Insurers can invest in private equity, debt funds: IRDA

India Infoline News Service | Mumbai |

Insurers, however, are not allowed to invest in AIFs that have the nature of funds of funds and leverage funds

The Insurance Regulatory and Development Authority (IRDA) has allowed insurance companies to invest in Alternative Investment Funds in Category-I and Category-II.

Earlier, this was restricted to Category-I. Now, insurers would be able to invest in private equity and debt funds. However, the insurance regulator said under Category II, at least 51% of the funds of such AIF would be invested in infrastructure entities, small and medium enterprise (SME) entities, venture capital undertakings or social venture entities.

Category I AIFs include venture capital funds, SME funds, social venture funds, infrastructure funds and other such AIFs as might be specified. These funds would be close ended, would not engage in leverage and would follow investment restrictions as prescribed for each category. Category II AIFs include private equity funds, debt funds and such other funds.

In March 2013, IRDA had allowed insurers to invest in Category I AIF and clarified that such investments would be restricted to the infrastructure and SME sectors. Pursuant to the issue of this circular, it received several representations from various stakeholders including large insurance companies to expand the scope of the AIF and include Category II AIF also. This matter was referred to the expert committee on investment constituted by IRDA and the expert committee was of the view that the insurance companies should be allowed to invest in Category II AIF also.

Insurers, however, are not allowed to invest in AIFs that have the nature of funds of funds and leverage funds, IRDA said in a circular on 23 August 2013.

The regulator said the overall exposure to venture funds and AIFs put together should not exceed 3% of the respective fund in the case of a life insurance company and 5% in the case of a general insurance company.

Exposure to a single AIF or venture fund should not be more than 10% of the fund size.
 

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