IRDA may allow Insurance Companies to invest in Venture Funds

The IRDA's green signal to Insurance companies for investments in venture capital funds would provide a boost in growth pertaining to the infrastructure segment. The Insurance companies would be allowed to invest about 5% of the total investment that it can undertake, in the venture capital funds pertaining to infrastructure based projects. The total aggregate of the assets under the life insurance companies is Rs 699,375 crores. This move would allow the constant direct flow of long-term savings pertaining to the infrastructure development.

The proposed alterations in the regulations pertaining to investments of the insurance companies would be settled by the Insurance Regulatory and Development Authority of India (IRDA), at the next board meeting on the 25th of March. Several other alterations would also be done with the investment norms. The other important norm is the expansion of the sanctioned investments category, which would also include the mortgaged securities and the initial public offerings unlike previously when these two were not included.

The proposal would be submitted to the Insurance Regulatory and Development Authority of India (IRDA) board for approval. The final draft would be published in the Gazette of the Central Government at the end of March 2008. This has been informed by the senior officials of the IRDA. The alterations would help in developing the instruments of investment and provide flexibility for insurers. The alterations would provide more margins pertaining to the investments in certificates of deposit issued by the banks and term deposits.

At present the insurance companies may invest about 10% of its investment funds to a particular sector. As per the banking sector is concerned, up to 10% of the investment can be done in the bonds and equity shares issued by banks, 2 % on the fixed deposits and certificates of the banks. In the new alterations the fixed deposits and the certificates of the banks would considered as a separate category and grouped as money market instruments. This would help in expanding the flow of investments from the insurance sector into the banking sector.

The RBI would come out with the regulations for the banks to invest in equity derivatives and later the insurance sector would also have these regulations. The Insurance Regulatory and Development Authority of India has constituted a working group in the year 2006 to probe the existing investment regulations and provide review on the present statutory advices and the trends of investments for insurance companies. In 2007 the body had submitted its suggestions.

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