This is how LIC invests its money to generate returns

Life Insurance Corporation of India or LIC is one of the biggest – if not the biggest – institutional investor in many of the segments that it invests in. Whether it is bonds or equities, LIC, alone, would dwarf the whole pack of foreign portfolio investors (FPIs) or any other investor category by a wide margin if one takes into account the yearly investments of the insurance behemoth.

With LIC all set to launch its public issue – it filed its draft red herring prospectus on February 13 – the insurance behemoth has revealed interesting and important insights about how it goes about making its investments to get the returns that it needs to service its millions of policies.

LIC’s size can be gauged from the fact that the government-owned entity had a market share of 74.6 per cent in terms of number of individual policies issued and 81.1 per cent market share in terms of number of group policies issued in FY21.

Coming back to investments, central government securities form the largest chunk of LIC’s investments with the sovereign-backed asset class accounting for 37.45 per cent of its investments as on September 30, 2021 with a value of Rs 14.81 lakh crore.

It was followed by equities with a share of 24.77 per cent. The value of LIC’s equity investment was pegged at Rs 9.8 lakh crore as on September 30, 2021. Interestingly, equities pipped state government securities by a narrow margin as the latter forms 24.62 per cent of LIC’s total investments.

The other asset classes where LIC parks its money to generate returns include loans, debenture bonds & pass-through certificates, venture funds, alternative investment funds (AIFs), mutual funds, exchange traded funds and money market instruments. It has also invested an amount of Rs 2,866 crore in unlisted equities.

The total value of LIC investments was pegged at a whopping Rs 39.5 lakh crore as on September 30, 2021.

“As at September 30, 2021, over 90 per cent of our policyholders’ equity investments in India are held in stocks that are a part of the Nifty 200 and BSE 200 indices. As per the CRISIL Report, as at September 30, 2021, our Corporation’s investments in listed equity represented approximately 4 per cent of the total market capitalisation of NSE as at that date,” stated the LIC DRHP.

More importantly, given its huge size of investments in the stock markets, LIC has gained immensely due to the record surge in the markets in the last couple of years.

Taking into account dividends and realised gains, LIC saw the yield on equities at 13.69 per in the first six months of the current fiscal. However, if the unrealised gains are also factored in, the yield shoots up to a whopping 280.19 per cent.

Meanwhile, the yields on the debt and fixed deposits were around 7.6 per cent in the six months period ended September 30, 2021. Within the debt segment, nearly 88 per cent of the investments were in sovereign paper followed by 8.05 per cent in AAA-rated bonds and 1.95 per cent in AA-rated or higher.

LIC also has investments totalling nearly Rs 44,121 crore in paper that is either unrated or rated below A but above B, as per the disclosures made in the DRHP.