Wednesday, September 22, 2021
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Insurers allowed to invest in fund of funds backing startups

The insurance regulator Irdai has eased the rules for Indian insurers investing in domestic Fund of Funds (FoF) including those which back startups. The move comes as a major fillip to scores of startups looking at alternative modes of financing other than foreign private equity and venture capital funds.

This will also allow Indian insurance companies to widen their portfolios from conservative modes of investment avenues such as government bonds and public infrastructure projects. However, insurers are not allowed to invest in fund of funds that invest in overseas companies, the Insurance Regulatory and Development Authority of India (Irdai) said in a circular modifying regulations for insurance cos investing in SEBI-approved AIFs.

The existing guideline which reads “no investment is permitted in AIFs, which are of fund of funds and leverage funds” has now been amended to “no investment is permitted into AIFs which undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted under SEBI (Alternative Investment Funds) Regulations, 2012”.

The insurers have also been restricted to make investments in those AIFs where it may already have an exposure. ET was the first to report on 8th July 2020 that government is planning to allow insurance companies to invest in fund of funds focussed on startups. Insurers looking to make such investments now have to obtain a compliance certificate issued by a concurrent auditor every quarter, as per the new IRDAI circular.

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