funds is invested in government sectors. Return by way of dividends is more lucrative, given the current interest rate. LIC has benefited both by way of dividend income and capital appreciation. Since LIC has a well-managed and experienced team of investment experts, it is in no way risky to invest in the equity market. LIC's contribution is essential for industrialisation and generation of skilled and unskilled employment opportunities.

M. S. Nagaraja, Assistant Administrative Officer, LIC of India, nagarajams@licindia.com

There is no concept of profits in a life insurance organisation. The difference between the income and outgo is termed as the valuation surplus. This is arrived at after an actuarial valuation, which involves assessment of liabilities with the help of the theory of probability and not through ordinary accounting methods.

Ninety-five per cent of this surplus is allocated as bonus for with-profit policies that are in full force as on March 31 of the relevant year, and the remaining 5 per cent given to the government as dividend for its initial investment. So the major portion of the profit of Rs 4,000 crore bookings in profit from its investment in equities will go to its policyholders by way of bonus.

The rise in trading profits will help LIC declare a higher bonus even if interest rates go down. Risky business of life is profitable for the LIC and a milch cow for the Government.

S. Narayan, Mumbai, mahans@mtnl.net.in

If one is afraid of taking risk one may not be able to gain from the market. But LIC, being in the business of risk management, is not.

No wonder that the market value of LIC's equity portfolio stands at Rs 84,000 crore against book value of Rs 30,000 crore and LIC books Rs 4,000 crore profit from the capital market.

A. Jacob Sahayam, Thiruvananthapuram, jacob_sahayam@yahoo.co.in

The mutual funds in India are not playing the right role in the equity segment. Most mutual funds do not care about investor protection. They lavishly invest in the sectors for reasons best known to them. SEBI should finalise the rules for mutual fund operators and insist that they publish quarterly performance reports of their fund through advertisements in leading dailies.

C. P. Keerthi, cpk_bvn@yahoo.co.uk

The book value trebled due to effective marketing of products. Kudos to LIC agents.

These modernised schemes have mopped up heavy investments. Similar products of other private insurance companies have also inspired confidence in the minds of the insured. Risk is inherent to business, only the magnitude differs. Those assured are getting coverage and the benefit of capital appreciation and security.

The LIC's equity portfolio in capital market is performing well.

S. Sivasankaran, Senior Manager (Retd), Canara Bank, Salem

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