 You are watching News Made Easy, I am Anandya Chakravarty, our policy holders of LIC. The millions of policy holders of LIC, are they being roped by the IPO? Is this IPO actually going to end up creating wealth for a few, the limited number of people who operate in the stock markets? Is that what it is going to be? And the millions and millions of average Indians who hold policies in LIC, are they going to be, is it going to tilt against them? Are they being roped out of what rightfully belongs to them? And I am going to answer that question. First of all, let us understand that LIC was created in 1956, when a number of these companies which were going bankrupt, insurance companies, which were doing badly were nationalized and the government gave about 5 crore rupees as capital. Then over the period of time, millions and millions of Indians have bought these policies, they pay premium. And with that, LIC has actually gone to nearly 40 lakh crore of, it now has, you know, its assets under management are nearly 40 lakh crore. That is the massive amount it currently has. And all of this, all of this is policy holder, premium and money which has come in and the profit that LIC has made from it. Alright, till recently, 95% of the surplus that LIC got, which is the additional money every year that it made over and above its liabilities, what it had to pay out or what it, others owed it. It owed to others, had to be given to policy holders, 95%. In 2011, it was this rule was tweaked a bit and LIC was told that at least 90% of its surplus, annual surplus has to be given back as dividend to policy holders and the remaining, it can either hold and give to the shareholder. And who is the shareholder? Shareholder is the government of India. Remember with just 5 crore rupees that it gave between 1966 to 2011. Now what has happened is that LIC has further tweaked this. What it has done is that it is saying that over a period of next 2 to 3 years, by 2025, policy holders, participating policy holders or those who are entitled to dividends, they will get only 90% of the share surpluses. So 5% is being taken out of it and that is one of the ways in which shareholders are getting rewarded. Shareholders will now get 10% by 2025 and that is going to make LIC as IPO more valuable to shareholders. They have 10% of the surpluses but that is not all. There is another thing that is happening. In the insurance business, there are two kinds of policy holders. One is called the participating policy holders. By participating policy holders, what happens is that they get dividends. They are entitled to dividends and the final amount that they get because they get dividends is less than what non-participating policy holders get. Non-participating policy holders are people who buy policies with a fixed return. They get no variable dividends. They do not get dividends annually that are declared based on profits and surpluses. What they get is at the end of a term or at the death of the policy holder, the family gets a fixed amount. So they are non-participating policy holders. Till now, the entire surplus that LIC had, part of the LIC Act, 95% of it annual surplus had to be given as dividend and that as I said was changed to 90% later. And this would then, a certain amount would then go to shareholders. 5% would go to shareholders, which was the government of India in this case. And now after the IPO, private entities, very few, remember very few private entities about what 3% of Indians probably hold shares and have active DP accounts and they are the only people who would be actually making money out of this IPO. They are going to get the remaining 5% but that is not all and this is an interesting thing. One of the way in which insurance companies are valued as to what is going to be their market value when the share is listed is determined something nowadays by something called embedded value which is not only all the past assets that it has but also estimate is to made as to what its future profits are going to be. Future profits that will accrue to shareholders, not to policy holders, pay out to dividend, pay out to policy holders will obviously not go to shareholders. So anything that will go to shareholders in the future is obviously going to affect the valuation today of that company. So in LIC what has been done is that this change is being made. As I said one part is that from 95% by 2025 participating policy holders will only get 90% of the surplus as dividend but here is another twist that has taken place. In September this year LIC has split its total funds into two parts. One is the participating policy holders share and the other is the funds that are that have been collected from policy holders who are non-participating. As I said non-participating are those who are going to get fixed return. Now the non-participating part, whichever surplus or profit earnings that come additional earnings that come from that part of the fund participating policy holders remember they are the most maximum number of policy holders they'll get nothing from it 100% of that will go to shareholders now and 10% of what participating policy holders are creating the surplus from that will still go to shareholders. And what is the division that has taken place? There is no reason right now because it's not as if those who buy non-participating policies they are going to get shares. So out of the 36 lakh odd crore which was the total fund that LIC had in September 2021 approximately 24 and a half lakh crore is funds that have been collected from participatory policy holders and about 11 and a half lakh crore has been collected from non-participating policy holders. Now the interesting thing is still now 95% of the surplus that came out of the total consolidated fund was due to participating was something that went as dividends to participating policy holders because that's the basis on which people took this participating policies because they assume that they'll get a certain high amount of dividend which historically LIC has given. So that is being reduced plus the split into 68% of the total fund accruing to participating policy holders and 32% to non-participatory. So if the total fund is 100 rupees only 68 rupees only the surplus from 68 rupees will now go to the policy holders only the surplus and that totally 90% of that will go to policy holders. Share holders will get 100% of the surplus from the 32% which is the money which is coming from non-participating policy holders. Share holders will not put in any money except buying shares are going to get all of the surpluses from that 32% nearly one third of the total funds and they will get 10% from the remaining as well. So the surpluses generated share holders will end up with at least one third of the surpluses whereas still now 95% of the surpluses were coming to policy holders participating policy holders which are the majority of policy holders now they will get only two thirds. So literally one third of the dividends that they were going to get is being taken out and given away to share holders and that is what is going to make shares the shares of LIC attractive. So who is losing policy holders? Now one thing that the government has said okay 10% of the total shares will be reserved for policy holders and policy holders. That is a joke because there are millions and millions of policy holders many of whom are uneducated who do not have PAN and by the way you have to update your PAN to be able to participate in the IPO most of them don't have DP accounts many of them cannot have never heard of share markets they cannot invest in shares but they had put in bought premiums and they pay premiums and have life insurance. So it's a joke only 10% even here only those who are the affluent among policy holders they are going to benefit from this 10% reserved category for policy holders and it's not really a major benefit. This is one part the second part is there's some news click itself you can go and look up articles by V. Shridhar who has written about how LIC IPO is probably being undervalued and what does undervalued means it means LIC has massive amounts of real estate across the country which is not being valued properly which is probably not going to be part of the total valuation of the company. So share holders are effectively going to get a company for much cheaper shares than the value real value of the company. So in a sense it's a bit of a fire sale because the government is desperate to raise money from the LIC IPO because it is running short of the money that it was supposed to raise in this fiscal. So it wants this to go through so that it can raise money and show that it has raised money from the IPO. So share holders were inevitably 90% of them are going to be the richest Indians they are going to gain by policy holders the armadmi, armadmi who holds policies they are going to lose from this IPO. That's the show today keep watching news click do read articles on LIC's IPO and why that is bad for policy holders and probably bad for the economy as a whole the country as a whole. That's a separate issue altogether do read them share them share this video like this video and do subscribe to news click.