“AN ANALYTICAL STUDY FUND MANAGEMENT OF LIC SINCE 2000

An Analytical Study ofFund Managementof LIC
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“AN ANALYTICAL STUDY FUND MANAGEMENT
OF LIC SINCE 2000
DISSERTATION
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF
Master of Finance and Control
(MFC)
Submitted By:
NAZAR HUSSAIN
ROLL NO. 12 MFC 03
ENRL. NO. GD 2458
Under the supervision of
Prof. JAVED ALAM KHAN
DEPARTMENT OF COMMERCE
ALIGARH MUSLIM UNIVERSITY,
ALIGARH-202002
2014

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ACKNOWLEDGEMENT
Acknowledgements
I would like to express my first sincere thanks to almighty, with WHOSE blessings I was able
to achieve my ALLAH!!
This dissertation is the result of the contributions and cooperation of many people, other than
my own small efforts.
I wish to extend my sincere thanks to all my teachers, who have bestowed me with the
erudition that has made this assignment possible.
In particular I wish to extend my earnest and heartfelt thanks to my supervisor
PROF. JAVED ALAM KHAN, whose timely advice, sermonizing words of wisdom and
motivation inspired me into finishing this assignment successfully. I am indebted to him for his
involvement.
I am also thankful to Prof. Mohd. Mohsin Khan (Dean) Faculty of Commerce and Prof.
Shibghatullah Farooqui (Chairman), Department of Commerce, AMU Aligarh for his
assurance and willingness to proffer help always.
I also wish to thank my parents and all those unknown people who agreed on filling my
questionnaires painstakingly and thus helped me actually go ahead with my assignment or my
work would have remained confined to my imagination.
In the end I would also like to add that this report exists because of the cooperation of all and
that I take no credit for this achievement butresponsibility for any mistake and inaccuracies.
Nazar Hussain

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TABLE OF CONTENT
Certificate
Acknowledgement
CHAPTER: 1 Introduction
 Principles of Insurance
 Genesis of Insurance
 Development of Life Insurance In India
 Meaning of Life Insurance
 History of Life Insurance
 Key Features of Life Insurance
 Benefits of Life Insurance
 Objectives of the Study
 Methodology
CHAPTER -2 Analytical Study of Fund Management
Chapter –3 Funds Management of Life Insurance Corporation (LIC)
 Company Profile
CHAPTER -4 Analytical Study Of Funds Management Of L.I.C Since 2000
 Data Analysis
 Limitations
CHAPTER -5 Findings, Suggestions and Conclusion
CHAPTER -6 BIBLIOGRAPHY

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CHAPTER: 1
INTRODUCTION
Insurance may be described as a social device to reduce or eliminate risk of loss to life and
property. Insurance is a collective bearing of risk. Insurance is a financial device to spread
the risks and losses of few people among a large number of people, as people prefer small
fixed liability instead of big uncertain and changing liability.
Insurance can be defined as a “legal contract between two parties whereby one party
called insurer undertakes to pay a fixed amount of money on the happening of a particular
event, which may be certain or uncertain.” The other party called insured pays in exchange
a fixed sum known as premium.
Insurance is desired to safeguard oneself and one’s family against possible losses on
account of risks and perils. It provides financial compensation for the losses suffered due
to the happening of any unforeseen events.
Insurance constitutes one of the major segments of the financial market. Insurance
services play predominant role in the process of financial intermediary. Today insurance
industry is one of the most growing sectors in
India. There is lot of potential in the Indian Insurance Industry. There are many issues,
which require study. The scope of the study of insurance industry of India would be very
great as there are ongoing developments in the industry after the opening of the sector.
The major issue right now is the hike in FDI (Foreign Direct Investment) limit from 26%
to 49% in the insurance sector. Government may in near future allow 49% FDI in
Insurance. This would lead to more capital inflow by foreign partners. Another major issue
is the effects on LIC after the entry of private players in the market. Though market share
of LIC has been affected, it has improved in terms of efficiency. There are number of
other hot topics like penetration of Health Insurance, Rural marketing of insurance, new
distribution channels, new product ranges, insurance brokers’ regulation, incentive scheme
of development officers of LIC etc. So it offers lot of scope for studying the insurance
industry. Right now the insurance industry has great opportunities in a country like India
or China which huge population. Also the penetration of insurance in India is very low in

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both life and non-life segment so there is lot potential to be tapped. Before starting the
discussion on insurance industry and related issues, we have to start with the basics of
insurance
PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance.
(1) Principle of “Uberrima Fides” or Principle of utmost good faith
It means “maximum truth”. Both the parties should disclose all material information
regarding the subject matter of insurance.
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been made, he
shall be fully indemnified only to the extent of loss. In other words, the insured is not
entitled to make a profit on his loss.
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after settlement of
claims in so far as the insured’s right of recovery from an alternative source is involved.
The insurer before the settlement of the claim may exercise the right. In other words, the
insurer is entitled to recover from a negligent third party any loss payments made to the
insured. The purposes of subrogation are to hold the negligent person responsible for the
loss and prevent the insured from collecting twice for the same loss. The concept of ‘Third
Party Claims’ is based on the same principle.
(4) Principle of causa proxima
The cause of loss must be direct and an insured one in order to claim of compensation.
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured. Insurable interest
is that interest which considerably alters the position of the assured in the event of loss
taking place and if the event does not take placed, he remains in the same old position.

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GENESIS OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the ancient
land of Babylonia where traders used to bear risk of the carvan by giving loans, which
were later repaid with interest when the goods arrived safely. The concept of insurance as
we know today took shape in 1688 at a place called Lloyd’s Coffee House in London
where risk bearers used to meet to transact business. This coffee house became so popular
that Lloyd’s became the one of the first modern insurance companies by the end of the
eighteenth century. Marine insurance companies came into existence by the end of the
eighteenth century. These companies were empowered to write fire and life insurance as
well as marine. The Great Fire of London in 1966 caused huge loss of property and life.
With a view to providing fire insurance facilities, Dr. Nicholas Barbon set up in 1967 the
first fire insurance company known as the Fire office. The early history of insurance in
India can be traced back to the Vedas. The Sanskrit term ‘Yogakshema’ (meaning well
being), the name of Life Insurance Corporation of India’s corporate headquarters, is found
in the Rig Veda. The Aryans practiced some form of ‘community insurance’ around 1000
BC. Life insurance in its modern form came to India from England in 1818. The Oriental
Life Insurance Company was the first insurance company to be set up in India to help the
widows of European community. The insurance companies, which came into existence
between 1818 and 1869, treated Indian lives as subnormal and charged an extra premium
of 15 to 20 per cent. The first Indian insurance company, the Bombay Mutual Life
Assurance Society, came into existence in 1870 to cover Indian lives at normal rates. The
Insurance Act, 1938, the first comprehensive legislation governing both life and non-life
branches of insurance were enacted to provide strict state control over insurance business.
This amended insurance Act looked into investments, expenditure and management of
these companies. By the mid- 1950s there were 154 Indian insurers, 16 foreign insurers,
and 75 provident societies carrying on life insurance business in India. Insurance business
flourished and so did scams, irregularities and dubious investment practices by scores of
companies. As a result the government decided to nationalize the life assurance business
in India. The Life Insurance Corporation of India (LIC) was set up in 1956. The
nationalization of life insurance was followed by general insurance in 1972.

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DEVELOPMENT OF LIFE INSURANCE IN INDIA
 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta.
 1850 Non life insurance started with Triton Insurance Company.
 1870 Bombay Mutual Life Assurance Society is the first India owned life insurer.
 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business.
 1938 The Insurance Act was enacted.
 1956 Nationalization took place. Government took over 245 Indian and foreign
insurers and provident societies.
 1972 Non-life business nationalized, General Insurance Corporation (GIC) came
into being.
 1993 Malhotra committee was constituted under the chairmanship of former RBI
chief R. N. Malhotra to draw a blue print for insurance sector reforms.
 1994 Malhotra committee recommended reentry of private players.
 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India.
 2000 IRDA started giving license to private insurers. ICICI Prudential, HDFC
were first private players to sell insurance Policies.
 2001 Royal Sundaram was the first non-life private player to sell an insurance
policy.
 2002 Bank allowed selling insurance plans as TPAs enter the scene, insurers start
setting non-life claims in the cashless mode.

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MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction: the insurer, the insured, and the
owner of the policy (policyholder), although the owner and the insured are often the same
person. Another important person involved in a life insurance policy is the beneficiary.
The beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured.
Life insurance may be divided into two basic classes – term and permanent.
 Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium. The policy does not accumulate cash value.
 Permanent life insurance is life insurance that remains in force until the policy
matures, unless the owner fails to pay the premium when due.
 Whole life insurance provides for a level premium, and a cash value table included
in the policy guaranteed by the company. The primary advantages of whole life are
guaranteed death benefits; guaranteed cash values, fixed and known annual
premiums, and mortality and expense charges will not reduce the cash value shown
in the policy.
 Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return. A universal life policy includes
a cash account. Premiums increase the cash account. If you want insurance
protection only, and not a savings and investment product, buy a term life
insurance policy. If you want to buy a whole life, universal life, or other cash value
policy, plan to hold it for at least 15 years. Cancelling these policies after only a
few years can more than double your life insurance costs. Check the National
Association of Insurance Commissioners website (www.naic.org/cis) or your local
library for information on the financial soundness of insurance companies.

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HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout history.
Protecting against risk is what insurance is all about.
Over 5000 years ago, in China, insurance was seen as a preventative measure against
piracy on the sea. Piracy, in fact, was so prevalent, that as a way of spreading the risk, a
number of ships would carry a portion of another ship's cargo so that if one ship was
captured, the entire shipment would not be lost. In another part of the world, nearly 4,500
years ago, in the ancient land of Babylonia, traders used to bear risk of the caravan trade
by giving loans that had to be later repaid with interest when the goods arrived safely. In
2100 BC, the Code of Hammurabi granted legal status to the practice. It formalized
concepts of “bottomry” referring to vessel bottoms and “respondentia” referring to cargo.
These provided the underpinning for marine insurance contracts. Such contracts contained
three elements: a loan on the vessel, cargo, or freight; an interest rate; and a surcharge to
cover the possibility of loss. In effect, ship owners were the insured and lenders were the
underwriters.
Life insurance came about a little later in ancient Rome, where burial clubs were formed
to cover the funeral expenses of its members, as well as help survivors monetarily. With
Rome's fall, around 450 A.D., most of the concepts of insurance were abandoned, but
aspects of it did continue through the Middle Ages, particularly with merchant and artisan
guilds. These provided forms of member insurance covering risks like fire, flood, theft,
disability, death, and even imprisonment. During the feudal period, early forms of
insurance ebbed with the decline of travel and long-distance trade. But during the 14th to
16th centuries, transportation, commerce, and insurance would again reemerge. Insurance
in India can be traced back to the Vedas. For instance, yogakshema, the name of Life
Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda.
The term suggests that a form of "community insurance" was prevalent around 1000 BC
and practiced by the Aryans. And similar to ancient Rome, burial societies were formed in
the Buddhist period to help families build houses, and to protect widows and children.

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 Modern Insurance
Illegal almost everywhere else in Europe, life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688. The type of
insurance we see today owes its roots to 17th century
England. Lloyd's of London, or as they were known then, Lloyd's Coffee House, was the
location where merchants, ship owners and underwriters met to discuss and transact
business deals. While serving as a means of risk-avoidance, life insurance also appealed
strongly to the gambling instincts of England's burgeoning middle class. Gambling was so
rampant, in fact, that when newspapers published names of prominent people who were
seriously ill, bets were placed at Lloyd’s on their anticipated dates of death. Reacting
against such practices, 79 merchant underwriters broke away in 1769 and two years later
formed a “New Lloyd’s Coffee House” that became known as the “real Lloyd’s.” Making
wagers on people's deaths ceased in 1774 when parliament forbade the practice.
Insurance moves to America
The U.S. insurance industry was built on the British model. The year 1735 saw the birth of
the first insurance company in the American colonies in Charleston, SC. The Presbyterian
Synod of Philadelphia in 1759, sponsored the first life insurance corporation in America
for the benefit of ministers and their dependents. And the first life insurance policy for the
general public in the United States was issued, in Philadelphia, on May 22, 1761. But it
wasn't until 80 years later (after 1840), that life insurance really took off in a big way. The
key to its success was reducing the opposition from religious groups. In 1835, the
infamous New York fire drew people's attention to the need to provide for sudden and
large losses. Two years later, Massachusetts became the first state to require companies by
law to maintain such reserves. The great Chicago fire of 1871 further emphasized how
fires can cause huge losses in densely populated modern cities. The practice of
reinsurance, wherein the risks are spread among several companies, was devisednn
specifically for such situations. With the creation of the automobile, public liability
insurance, which first made its appearance in the 1880s, gained importance and
acceptance? More advancement was made to insurance during the process of
industrialization. In 1897, the British government passed the Workmen's Compensation
Act, which made it mandatory for a company to insure its employees against industrial

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accidents. During the 19th century, many societies were founded to insure the life and
health of their members, while fraternal orders provided low-cost, members only
insurance. Even today, such fraternal orders continue to provide insurance coverage to
members, as do most labor organizations. Many employers sponsor group insurance
policies for their employees, providing not just life insurance, but sickness and accident
benefits and old-age pensions. Employees contribute a certain percentage of the premium
for these policies.
Final Perception
Even though the American insurance industry was greatly influenced by Britain, the US
market developed somewhat differently from that of the United Kingdom. Contributing to
that was America's size; land diversity and the overwhelming desire to be independent. As
America moved from a colonial outpost to an independent force, from a farming country
to an industrial nation, the insurance business developed from a small number of
companies to a large industry. Insurance became more sophisticated, offering new types of
coverage and diversified services for an increasingly complex country.
KEY FEATURES OF LIFE INSURANCE
Following are the key features of life insurance
1) Nomination: -
When one makes a nomination, as the policyholder you continue to be the owner of the
policy and the nominee does not have any right under the policy so long as you are alive.
The nominee has only the right to receive the policy monies in case of your death within
the term of the policy.
2) Assignment: -
If your intention is that your policy monies should go only to a particular person, you need
to assign the policy in favor of that person.
3) Death Benefit: -
The primary feature of a life insurance policy is the death benefit it provides.

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Permanent policies provide a death benefit that is guaranteed for the life of the insured,
provided the premiums have been paid and the policy has not been surrendered.
4) Cash Value: -
The cash value of a permanent life insurance policy is accumulated throughout the life of
the policy. It equals the amount a policy owner would receive, after any applicable
surrender charges, if the policy were surrendered before the insured's death.
5) Dividends: -
Many life insurance companies issue life insurance policies that entitle the policy owner to
share in the company's divisible surplus.
6) Paid-Up Additions: -
Dividends paid to a policy owner of a participating policy can be used in numerous ways,
one of which is toward the purchase of additional coverage, called paid-up additions.
7) Policy Loans: -
Some life insurance policies allow a policy owner to apply for a loan against the value of
their policy. Either a fixed or variable rate of interest is charged. This feature allows the
policy owner an easily accessible loan in times of need or opportunity.
8) Conversion from Term to Permanent: -
When in need of temporary protection, individuals often purchase term life insurance. If
one owns a term policy, sometimes a provision is available that will allow her to convert
her policy to a permanent one without providing additional proof of insurability.
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance policy at
an additional cost. It guarantees that coverage will stay in force and continue to grow.
BENEFITS OF LIFE INSURANCE
1) Risk cover: -

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Life Insurance contracts allow an individual to have a risk cover against any unfortunate
event of the future.
2) Tax Deduction: -
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on premiums
up to one lakh rupees. Life Insurance policies thus decrease the total taxable income of an
individual.
3) Loans: -
An individual can easily access loans from different financial institutions by pledging his
insurance policies.
4) Retirement Planning:
What had provided protection against the financial consequences of premature death may
now be used to help them enjoy their retirement years. Moreover the cash value can be
used as an additional income in the old age.
5) Educational Needs: -
Similar to retirement planning the cash values that flow from ones life insurance schemes
can be utilized for educational needs of the insurer or his children.
In short, the Life Insurance Industry has an enviable track record among public sector
units. It has a Consistent profit and dividend paying record accompanied by a steady
growth in its financial resources. Through investments in the Government sector and
socially- oriented sectors the Industry has contributed immensely to the nation's
development. The industry is recognized as one of the largest financial Institutions in the
country. The ventures initiated by the industry in the areas of Mutual Fund,
Housing Finance has done exceedingly well in recent years. To protect the country's
foreign exchange reserves, the reinsurance arrangement are so organized that maximum
retention is made possible within the country while at the same time protecting interests of
the policy holders.

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OBJECTIVES OF THE STUDY

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RESEARCH OBJECTIVES
1. Primary Objective:
 To study the financial position of LIC.
 To study the fund management of LIC
 To analyze the profitability of LIC.
 To Compare the two fiscal year as since 2000
2. Secondary Objective:
 To calculate the different-different ratios which is helpful to find out the
financial position of LIC.

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METHODOLOGY
The present study is mainly based on secondary data. The data are collected from the
records and reports of the IRDA, LIC, Life Insurance Council and all the 22 private sector
insurance companies. In addition, information is also elicited from the officers of the life
insurance industry through personal interviews at different levels on different topics.
Information is also collected from the books and periodicals of insurance importance from
time to time during the study. The data published by different insurance consultancy
organizations have also been used for this study. Further, information has also been
collected by visiting the websites of different insurance players and also the Regulator
where the information in some segments is lacking. The data so collected from different
sources have been analyzed by using the suitable statistical techniques like mean, standard
deviation, skewness, correlation and regression analysis and incorporating values of the
same in the relevant columns of the tables with line graphs, regression plots and scatter
plots for arriving at meaningful and accurate conclusions on the stability and consistency
in the growth rate and market share of both LIC and private sector life insurers during the
study period. A linear mathematical model is also applied for comparing the observed
figures with the linear trend values.
The mean is the sum of the values divided by the number of values. It is a type of
arithmetic mean. The mean is often quoted along with the standard deviation. The mean
describes the central location of the data. The standard deviation is a widely used measure
of variability or diversity used in statistics and probability. It shows how much variation or
dispersion exists from the average. A low standard deviation indicates that the data points
tend to be very close to the mean, whereas high standard deviation indicates that the data
points are spread out over a large range of values. The skewness is a measure of the

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asymmetry of the probability distribution of a real-valued random variable. The skewness
value can be positive or negative or even undefined. A positive skew indicates that the tail
on the right side is longer than the left side and the bulk of the values lie to the left of the
mean. A negative skew indicates that the tail on the left side is longer than the right side
and the bulk of the value lie to the right of the mean. A zero value indicates that the values
are evenly distributed on both sides of the mean. The scatter plot is a simple way to
examine the data in correlation. This is a graph in which the horizontal axis (X-axis)
represents one of the variables and the vertical axis (Y-axis) represents the other. If the
points are totally scattered, there is no relationship between the two variables. If there
exists a linear or curvilinear relationship, then the variables are related. If the variables are
perfectly related, they will form a straight line.
If there is no relationship then r=0.0 or vice-versa.

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CHAPTER -2
Analytical Study of Fund Management

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Fund management
Fund management is the professional management by a fund manager of assets to
maximise the return for investors in the fund. Investors can take various forms,
from individual retail investors through to institutions such as retirement funds,
insurance companies and even large corporations.
Fund management typically includes the following activities:
 Asset research and selection;
 Planning and implementation;
 Purchase and sale of assets or deals;
 Ongoing monitoring and management;
 Reporting to stakeholders;
 Internal audit.
Definition of 'Funds Management'
The management of the cashflow of a financial institution. The funds manager
ensures that the maturity schedules of the deposits coincide with the demand for
loans. To do this, the manager looks at both the liabilities and the assets which
influence the banks ability to issue credit.
Investopedia explains 'Funds Management'
A fund manager must also pay close attention to cost and risk in order to really
capitalize on the cash flow opportunities. A financial institution runs on the ability
to offer credit to customers. Ensuring the proper liquidity of the funds is a crucial

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aspect of the fund managers position. Funds management can also refer to the
management of fund assets.
Objectives of Fund Management
Funds management activities are guided by several fundamental objectives.
Funds management of the Government of India encompasses issuance of debt,
management of liquidity and investment of financial assets. It is separated into two
key functions: financial asset and liability management, and risk management.
Activities under each of these two functions are guided by a set of overarching key
principles.
Key Principles
 Efficiency and effectiveness: Policy development and operations should
take into account, to the extent possible, leading practices of other
comparable sovereigns. Regular evaluations should be conducted to
ensure the efficiency and effectiveness of the governance framework
and of borrowing and investing programs.
 Transparency and accountability: Information on financial asset and
liability management plans, activities and outcomes should be made
publicly available in a timely manner. Information on borrowing costs,
investment performance and material exposures to financial risk should
be measured, monitored, controlled and regularly reported as
applicable.

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In addition, distinct objectives and principles have been established within the
financial asset and liability management function which pertain to the management
of domestic debt and cash, foreign reserves and retail debt.
Financial Asset and LiabilityManagement Framework
Domestic Debt and Cash Management
Objectives
The fundamental objective of domestic debt and cash management is to raise stable
and low-cost funding to meet the operational needs of the Government of India.
An associated objective is to maintain a well-functioning market in Government of
India securities, which helps to keep debt costs low and benefits a wide array of
domestic market participants.
Principles
In pursuit of these objectives, the Government of India manages its activities
according to a set of principles.
 Transparency, regularity and liquidity: The design and implementation
of the domestic debt program should emphasize transparency, regularity
and liquidity to support a well-functioning government securities
market. The Government should consult regularly with market
participants to ensure the integrity and attractiveness of the market for
dealers and investors.

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 Prudence: Prudence should be maintained by managing the structure of
the debt, raising funds for domestic operational needs using a variety of
instruments denominated in Canadian dollars, and managing exposure
to credit risk through diversification.
ForeignReserves Management
Objectives
The objective of the Exchange Fund Account (EFA) is to aid in the control and
protection of the external value of the Canadian dollar. Assets held in the EFA are
managed to provide foreign currency liquidity to the Government and to promote
orderly conditions for the Canadian dollar in the foreign exchange markets, if
required. The key strategic objectives of foreign reserves management are to
maintain a high standard of liquidity, preserve capital value and optimize return
subject to liquidity and prudence objectives.
Principles
In pursuit of these objectives, the Government of India manages its foreign
exchange reserves according to a set of principles.
 Prudence: The foreign reserves should be managed to limit exposure to
financial risk through the matching of assets and liabilities, prudent
investment limits and diversification in instruments and currencies held.

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 Cost-effectiveness: The reserves investment portfolio should be actively
managed such that the net cost to the taxpayer, if any, is minimized.
Retail Debt
Objectives
The key objectives of the Retail Debt Program are to deliver a cost-effective
program that provides value to rupees and contributes to a diversified investor base,
and to ensure indian are aware of and have access to Government of India non-
marketable securities.
Principles
In pursuit of these objectives, retail debt activities are managed according to a set
of principles.
 Maintain access to and awareness of savings products.
Market savings products that have a distinctive “India” brand.
Risk Management Framework
Objective
The key objectiveof risk management is to identify and manage market, credit,
operational and legal risks related to funds management activity.
Principles

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In pursuit of this objective, risk management activities are managed according to a
set of principles.
 Risk monitoring and oversight should be independent of financial asset
and liability management operations.
 The Department of Finance and the Indian Bank should strive to create
a culture where risk management is highly valued, considered an
integral part of all funds management activities, and viewed as a
responsibility of all staff.
Fund managers often face the dual challenge of sticking to the objective of the
scheme and living up to the aspirations of retail investors, who expect them to
deliver top quartile performance year after year. A slight drop in performance and
they come under the scanner of rating agencies, investment advisors and media.
Though they say that keeping out the wrong 'noises' and not giving too much
weight to peer performance is the key to long-term success, it is a well-established
fact that despite all the talk about focus on the long term, most see mutual funds as
a two-three year investment tool. In such a situation, it's obvious for fund managers
to get tempted to play to the gallery.
We asked the top fund managers of 2012-13 how they balanced investors'
expectation of high short-term returns and the schemes' long-term objectives. Most
were candid enough to share with us their experiences.
Fund objective: We seek longterm capital appreciation by investing in fast-growing
companies that meet our criteria of growth, quality and valuation. The fund buys

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and holds strong businesses with sound business models, pricing power, quality
managements and a history of creating wealth for shareholders.
Fund strategy: The fund has returned 13% between 30 March 2012 and 31 March
2013 and about 11% a year since inception in December 2009. "Smart stock-
picking has been the key," says Gopani. The sectors that have helped the fund
perform well are consumer staples, private banks and pharma.
The fund's top three sectors, banks (15%), finance (12%) and software (10%),
account for 40% portfolio. The top picks are Kotak Mahindra Bank (5%), HDFC
Bank (5%), HDFC (6%) and TCS (5%). The fund has remained underweight on oil
& gas due to too much government control. Market capitalisation: The current mix
is large-cap 68% and mid-cap 32%. The large-cap bias is due to the investment
policy, which limits mid- & small-cap exposure to 50%.

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CHAPTER –3
FUNDS MANAGEMENT OF
LIFE INSURANCE CORPORATION
(LIC)

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COMPANY PROFILE
2.1 History/Evolution of LIC
Life insurance in its modern form is a western concept. Although it has
been taking shape for the last 300 years, it came to India with the arrival of the Europeans.
The Ist Life Insurance Co. was established in India in 1818 as oriental Life Insurance Co.,
mainly to provide for widows of Europeans. The Co. that followed mainly catered to
Europeans and charged extra premium on Indian lives. The first Indian Company insuring
Indian lives at standard rates was Bombay Mutual life insurance Company, which was
formed in 1870. This was the year also when the Ist Insurance act was passed by the
British parliament. The years subsequent to the Swadeshi Movement saw the emergence
of several insurance companies. At the end of the year 1955 there were 245 (154 Indian &
16 foreign) companies & provident societies out of which 16 were non – Indian
companies. All the companies were nationalised in 1956 & brought under one umbrella –
the Life insurance corporation of India (LIC)- which enjoyed a monopoly of the life
insurance business till near the end of 2000. By enacting the IRDA Act 2000, the govt. of
India effectively ended LIC's monopoly & opened the doors for private insurance
companies.
The headquarter of LIC is in Bombay. The primary activity of LIC is to carry on
life insurance business, but it has gradually developed into an important all India financial
institution, which provides substantial support to Industry.

30
2.2 Objectives of LIC: –
1. To spread life insurance widely and in particular to the rural areas & to the socially &
economically backward classes with a view to reaching all insurable persons in the
country & providing them adequate financial cover against death at a reasonable cost.
2. Maximise mobilisation of people's savings by making insurance- linked savings
adequately attractive.
3. The funds to be deployed to the best advantage of the investors as well as the
community as a whole, keeping in view national priorities & obligations of attractive
return.
4. Conduct business with utmost economy.
5. Act as trustees of the insured public in their individual & collective capacities.
6. Meet the various lives – Insurance needs of the community that would arise in the
changing social & economic environment.
2.3 Plans Marketed by LIC: -
LIC offers a basket of schemes to meet the various needs of an individual.
1. Basic Life – Insurance Plans: -
A. Whole Life Assurance Plan.
B. Endowment Assurance Plan.
2. Term Assurance Plan.
3. Plans for children.
4. Pension Plans.
5. Plans for Handicapped Dependents.

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6. Other Plans.
Group – Insurance Schemes: -
LIC offers life–Insurance protection under group policies to various groups
such as employer–employee, professionals, co-operatives, weaker sections of society etc.
It also provides insurance coverage to people at subsidised rates under social security
group schemes. Besides providing in coverage, the corporation also offers group schemes
to employers, which provide funding of gratuity & pension liabilities of the employers.
The main features of the schemes are low premium, simple insurability
conditions such as employee not being absent from duty on grounds of ill health on the
date of entry and easy administration by way of issue of a single master policy covering all
the employees/members. Premiums are based upon age, combination of member's
occupations & working conditions of group. However, there are certain conditions as to
minimum group size & the minimum participation to make the scheme viable.
2.4 Services provided by LIC
Modes of Payment of Premium and Days of Grace: -
Premiums other than single premiums may be paid by the policyholder to
LIC in yearly, LICf-yearly, quarterly or monthly installments. Policyholders are required
to pay the premiums to the corporation on the due dates. One month but not less than 30
days of grace is allowed for payment of yearly, LICf yearly & quarterly premiums & 15
days for payment of monthly premiums.

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Revival of Lapsed Policy –
When the premium is not paid with in the days of grace, the policy lapses. The
corporation offers 3 convenient schemes of revival viz., ordinary revival scheme, special
revival scheme & installment revival scheme.
Care of document & loss of policy –
The policy document (policy bond) is an evidence of the contract between
the insurer and the insured. The policyholder carefully till the contracted amount under it
is settled, as it is required to be submitted to the corporation at the line of claims. Loss of
the policy document should be immediately intimated to the branch office of the
corporation where it is serviced. The office will then quote the requirements for a
duplicate policy. It may, however, be noted that the loss of the policy bond does not
extinguish the right of the policyholder in the policy.
Loan -
At present loans are granted on unencumbered policies up to 90% of the
surrender value under policies which are in force for the full sum assured & up to 85% of
the surrender value on policies which are paid-up for a reduced sum assured. The
minimum amount for under a policy is Rs. 150. The rate of interest charged at present
varies from 10.5% to 12% (P.A.) payable LICf-yearly depending upon the plan loans are
not granted for a period shorter than 6 months or on the security of lost policies or on
policies issued under certain plans. The policy will quote the loan value on request from
the policyholder. Certain types of policies are, however, without loan facility. The terms &
conditions printed on the policy bond reveal whether a particular policy is with or without
loan facility.

33
Relief to policyholder-
The corporation generally allows concessions on payment of premiums,
settlement of claims, issue of duplicate policies etc. When the policyholders are affected
by natural calamities such as droughts, cyclones, floods, earthquakes etc.
2.5 Nomination/Assignment of Policy-
The importance of nomination/assignment cannot be over –emphasized. If
the policy bears a nomination, the claim is settled in favour of the nominee. Similarly, if
the policy is assigned, the assignee receives the claim amount. If maturity claims, the
payment is made to the life assured, subject to the policy being free from encumbrances.
For quick settlement of claims, policyholders are strongly advised to effect either a
nomination or an assignment in respect of their policies. It should be noted that an
assignment of a policy automatically cancels the existing nomination hence, when such a
policy is reassigned in favour of the policyholder, it is necessary to make a fresh
nomination to avoid delay in payment of the claim.
2.6Claims Review Committee-
The corporation settles a large number of death claims every year. Only in
case of fraud or suppression of material information is the liability repudiated. The number
of death claims repudiated is, however very small. Even in these cases, an opportunity is
given to the claimant to make a representation for consideration by the review committees
at the zonal office & the central office. As a result of such reviews, depending on the
merits of each case, appropriate decisions are taken. The claims review committees at the
central & zonal office has among its members, a retired high court/district court judge.

34
This has helped providing transparency to their operations & has resulted in greater
satisfaction among claimants, policyholders and public.
2.7LIC towards welfare of society-
With the formation of the life insurance Corporation of India it can be said
that utilization of peoples money invested in life- insurance for planned economic
development of the country took roots. One of the objectives of nationalisation of the life-
insurance industry was channelising of its funds for the benefit of the community at large
in pursuance of this objectives, LIC has, over the yeas, been investing a major part of its
funds primarily in the socially oriented sector. As at 31st March 2002 87.24% of its total
investments were in the public sector, 1.03% were in the cooperative sector and 11.73% in
the private sector.
Keeping in mind the primary obligation of the corporation to its
policyholders, as enshrined in the objectives of nationalisation, the funds of the
corporation are deployed to the best advantage of the policyholders as well as the
community as a whole. While investing these monies, which are held in trust, the
corporation has to keep in view the national priorities and obligation of reasonable returns.
The life funds so invested for the benefit of the community at large has accumulated to Rs.
227008.98 crore as at 31st March 2002. After meeting the liabilities towards the claims,
management & other expenses, registering an increase of Rs. 44486.41 group during the
year 2001-2002. The investment of the corporations funds is governed by section 27 A of
the insurance act, 1938, & subsequent guidelines/instruction issued there under by the
govt. of India from time to time. Not less than 75% of accretion to the fund are invested in
central Govt. securities, state Govt. securities, Govt. guaranteed marketable securities,
loans in the socially oriented sector for approved purposes such as power (electricity),

35
housing, water supply and sewerage, road transport and co-operative industrial estates.
The total investment made by LIC in the socially oriented sector including investment in
central/state govt. guaranteed marketable securities up to 31st March, 2002 amounted to
Rs. 173370 crore.
Better health, more power & houses to masses -
The corporation has been promoting social welfare through socially
oriented investments. These investments are regulated by the govt. from time to time to
benefit the people at large by providing basic amenities like potable water, drainage,
housing, electrification and transport.
Under the corporation's scheme of providing financial assistance for piped
water supply and drainage schemes, 2030 urban/local bodies in 23 states and the Union
territory of chandigarh have benefited. In addition, 586 Zillaparishads in 7 states are also
receiving financial assistance from the corporation for rural piped water supply schemes.
The investment in this sector up to 31st March 2002 was Rs. 4000 crore.
The corporation also provides financial assistance to state electricity
Boards/power Corporation for power generation projects by way of loans/subscriptions to
their bonds. The investment of the cooperation in the power sector was Rs. 17244 crore
upto 31st March 2002 thus making it the largest single contributing factor in the progress
of electrification schemes in the country.
Housing Finance -
Housing is one of the basic necessities of human beings. Housing finance,
therefore, occupies a prime place in the corporation's socio- purposive investments. Since
inception, the corporation has been providing finance for housing to individuals, co-

36
operative housing societies, & private undertakings under its various mortgage-housing
schemes. With a view to solving the housing shortage in the country, the corporation
joined in a big way in the massive effort by providing financial-assistance to state govt. for
social housing schemes for economically weaker section, low income groups, middle
income groups, state govt. employees and rural population. The corporation has also been
extending financial assistance to state level apex co-operative housing finance societies,
the benefits of which are passed on to individuals through primary societies. Besides the
corporation is providing bulk loans to housing finance institutions like the housing
development corporation, the national housing bank and state policy housing corporations
in a few states. The total contributions of the corporation up to 31st March 2002 to housing
development activities by way of loans to state governments, state-level apex societies,
HDFC, HUDCO, NHB, LICFL etc. and loans under mortgage housing schemes amounted
to Rs. 19054 crore.
The corporation has been assisting development of road transport by
providing financial assistance to state road transport corporations for augmenting their
fleet of buses. The total investment in the sector up to 31st March 2002 was Rs. 893 crores.
In 1997-98 the scope of the socially oriented sector has also been widened
to accommodate infrastructure projects pertaining to port, railways (bolt projects), road,
highways and airports.
Boosting Industrial Growth: -
The corporation helps boost the industrial growth in the country. It helps
small scale and medium scale industries by granting loans for setting up co-operative
industrial states and an amount of Rs.45 crore has so far been advanced to co-operative
industrial estates and industrial development corporations. The corporations assistance to

37
state level/finance corporations and all India finance corporations like IDBI, IFCI, ICICI
etc. by way of subscription to bonds/debentures issued by such institutions, also indirectly
helps development of small scale and medium scale industries. The corporation also wakes
investments in the corporate sector in the form of long, medium and short-term loans to
companies/corporations. The total investment made by way of loans up to 31st March,
2002 was Rs. 3021 crore and by way of subscription to shares/debentures bonds as at 31st
March, 2002 was Rs. 46476 crore. All these make a distinct contribution towards growth
in industrialization and generation of skilled an unskilled employment opportunities in the
country.
2.8 Information Technology in LIC –
The LIC of India is a pioneer financial institution in leveraging IT as its
front line tool to better its overall efficiency in all areas of its activities. Today, it is one of
the largest users of IT in terms of hardware and in house developed software. It has the
largest dedicated network among all organizations in the country and has connected about
1500 branches all over India through Metro/Wide area Network.
For better and prompt customer servicing, LIC has a multi-channel
approach of using IT, taking the optimum benefits of latest technological advantages.
Front end application programs –
All 2048 Branches of LIC are equipped with in house developed programs
covering all policy servicing aspects to give prompt computerized services from new
policy introduction, acceptance of renewal premium, revivals, loans etc. to final claim
settlement, The “Green Channel” is for on the spot policy completion provides all policy
servicing at one single point. A management Information system is being developed for

38
faster and better decision making and offering instant and the latest information at all
levels.
Networking –
LIC’s wide area network covers 100 divisional centers connecting about 1500
branches through a metro Area Network. It is expected to cover all the remaining branches
by the end of this year. This helps the customer to pay his insurance premium in any of the
Branches connected to the network. The customer can get a status report on his policies in
these branches as well as quotations for revival, loan, and surrender.
Online Premium Payment –
LIC has tied up with some Banks and service providers to offer an online
premium collection facility to its customers in selected cities.
INTERNET INITIATIVES –
A. Product Information –
LIC’s various new and Existing Insurance and Pension plans, group
schemes and capital market linked plans.
B. Services –
Online calculations of IT, installment premium & policy bonus.
Information about grievance Redress Machinery, Online forms, Complaint/request
mailer, postal & e-mail addresses of LIC offices, telephone no’s of various IVRS
links for latest policy position, press releases and news sections.
C. Links for online premium payment services.
D. Links to subsidiary companies.

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E. IVRS –
LIC have an interactive voice response system in 59 urban centers. This is a
menu driven service. Customers can get selected information regarding their policies
by calling the prescribed telephone numbers. The numbers are advertised frequently
and are also available on the website www.licindia.com
F. Info Center –
LIC commissioned its first policy service Info center at Mumbai in March
2002. This center is equipped with state of the art technology and manned by trained
persons. People desiring any information regarding their life insurance needs &
about their policies can get the same by calling the Info center telephone no. Such
centers are being installed in Delhi, Kolkata, Hyderabad, Chennai, Bangalore,
Ahmedabad and Pune.
2.9 LIC-a giant
LIC's other business-
LIC Mutual fund -
The LIC mutual fund was launched with the basic objective of mobilizing
savings from investors spread across the country, having no easy access to the capital
market, with a view to providing them a vehicle for investment of their funds there by
ensuring safety, security, easy liquidity & reasonably good returns.
The LIC of India set up LIC mutual fund as a separate trust. LIC mutual
fund has mobilized more than Rs. 4000 crore (as on 30-3-2002) from over 17 lakh
investors during 13 years of operations by successfully launching 35 schemes of various
types.

40
LIC mutual fund has valued the first of its investors & applied it to a
conservative approach to investment to ensure a consistent performance. It has with stood
the test of time by remaining active in all good & bad phases of the market and the
economy.
Life- insurance corporation (International EC)
(An offshore joint venture incorporated on 23rd July 1989)
LIC (International) E.C., Bahrain is a joint venture offshore company promoted by the
life-insurance corporation of India.
Performance at a Glance
1995 2000 2001
No. of Policies 6118 6546 8560
Total Premium Income 6114 12563 24209
LIC housing finance Ltd.-
Incorporated on 19th June 1989, its main objective is to provide long-term
finance for construction/purchase of individual houses/flats. The company has 6 regional
offices and 97 operating offices and over 100 camp offices making it the housing finance
institution with the widest marketing network in the country & it is amongst the premier
housing finance companies in own country. On 15th September 1994, it became a widely
held Public limited company.
Performance of the company -
Since inception, & up to 31-3-2002, the company has financed over 525600
dwelling units for an amount of Rs. 99890.60 million.

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2.10 Insurance Reforms
By opening up insurance, the customer will become the real king in the
insurance market and will have variety of products within reach says N Rangachary,
Chairman, Insurance Regulatory Authority (IRA).
Insurance is commerce, Insurance product is a financial contract entered
into by parties with a definite consensus of mind. It involves trust and therefore, it is
necessary that in the administration of insurance funds that the industry generates, there is
total transparency. This needs to be ensured by regulatory authority acting mostly as a
facilitator rather than as a monitor more as a friend than as an advisory to the insurer, the
insured and the public.
The industry in India has gone through different vicissitudes a period of
total freedom and liberalization followed by a period of total nationalization prior to 1956.
The investment of long-term funds generated by the state insurer was used for the nation's
development. More than 75 percent of the funds were channeled to government sector and
related infrastructure activities. The insurers have built real assets that lend strength to the
economy. The state insurers have paying dividends annually to government.
Considering the size of national cake and a vast middle class market, the
state insures could not tap fully the insurance potential. Hardly, 18 percent of the insurable
population has been covered. There is high insurance potential that exists in the market.
The process of liberalization of Indian economy started in 1991. Very
important measures were taken to liberalize all sectors but the primary role was assigned
through reforms in the financial sector. Banks were subject to international accounting
practices and methods in line with rest of the world. After banking, the thought was on

42
reforms in insurance sectors, which could generate considerable long-term funds.
Governments, in 1992, appointed a committee made through studies, meet various cross
section of people, industry and others, It recommended opening up this sectors or the
benefit of common man. It also found out there weaknesses of the insurance industry,
especially, the nature of products and their lack of variety, their reach, insurance
awareness and potential, the distribution channel, which needed to be reengineered, the
deployment of funds for investment and management of insures.
Government after considering the report, constituted an interim insurance
regulatory authority, and charged it with the following function:
Orderly growth of insurance industry -
A bill to constitute IRA Bill, was also introduced in the parliament,
to give legal status to the interim IRA. The bill had, however, to be with drawn. It is
believed that the government still desires the insurance sectors to be opened up, and as a
prelude to this, it wants to establish an IRA, who sLICl be similar to SEBI, an autonomous
body.
The Bill, although withdrawn, envisages, an autonomous body regulates the
insurance market in India. It aims at the protection of the customers.
In essence, the reasons for regulation are trust in establishment
Utility of products to the people Consumerism funds for the welfare of the people and the
stability of the market.
In an ideal situation, it necessary to establish or strengthen supervision for
the following reasons:

43
a. Competitive markets:
It is necessary to establish competitive market to which the principals of the
market economy apply. Supervisors play a primary role in ensuring that the market
principles are respected and the markets function effectively. This is for the benefit of
policyholders and other customers, and for the healthy development of the insurance
market.
b. Democratization process:
The attitude of the administrators is demonstrated by the establishment of
public complaints unit within supervisory bodies and ombudsmen's officers, as well
as by regulation greeted to speed up claims settlement.
c. World Trade Liberalization:
The opening up of domestic market to foreign competitors will
undoubtedly change prevailing market conditions significantly. In this the regulator
has an important role to play. He has to ensure that the players respect market access,
establishment, national treatment, nondiscrimination and transparency.
2.11 Information about the LIC
1. Now payment of LIC premiums can take place through Internet. Already 14700
policyholders have registered as on 30thseptemeber 2002.
2. All LIC offices 2048 branches, 100 Division 7 zonal offices & central office are
computerized.
3. LIC ranks number one amongst India's top 500 companies on the basis of Net worth
(Rs. 15, 47, 951 million) in 2001.
4. LIC issued 2.32 core policies in 2001-2002, the largest number by any life insurer.

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5. LIC ranks number two amongst. India's top 500 companies on the basis of income (Rs.
4,47,296 million) in 2001.
6. LIC ranks number one amongst India's top 500 companies on the basis of Net profit
(Rs. 2,66,277 million) in 2001.
7. LIC has more than 52 plans to choose: to suit every individual at every age.

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CHAPTER -4
ANALYTICAL STUDY OF FUNDS
MANAGEMENT OF L.I.C SINCE 2000

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3.1. FINANCIAL STATEMENT ANALYSIS:
The analysis of financial statements is the process of evaluating the relationship between
component parts of financial statements to obtain a better understanding of firm’s position
& performance. The final task of the financial analysis is to select the information
relevant to the decision under consideration from the total information contained in the
financial statement. The second step is to arrange the information in away to highlight
significant relationship .The final step is interpretation and drawing of influences &
conclusions. In brief financial analysis is the process of selection, relation and evaluation.
Ratio analysis is the most widely used technique of financial statement analysis. The
common size statement used as tool for the analysis of financial statements.
3.2. RATIO ANALYSIS:
Ratio analysis is the systematic use of ratios to interpret /asses the performance and status
of the firm. It is widely used tool for financial analysis .It can be used to compare the risk
& return relationship of firms of different types. It is defined as a systematic use of ratio to
interpret the financial statements so that the strength and weakness of firm as well as its
historical performance and current financial condition can be determined .The term Ratio
refers to the numerical or quantitative relationship between two items or variables. The
rationale of ratio analysis lies in the fact that it makes related information comparable .A
single figure by itself has no meaning but when expressed in term of related figures it
yields significant inferences for instance the fact that the NET PROFIT of a firm amount
to say Rs 10 lakhs throws no light on its adequacy or otherwise the figure of NET PROFIT
has to be considered in relation to other variables. How does its stands in relation to sales?

47
What does it represents by way of return on total assets used or total capital employed? If
therefore net profit shown in term of the relationship with item such as sales, assets,
capital employed, equity capital and so on. For example assuming the capital employed to
be Rs. 50 lakhs and Rs. 100 lakhs and the net profit are 20% and 10% respectively. Ratio
analysis thus as a quantitative tools enables to draw quantitative answers to such question
as: are the net profit adequate? Are the assets being used efficiently? Is the firm solvent?
Can the firm meet its current obligations and so on?
3.3. TYPES OF RATIOS:
Ratios can be classified into six four categories
(1) LIQUIDITY RATIOS
(2) PROFITABILITY RATIOS
(3) ACTIVITY/EFFICIENCY RATIOS
(4) INTEGRATED ANALYSIS OF RATIOS
(5) GROWTH RATIOS
3.4. LIQUIDITY RATIOS:
The importance of adequate liquidity in the sense of the ability of a firm to meet current /
short term obligations when they become due for payments can hardly be overstressed. In
fact liquidity is a prerequisite for the very survival of a firm. But liquidity implies from the
view point of utilization of the funds of the firm that funds are idle or they earn very little.
A proper balance between the two contradictory requirements that is liquidity and
profitability is required for efficient financial management. The liquidity ratios measure
the ability of firm to meet its short term obligations and reflect the short term financial
strength of a firm. The ratios which indicate the liquidity of a firm are:

48
NET WORKING CAPITAL:
NET WORKING CAPITAL represents the excess of current assets over current liabilities.
The term current assets refers to assets which in the normal course of business get
converted into cash without diminution in value over a short period, usually not exceeding
one year or length of operating cash cycle whichever is more. Current liabilities are those
liabilities which at the inception are required to be paid in short period, normally a year.
Although net working capital is really not a ratio, it is frequently employed as measure of
a company’s liquidity position.
3.4.1 CURRENT RATIOS:
Current ratio is the ratio of total current assets to the total current liabilities. It is calculated
by dividing current assets by current liabilities:
CURRENT RATIO CURRENT ASSETS
CURRENT LIABILITIES
The current assets of a firm as already stated represents those assets which can in the
ordinary course of business, converted into cash within a short period of time, normally
not exceeding one year and include cash and bank balances, marketable securities,
inventory of raw materials, semi finished and finished goods, debtors net of provision for
bad and doubtful debts, bills receivable and prepaid expenses. The current liabilities
defined as liabilities which are short term maturing obligation to be met, as originally

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contemplated, within a year, consist of trade creditors, bills payable, bank credit provision
for taxation, dividends payable and outstanding expenses.
3.4.2 ACID TEST/QUICK RATIOS
Acid test ratio is a measure of liquidity calculated dividing current assets minus inventory
and prepaid expenses by current liabilities. Thus it is a measure of quick or acid liquidity.
The term quick assets refers to current assets which can be converted into cash
immediately or at a short notice without diminution of valuation. Included in this category
of current assets are:
(1) Cash and bank balances
(2) Short-term marketable securities and
(3) Debtors/Receivables.
ACID TEST RATIO QUICK ASSETS
CURRENT LIABILITIES
Thus, the current assets which are excluded are: prepaid expenses and inventory. The
exclusion of inventory is based on the reasoning that it is not easily and readily convertible
into cash. Prepaid expenses by their very nature are not available to pay off current debts

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.They merely reduce the amount of cash required in one period because of payment in a
period.
3.5. TURNOVER RATIO:
The liquidity ratios discussed so far related to the liquidity of the firm as a whole.
Another way of examining the liquidity is to determine how quickly certain current assets are
converted into cash. The ratios to measures these are referred to as Turnover Ratios. In fact,
liquidity ratios are not independent of activity ratios. Poor debtor or inventory turnover ratio limits
the usefulness of the current and acid test ratio both obsolete/ unsalable inventory and uncollection
of debtors are unlikely to be sources of cash. Therefore, the liquidity ratios should be examined in
conjunction with relevant turnover ratios affecting liquidity. The three relevant turnover ratios are
(i) inventory turnover ratio (ii) debtors turnover ratio and (iii) creditors turnover ratio.
3.5.1 INVENTORY TURNOVER:
It is computed by dividing the cost of goods sold by the average inventory.
INVENTORYRATIO COST OF GOODS SOLD
AVERAGE INVENTORY
The cost of goods sold refers to sales minus gross profit. The average inventory refers to
the simple average of the opening and closing inventory. The ratio indicates that how fast
inventory is sold. A high ratio is good from the point of liquidity and vice versa. A low

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ratio signifies that inventory does not sell fast and stays on the shelf or in the warehouse
for a long time.
3.5.2 DEBTORS TURNOVER RATIO:
It is computed by dividing the net credit sales by average debtors outstanding during the
year.
DEBTORSTURNOVER RATIO NET CREDIT SALES
AVERAGE SALES
Net credit sales consist of gross credit sales minus return if any from customers. Average
debtors are the simple average of debtors at the beginning and at the end of year. The
analysis of the debtor’s turnover ratio supplements the information regarding the liquidity
of one item of current assets of the firm. The ratio measure how rapidly receivables are
collected rapidly.
3.5.3 CREDIT TURNOVER RATIO:
It is the ratio between net credit purchases and the
average amount of creditors outstanding during the year

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CREDIT TURNOVER RATIO NET CREDIT PURCHASES
AVERAGE CREDITORS
A low turnover ratio reflects liberal credit terms granted by suppliers, while a high ratio
shows that the accounts are to be settled rapidly. The creditors turnover ratios is an
important tools of analysis as a firm can reduced its requirements of current assets by
relying on suppliers credit. The extent to which trade creditors are willing to wait for
payment can be approximated by the creditor’s turnover ratio.
3.5.4 DEFENSIVE INTERVAL RATIO:
The liquidity ratio of a firm outlined in the preceding discussion throws light on the ability
of the firm to pay the current liabilities. Apart from paying the current liabilities, the
liquidity position of a firm should also be examined in relation to its ability to meet
projected daily expenditure from operations. The defensive – interval ratio provides such a
measure of liquidity. It is a ratio between the quick/liquid asset and the projected daily
cash requirements.
DEFENSIVE – INTERVAL RATIO LIQUID ASSETS
PROJECTED DAILY CASH
REQUIREMENT

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The projected cash operating expenditure is based on past expenditure and future plans. It
is equivalent to the cost of goods sold excluding depreciation, plus selling and
administrative expenditure and other ordinary cash expenses. Alternatively, a very rough
estimate of cash operating expenses can be obtain by subtracting non – cash expenses like
depreciation and amortization from total expenses.
3.5.5 CASH FLOW FROM OPERATIONS RATIO:
This ratio measures liquidity of a firm comparing actual cash flow from operations (in lieu
of current and potential cash inflow from current assets such as inventory and debtors)
with the current liability.
CASH FLOW FROM OPERATIONS RATIO
CASH FLOW FROM OPERATIONS
CURRENT LIABILITIES
Being a cash measure, the ratio does not encounter the problem of actual convertibility’s
of current assets (such as debtors and inventory) and the need for maintaining minimum
level of these assets. In general, the higher the ratio the better is a firm from the point of
liquidity.
To liquid ratios are no doubts, primarily relevant from the view point of the creditors of
the firm. In general terms higher the liquidity ratio, the better is the firm. But high ratio

54
has serious implications from the firms view point of view. High current acid test would
imply that funds have unnecessarily accumulated and not being profitability utilized.
Similarly, an unusually high rate of inventory will be indicated that a firm is losing
business by failing to maintain the adequate level of inventory to serve the customer’s
needs. A rapid turnover of debtors may strict credit policies that hold revenue below level
that could not be obtain by granting more liberal credit terms.
3.5.6 DEBT EQUITY RATIOS:
The relationship between borrowed funds and owners capital is popular measure of the
long term financial solvency of a firm. This relationship is shown by the debt equity ratios.
The ratio reflects the relative claims of creditors and shareholders against the assets of the
firm. Alternatively, this ratio indicates the ratio proportions of debts and equity in
financing the assets of the firm.
D/E RATIO LONG TERM DEBTS
SHAREHOLDERS EQUITY
The debt is considered here is exclusive of current liabilities. The shareholder equity
includes
1. Equity and preference share capital.
2. Past accumulated profit but excludes fictitious assets like past accumulated
profit.

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3. Discount on issue of shares.
The D/E ratio is, thus, the ratio of total outside liabilities to owner total fund. In the other
words it is ratio of the amount invested by the outsider to the amount invested by the
owner of the business.
3.5.7 DEBT TO TOTAL CAPITAL RATIO:
The relationship between creditors funds and owners capital can also be expressed in
terms of another leverage ratio. This is the debt of total capital ratio. The outside liabilities
are related to total capitalization of the firm and not merely to shareholders equity. One
approach is to relate the long-term to the permanent capital of the firm.
DEBT TO TOTAL CAPITAL RATIO
LONG-TERM DEBT
PERMANENTCAPITAL
Another approach for calculating the debt to total capital ratio is to relate the total debt to
total assets of the firm. The total debt of the firm comprises of total long term debts and
current liabilities. Total asset consist permanent capital plus current liabilities.

56
TOTAL DEBTS
TOTAL ASSETS
3.6. COVERAGE RATIOS:
The second category of leverage ratio is coverage ratios. These ratios are computed from
information available in the profit and loss account. For a normal firm in the ordinary
course of business, the claims of creditors are not met out of the sales proceed of the
permanent assets of the firm. The obligation of the firm normally met out of the earnings
of the firm or operating profit. The claims consist of:
1. Interest on loans.
2. Preference Dividend.
3. Amortization of principle or repayment of the installment of loans
or redemption of preference capital on maturity.
The coverage ratio measures the relationship what is normally available from operations
of the firm and claims for the outsiders.

57
3.6.1 INTEREST COVERAGE RATIO:
It is also known as time interest - earned ratio. The ratio measures the debt servicing
capacity of the firm insofar as fixed interest on long term loan is concerned. It is
determined by diving operating profits or earnings before interest and taxes (EBIT) by the
fixed interest charges on loan.
INTERESTCOVERAGE RATIO EBIT
INTEREST
This ratio uses the concept of net profit before taxes because interest is tax – deductable so
that the tax is calculated after paying interest on long term loans. Too high a ratio may
imply unused debt capacity. In contrast, a low ratio is a danger signal that a firm is using
excessive debt and does not have the ability to offer using excessive debt and does not
have the ability to offer assured payments to the lenders.
3.6.2 DIVIDEND COVERAGE RATIO:
It measures the ability of firm to pay dividend on preference shares which carry the stated
rate of return. This ratio is the ratio (expressed as x numbers of time) of net profits after
taxes (EAT) and the amount of preference dividend.

58
DIVIDEND COVERAGE RATIO EARNING AFTER TAX
PREFERENCE DIVIDEND
It can see that although preference dividend is a fixed obligation, the earning taken into
account is after taxes. This is because, unlike debts on which interest is a charge on the
profit of the firm, the preference dividend is treated as an appropriation of profit. The
ratio, like the interest coverage ratio, reveals the safety margin available to the preference
shareholders.
3.6.3 TOTAL FIXED CHARGE COVERAGE RATIO:
While the interest coverage and preference dividend coverage ratio consider the fixed
obligations of a firm to the respective suppliers of the fund, that is creditors and preference
shareholders, the total coverage ratio has the wider scope and takes into account all the
committed fixed obligations of a firm that is interest on loan, preference dividend, lease
payment and repayment of principle.
TOTAL FIXED CHARGE COVERAGE RATIO
EBIT + LEASE PAYMENTS
INTEREST+ LEASE PAYMENTS + (PREFERENCE
DIVIDEND + INSTALLMENT OF PRINCIPLE) / (1-t)

59
3.7 PROFITABILITY RATIO:
Apart from the creditors, both short term and long term, also interested in the financial
soundness of a firm are the owners and management or the company itself. The
management of the firm is naturally eager to measure the operating efficiency. Similarly
the owners of the fund invest in expectation of reasonable returns. The operating
efficiency of the firm and its ability to ensure adequate return to its shareholders/owners
depends ultimately on the profit earned by it. The profitability of the firm can be measured
by the profitability ratio.
3.7.1 PROFITABILITY RATIO RELATED TO SALES:
These ratios are base on the premises that a firm should earn sufficient profit on each
rupee sale. If adequate profits are earned on sale, there will be difficulty in meeting the
operating expenses and no return will be available to the owners. These ratios consist of:
 Profit Margin
 Expenses Ratio
3.7.1.1 PROFIT MARGIN:
The profit margin measures the relationship between profit and sales. As the profit may be
gross or net, there are two types of profit margins: Gross profit margin and Net profit
margin.

60
GROSS PROFIT MARGIN GROSS PROFIT
NET SALES
Gross profit ratio is the result of the relationship between prices, sales volume and cost. A
change in the gross margin can be brought about by changes in any of these factors. The
gross margin represents the limit beyond which fall in sales prices are outside the
tolerance limit.
A high ratio to gross profit to sales is sign of good management as it implies the cost of
production of a firm is relatively low. It may also be indicative of a higher sales price
without the corresponding increase in cost of goods sold. It might also likely that the cost
of sales might have decline without the decline in sale price.
3.7.1.2 NET PROFIT MARGIN:
This measures the relationship between net profit and sales of a firm. Depending on the
concept of the net profit employed, this ratio can be computed in three ways:
OPERATING PROFITRATIO EBIT
NET SALES
100

61
PRE - TAX PROFIT RATIO EBT
NET SALES
NET PROFIT RATIO EAT
NET SALES
The net profit margin is indicative of management ability to operate the business with
sufficient success not only to recover from revenues of the period, the cost of merchandise
or services, the expenses of operating the business (including depreciation) and the cost of
the borrowed funds, but also to leave a margin of reasonable compensation of the owners
for providing their capital at risk. The ratio of net profit (after interest and taxes) to sales
essentially expresses the cost price of effectiveness of the operations.
A high net profit margin would ensure adequate return to the owners as well as enable a
firm to withstand adverse economic conditions when selling prices declining, cost of
production is rising and demand for product is falling.
3.7.2 EXPENSES RATIO:
Another profitability ratio related to sales is the expenses ratio. It is computed by dividing
expenses by sales. As a working proposition, a low ratio is favorable, while a high one is
unfavorable. The implication of high expense ratio that only a relatively small percentage
share of sales is available for meeting the financial liabilities like interest, tax and

62
dividends and so on. An analysis of the factor responsible for low ratio may reveal
changes in the selling price or the operating expenses.
1. COST OF GOODS SOLD RATIO
COST OF GOODS SOLD
NET SALES
2. OPERATING EXPENSESRATIO
ADMINISTRATIVE EXPENSES
NET SALES
3. ADMINISTRATIVE EXPENSESRATIO
ADMINISTRATIVE EXPENSES RATIO
NET SALES
4. SELLING EXPENSESRATIO
SELLING EXPENSES
NET SALES
100
100
100
100

63
5. OPERATING RATIO
COST OF GOODS SOLD + OPERATING EXPENSES
NET SALES
6. FINANCIAL EXPENSESRATIO
FINANCIAL EXPENSES
NET SALES
3.7.3 RETURN ON INVESTMENT:
The profitability ratio can also be computed by relating the profit of the firm to its
investments. Such ratios are popularly termed as return on investment (ROI). There are
three different concepts of investments in vogue in financial literature: assets, capital
employed and shareholders’ equity. Based on each of them, there are three broad
categories of ROIs.
 Return on Assets.
 Return on Capital Employed.
 Return on Shareholders’ Equity.
100
100

64
3.7.3.1 RETURN ON ASSETS:
The profitability ratio is measured in terms of relationship between net profit and net
assets. The ROA may also be called profit – to – assets ratio. The ROA based on this ratio
would be an underestimate as the interest paid to the lenders is excluded from the net
profits. In the point of fact, the real return on the total assets is the net earnings available to
the owners (EAT) and interest to the lenders as assets are financed by the owners as well
as creditors.
RETURN ON ASSETS EAT
AVERAGE TOTAL ASSETS
3.7.3.2 RETURN ON CAPITAL EMPLOYED:
The term capital employed refers to the long term funds supplied by the lenders and
owners of the firm. The capital employed basis provides a test of profitability related to
the source of long term funds. A comparison of ratio with similar firms, with the industry
average and over time would provide sufficient insight into how efficiently the long term
funds of owners and lenders are being used.
ROEC EBIT
AVERAGE TOTAL CAPITAL EMPLOYED
100
100

65
3.7.3.3 RETURN ON SHAREHOLDERS’ EQUITY
The shareholders of the firm fall into two broad groups of preference shareholders and
equity shareholders. The holders of preference share enjoy a preference over equity
shareholders in respect of receiving dividends and ordinary belonging is given to equity
shareholders.
ROSE EAT
AVERAGE TOTAL SHAREHOLDERS’EQUITY
3.7.4 EARNING PER SHARE (EPS)
It measures the profit available to the equity shareholders on a per share basis, that is, the
amount that they can get on every share held. It is calculated by dividing the profits
available to the equity shareholders by the number of outstanding shares. The profits
available to the ordinary shareholder are represented by the net profit after tax and
preference dividends.
EPS NET PROFIT AVAILABLE TO EQUITY – HOLDERS
NUMBER OF ORDINARY SHARES OUTSTANDING
100

66
DATA ANALYSIS

67
LIQUIDITY RATIO
6.1 CURRENT RATIO: Current Assets
Current Liabilities
For year 2010:
3788014.33
3631873.09
1.04299
For year 2009:
3396047.76
3354894.98
1.012266
6.2 LIQUID RATIO Liquid Assets
Current Liabilities
For year 2010:
2744895.71
3631873.09
0.76
For year 2009:
2534583.94
3631873.09
0.74

68
6.3 ABSOLUTE LIQUID RATIO Cash
Current Liabilities
For year 2010:
1974455.79
3631873.09
0.54
For year 2009:
1964631.86
3354894.98
0.58

69
CHART 1
LIQUIDITY RATIO
2009
2010

70
ACTIVITY RATIOS
6.4 INVENTORYTURNOVER RATIO Sales
Average Inventory
For year 2010:
1037069.65
1043118.62
0.9942times
For year 2009:
862311.64
861463.82
1.00012times
6.5 DEBTORSTURNOVER RATIO Credit Sales
Average Debtors
For year 2010:
1037069.65
184825.71
5.6118 times
For year 2009:
862311.64
148610.50
5.8024

71
4.6 Average collectionperiod Period
Debtor’s Turnover
For year 2010:
360
5.6118
64 days
For year 2009:
360
5.8024
62 days
6.7 ASSETS TURNOVER RATIO: Sales
Net Assets
For year 2010:
1037069.65
611896.58
1.69 times
For year 2009:
862311.64
495563.09
1.74 times

72
6.8 WORKING CAPITAL TURNOVER RATIO Sales
Net Working
Capital
For year 2010:
1037069.65
156141.24
6.6418times
For year 2009:
862311.64
41152.78
20.95 times

73
CHART 2
ACTIVITY RATIO
2009
2010

74
PROFITABILITY RATIOS
6.9 GROSS MARGIN RATIO EBIT
Sales
For year 2010:
233486.40
1037069.65
22.51%
For year 2009:
216422.92
862311.64
25%
4.10 NET PROFIT RATIO PAT
Net Sales
For year 2010:
173986.16
1037069.65
16.667%
For year 2009:
163187.97
862311.64
18.92%
100
100
100
100
100
100

75
6.11 RETURN ON INVESTMENT EBIT
Capital Employed
For year 2010:
233486.40
611896.58
38%
For year 2009:
216422.92
495563.09
43%
6.12 RETURN ON INVESTMENTAFTER TAX
PAT
Capital Employed
For year 2010:
173986.16
611896.58
28%
For year 2009:
163187.47
495563.09
32%
100
100
100
100
100
100

76
6.13 EARNINGS PER SHARE Profit after tax
No of Equity Share
For year 2010:
173986.16
12050
14.43
For year 2009:
163187.97
12050
13.54
6.14 EXPENSES RATIO Total Expenses
Net Sales
For year 2010:
77617.15
1037069.65
7.48%
For year 2009:
88799.69
862311.64
10.29
100
100
100

77
CHART 3
PROFITABILITY RATIO
2009
2010

78
Investmentof LIC for Fund:
Table -1 showingLIC Investments(inRs crore) (Segmentwise)
Types of Investment 2009-10 2010-11 2011-12 2012-13
Housing & Infrastructure 1,48,197 1,65,003 1,64,162 1,91,426
G.Sec 5,01,611 5,84,147 6,55,673 7,27,880
SSec + Housing/Infrastructure 6,49,808 7,49,150 8,19,835 9,19,306
Total (including corporate
sector investment & project
loan)
10,95,841 12,66,539 13,49,532 14,80,105
Source: Annual Report of LIC of India 2013
Table-1 highlight on the segment wise investment of LIC of India during 2009-10 to 2012-
13. More amount of investment was marked in corporate sector investment & project loan
followed by SSec+Housing/Infra segment and G-Sec segment . So, it is analysed that LIC
of India put more amount in corporate sector than other sector through analytical
appraisal.
1. Total (Including corporate sector investment & project loan)
On a cumulative basis, LIC has invested approximately Rs13,41,511 crore in debt as well
as in equities in order to generate better yield on its net accrued fund. Of this about 13% is
investment in equity and balance 87% is parked with debt and fixed deposit. In the last
fiscal LIC has invested about Rs2,10,000 crore approximately out of whichRs45,000 crore
was into equities. The total investment corpus of Life Insurance Corp of India (LIC)
touched Rs 14.8 lakh crore (provisional) as on 2013, registering 10 per cent growth in the
first nine months of the current financial year. According to a presentation by LIC to
Parliament Standing Committee on finance. total investment at the end of 2012 was Rs
13.49 lakh crore.
In India, the market capitalisation of top 1,800 companies is around Rs65 lakh crore and
PSU companies account for more than 25% of the total market capitalisation. Therefore

79
one cannot construct portfolio without PSU stocks. In the past, PSU stocks like Oil India,
HPCL, BPCL and ONGC have given fantastic returns on investment over a period," said
the LIC official. Some of the most successful IPOs such as CIL in October 2010 in which
government had raisedRs15,200 crore and MOIL, or follow on public offer of Rural
Electrification Corporation, LIC hardly took any exposure.
2. Special Section Housing/Infra: Among housing and infrastructure investments, LIC
has maximum amount of investments in the power sector, contributing Rs 94,294 crore.
This was followed by housing with Rs 41,900 crore. Other areas in infrastructure included
irrigation, road, port, bridges and telecom.
3. Housing & Infrastructure: In terms of performance of different channels, the LIC
presentation showed that out of the first premium income, Rs 1,486 crore came from the
chief life insurance adviser. Bancassurance and alternative channels contributed Rs 870.63
crore and direct marketing contributed Rs 218 crore. India's largest domestic institutional
investor - Life Insurance Corporation of India (LIC India) used the sluggish market
conditions in 2012 to increase its exposure to equities.
The Big Daddy of insurers invested Rs 49,960 crore during the year as against Rs 43,224
crore in 2011, an increase of 26% year-on-year.
4. General segment During the financial year LIC, a wholly government owned entity,
increased its stake in many capital-starved public sector banks. The widening fiscal deficit
prompted the government of India, a major stake holder in those banks, to devise a
strategy to infuse capital by way of hiking LIC's stake. Investment in government
securities, worth Rs 7.27 lakh crore, accounted for a major share in LIC’s investment.
Housing and infrastructure investments stood at Rs 1.91 lakh crore. The rest included
investment in the corporate sector and project loans. Central government securities

80
contributed Rs 4.77 lakh crore, followed by state government and other government
guaranteed marketable securities.
At the same time, a combination of falling equity prices and redemptions shrunk LIC's
unit linked insurance policy (ULIP) portfolio by 20% to Rs 1,55,377 crore as on March
31, 2012,. In the subdued equity market ULIP portfolio however, has booked a profit
through the sale of equity, thereby registering a growth in the profit by nearly 10% over
the previous year. In 2012, our total equity portfolio has recorded a significant
appreciation on mark-to-market basis even after booking healthy profit during the year
2012-13. The corporation which has an investment portfolio of over Rs 8 lakh crore plans
to invest around Rs 60,000 crore in the equity market in 2012-13 . In 2011-12, the 30-
share BSE SENSEX dropped 10.50% as against a rise of nearly 11% in 2010-11. The
sharp fall was account of global economic weakening coupled with domestic factors like
higher rate of inflation and low GDP growth. The corporation’s total equity portfolio
stands more than Rs 8 lakh crore.
For the period ended September 30, 2012, its equity portfolio has shown fantastic
appreciation on mark-to market basis." But, it's an unrealised valuation of investment and
depends upon indices and parameters such as GDP growth predictions, published data on
IIP and inflation, exchange rate, crude price, infrastructure spending, FII inflow and
national and global scenario, he said, adding that the corporation has booked profits of
more than Rs2,900 crore in the last three financial years from PSU stocks.
Recently, D K Mehrotra, LIC chairman, had said the state-run insurer planned to invest a
total of Rs 2.4 lakh crore in bonds, equities and government securities in the current
financial year. He expected LIC’s corpus to touch Rs 32 lakh crore by 2020.

81
Bankwise investment of LIC of India :
Figure-1 highlighted all type of investment what LIC have raised stake in Allahabad bank
to 12.93% in end of 2012 compared with 7.95% in beginning of 2012. During the same
period, it upped its holdings from 3.14% to 12.36% in Union Bank of India ; from 7.93%
to 10% in UCO Bank ; from 10.43% to 14.53% in Syndicate bank , among others.
Dis-investment in corporate investment :
The country's largest financial institution had to pick up close to 70% of the government's
combined equity offerings in NTPC, NMDC and ONGC because foreign institutional
investors as well as local private sector fund houses were put off by the high floor price.
Since LIC is a long-term investor that largely dips into funds of traditional insurance
policies to subscribe to stocks sold in government's divestment programme, it is spared of
mark-to-market (or MTM) accounting losses arising out of decline in investment value.
LIC could not get shares in IPOs of CIL and MOIL as the issues received overwhelming
response from foreign investors. LIC, however, did not buy Coal India's shares in
secondary market while other foreign funds such as UK-based The Children Investment
Fund has raised holding to over 1% in June 2011, said an investment banker who was
associated with the Coal India IPO. On the other hand, LIC, whose holding in NTPC was
26%
25%20%
29%
Bankwise Investment of LIC
Allahabad Bank Union Bank of India UCO Bank Syndicate Bank

82
less than 1% stake December 2009, had increased stake to 3.31% before the FPO on
February 8, 2010, and bought an additional 2.47% in the FPO, in which government
divested 5% stake. Even after issue, LIC continued to increase its ownership in the
company, holding 6.03% as on September 2012. Investments by Life Insurance
Corporation of India to bail out some of the government's bigticket share sale in state
owned enterprises have lost Rs5,170 crore, or almost a quarter, in value.
LIC played a key pivotal role in the ONGC's share sale in March, 2012. It reportedly
acquired 37.71 crore shares of the 42.04 crore shares on offer. LIC's ownership in the
company rose from 3.09% to 7.77% in between June and March quarter, of 2012. This
decision drew criticism from market participants, who alleged that LIC was forced to bail
out the government.

83
LIMITATIONS
 The balance sheet of the organization may be not exactly expressing the
correct fact and some data would be missing in it.
 The different clauses has been used which hides a lot of information.
 The main limitation of secondary data is that it is biased and based on the
previous studies.

84
CHAPTER -5
FINDINGS, SUGGESTIONS AND
CONCLUSION
1. The ideal current ratio for the company is 2:1.but current ratio of LIC is
1.04:1 for 2010 and 1.01:1. So company should concern about current assets so
that its liquidity positioned would increased and will reach up to 2:1 ideal ratio.
2. The ideal liquid ratio for the company is 1:1 means liquid asset should
equal to current assets but LIC liquid ratio for year 2010 is 0.76:1 and for year
2009 0.74:1. So LIC should increase its liquidity to meet the future requirements.
3. The absolute liquid ratio of LIC for year 2010 0.54:1 and for year 2009 is
0.58:1 so it shows that company should work on cash position to meet the
payments and future contingencies.
4. The inventory turnover ratio for year 2010 is 0.99 times and for the year
2009 1.00. Means the average age of stock is 360 days. Company takes 360 days to
convert inventory into sales that is too large so company should focus to decrease
conversion time and should do efforts to increase inventory turnover.
5. Debtor’s turnover ratio of LIC for year 2010 is 5.6118 times and for year
2009 is 5.8024 times. And average collection period for year 2010 is 64 days and
for year 2009 is 62 days. It means LIC received the payments of credit sales from
debtors in average 60 days. Now company faced lack of liquidity so it should do
some efforts i.e. give cash discount to speedy collection of payments to improve
liquidity.

85
6. Assets turnover ratio of LIC is 1.69 times for year 2010 and 1.74 times for
year 2009. This ratio shows that how efficiently a company utilizes its assets for
production.LIC performance is quiet good in respect of assets turnover.
7. Working capital turnover ratio of LIC for year 2010 is 6.6418 times and for
2009 are 20.95. This ratio shows the relation of sales to net working capital. In
2009 net working capital is less in compare to sales which is increased in 2010. So
it indicates increase in sales and also net working capital which is due to credit
sales of LIC. So to increase sales company should focus on credit sales.
8. The gross margin of company for year 2010 is 22% and for year 2009 is 25
%. This shows decreased in gross margin from previous year. So LIC should
concern about this decline and should control factory expenses.
9. The net profit of LIC for year 2010 is 16.77% and for year 2009 is 18%.
This decline is also due to increase in expenditure so LIC should control
expenditure.
10. The return of investment for year 2010 is 38% and for year 2009 is 43%
which is due to decline in gross margin and earning before and after taxes. So LIC
should work on productivity and efficiency and try to increase sales to adopt the
good credit policy to collect payments so it definitely increases the EBIT and EBT
of company.
11. The earnings per share (EPS) of LIC for 2010 are 14.43 and for year 2009
is 13.54. LIC issued capital is 12050 lakhs. And EPS shows on 10 RS share
the earning is 14 that is increased from previous RS13.54. This shows LIC
objective is wealth maximization rather than profit maximization.

86
CONCLUSION:
The analytical study is associated to analyze the balance sheet of LIC, and I took ratio
analysis as analytical tools to find out the current financial position and fund
management of LIC. Ratio was divided three categories:
 Liquidity
 Profitability
 Solvency/turnover ratio
So after calculating different ratios related to liquidity i.e. current ratio, liquidity ration
I find out the liquid position of firm which is not quite good and company is facing the
problem liquidity which is effecting the solvency of LIC.
Turnover ratios also help to find out efficiency of a firm. Now here I calculate
inventory turnover, debtor’s turnover ratio and average age of stock. And the problem
associated with the company is that the inventory turnover of company is not good and
it takes approx one year to convert raw material into sales.
Profitability is major factor that shows a firm’s financial position is strong or not. The
gross profit and net profit of company is good. And return of investment and earnings
per share is also good. And it shows that company sales are quiet good and LIC should
focus to expand its business internationally.
After evaluation of the entire three factors we reach to conclusion that company’s
financial position is very good in term of profitability but company should work on his
liquidity and production process and inventory turnover.

87
Investment pattern of LIC of India on different products and strategy of Investment
depends upon the growth and development of the country leading to greater economic
activity has led to the introduction of a vast array of investment outlets. Apart from
putting aside investment in corporate where risk is low, LIC have the choice of a
variety of instruments. The question to reason out is which is the most suitable
segment ? Which segment will give a balanced growth and stability of return?
The LIC of India in his choice of investment will have to try and achieve a proper mix
between high rate of return and stability of return to reap the benefits of both. Some of
the instruments available are equity shares and bonds, provident fund, fixed deposits
and mutual funds schemes. Invest early Invest regularly Invest for long term and not
short term One needs to invest for Earn return on idle resources by generating a
specified sum of money for a specific goal in life Make a provision for an uncertain
future and to meet the cost of inflation is the fundamental analysis of various
investment alternatives before investing in various investment alternatives . A
fundamental analysis believes that analyzing the economy, strength, management,
production, financial status and other related information which would help to choose
investment avenues that will outperform the market and provide consistent gain to the
company. Fundamental analysis is the examination of the underlying forces that affect
the interests of the economy, industrial sectors, and companies. It tries to forecast the
future movement of capital market using signals from the economy, industry,
company. Fundamental analysis requires an examination of the market from broader
prospective. It also examines the economic environment, industrial performance, and
company.

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