This might be known information to all, but still wanted to share it across. It is about how an Insurance Company works. What they do with the money we invest and how they manage to give us the returns they promise.
P.S--> The information furnished below is purely based on what i have heard. No research work has gone into this. So this piece of information may be totally true or totally vary according to insurance companies or individuals. Risk edukaradu rusk saapduramaathiri na, you can go ahead and read.
Consider an Insurance company that promises a return of Rs 125 in a period of 10 years for Rs 100 that we invest. The amount is divided into two, one for Shares and the other for Debt (Debt is something like Vaddi i.e they lend the money to the one who is in need, for some interest.). The percentage of division, of course is decided by the fund manager who is exclusively present for these kinds of work. Let us say Rs 50 goes in Shares and the rest goes into debt. So for the 10 years they will keep on investing the original amount as well the returns that they get, in shares and debt. And at the end of 10 years, say they get back Rs 200. but what they had promised was just Rs 125. They give us the money that was promised and the rest is invested in Debt. And it is a general rule in the world of Insurance that If the share market goes down, the Debt automatically increases and vice-versa. And there never happens a situation where one can see a loss in Debt (this is logical).
