LIC to cut down on rate of returns

Mumbai: The Life Insurance Corporation (LIC), the public sector behemoth in the insurance sector, has decided to cut down on rate of returns in some of its fixed income schemes. Its decision is based on the fact that interest rates have been lowered and therefore the rate of returns should also be correspondingly lowered.

To begin with, LIC has decided to pick out some of its pension schemes and the Bima Nivesh scheme. From among the pension schemes, which have been picked out are: Jeevan Suraksha, Jeevan Dhara and Jeevan Akshay. It is not clear what is the rate cut LIC has decided upon its pension fund schemes.

As far as the Bima Nivesh, a single premium policy scheme providing life insurance, is concerned, the rate of return has already been chopped off once in the past. To begin with, Bima Nivesh offered 10.50 per cent assured return, which was brought down to 9.30 per cent. The rate cut this time will be the second one.

Despite the reduction in return rate, Bima Nivesh has attracted a lot of investors and buyers, resulting in LIC overshooting its target. Against the original target of Rs 3,000 crore, LIC has already mopped up close to Rs 3,600 crore.

The same holds good about its pension schemes mentioned above. These too have mopped up about Rs 12,000 crore to Rs 13,000 crore through sales of over 3 lakh policies. As a part of its strategy to ward off competition from the new private sector insurance players, LIC has been concentrating on high net-worth individuals, which has yielded rich returns.

An example of success of this strategy is its Jeevan Shree policy. In the first half of the current fiscal, LIC had already sold close to 1 lakh policies in comparison to about 40,000 policies in the corresponding period last year. In all, it has already managed to sell about 5 lakh Jeevan Shree policies so far, considered to be a major success.

Knowledgeable sources point out that the rate of returns, despite being bought down, are still the best in the industry, combined with the safety they offer.