At a time when companies are finding it tough to raise funds, the country's largest insurer, Life Insurance Corporation of India, has stepped up investment in non-convertible debentures, commercial papers and certificates of deposits.

Against an investment of around Rs 200 crore (Rs 2 billion) in CPs and CDs last year, the insurer has already put in Rs 1,000 crore (Rs 10 billion) so far in 2008-09 and hopes to invest another Rs 500 crore (Rs 5 billion) to Rs 600 crore (Rs 6 billion) over the remaining months.

Similarly, the state-owned corporation has subscribed to NCDs worth around Rs 20,000 crore (Rs 200 billion) this year, with nearly Rs 12,000 crore (Rs 120 billion) flowing into these instruments over the last three months when the global credit crisis intensified.

Managing Director Thomas Mathew T said, by March another Rs 15,000 crore (Rs 150 billion) to Rs 20,000 crore (Rs 200 billion) will be invested in NCDs.

Last year, LIC's [Get Quote] investment in NCDs was roughly Rs 30,000 crore (Rs 300 billion) in 60 companies.

So far in 2008-09, LIC has invested in almost 100 companies, 25 of them in the last three months. So far, LIC has invested in CPs and CDs issued by 30 companies.

Mathew said the company was inundated with proposals soliciting investments in NCDs, but LIC would be cautious. "We strictly follow Irda (Insurance Regulatory & Development Authority) investment guidelines. We invest only in the highest-yielding NCDs with adequate asset cover and AAA rating," Mathew added.

According to the investment norms, LIC has to invest at least 50 per cent of its total premium in government securities, 15 per cent into the infrastructure sector and the remaining 35 per cent in equity and other instruments.

Better returns partly explain LIC's higher NCD investment. Against annualised returns of 10 to 11 per cent last year, the instruments now offer 11 to 12.5 per cent.

"Even a 100 basis point increase in returns makes a lot of difference when you consider a large investment," Mathew said.

NCDs are debt instruments issued for a fixed tenure and no part is converted into equity. The face value can be redeemed in one instalment (a bullet payment) or in tranches. The redemption period can stretch up to 10 years.

CPs and CDs, in contrast, are short-term debt papers with a tenure of less than one year and offer 8 to 10 per cent returns.

Though Mathew declined to discuss company-related details, he said LIC's biggest NCD investment this year was roughly Rs 1,000 crore (Rs 10 billion).

The company is looking at an investment corpus of over Rs 1,50,000 crore (Rs 1,500 billion) and if things go to plan Rs 35,000 and Rs 40,000 crore (Rs 400 billion) will flow into NCDs, CPs and CDs.