Irda may raise the ceiling on investment in mutual funds

Insurance Regulatory and Development Authority (IRDA), which has recently allowed insurance companies to invest their temporary surplus funds in derivatives-linked mutual funds to the extent to 50 per cent, is likely to review the cap and consider raising it after some time.

The authority has also decided against allowing them to invest in equity linked mutual funds.

"We have recently allowed life as well as general insurance companies to invest a potion of their surplus fund in derivativea-linked mutual funds. It is the beginning. Let us examine the developments and we will review the cap after a period based on the feed back from the industry. We will have to take a view if it will be increased on the higher side," explained the chairman of Irda, C S Rao. He, however, refused to give out any possible extent to which the limit could be extended.

Irda will also take a view on whether insurance companies will be able to invest funds from other heads in derivative linked mutual funds sometime later.

Rao also clarified that insurance companies will not be allowed to invest in equity linked mutual fund products because, the regulator does not have any control over investments these MFs make in the stock market.

"We have a very well laid guideline for investment in equities, and there are identified stocks in which these companies can take exposure. If investment in equity linked mutual fund is allowed, we will not be able to control investment patterns of insurance companies, which we are not very comfortable with," he added.

"We want the insurance sector to develop its own expertise on investment management so that they are better equipped to handle their asset liability balance," Rao explained.

At present however a number of companies, specially the private ones, has handed over the investment management to their asset management arms. For example, companies like, Birla AMC takes care of investment of Birla Life Insurance, Kotak Mahindra Mutual Fund takes care of Kotak Mahindra Insurance.

Others like HDFC Standard Life Insurance's fund is managed by HDFC AMC. These companies manage funds as stipulated under Irda guidelines. ICICI Prudential however manages its own funds so does a host of other private companies in the sector.

The practice with public sector companies is however different, LIC has its own investment management wing so has the four general insurance companies as well as General Insurance Corporation of India.