Insurers get to invest more in MFs

Insurance Regulatory and Development Authority (Irda) has expanded the scope of investment by insurance companies in mutual funds.

According to guidelines on mutual fund investments released by Irda on Wednesday, insurance companies are allowed to invest temporary surpluses in schemes of liquid funds, government papers and debt funds.

Irda has, however, ruled out any investment by insurance firms in equity schemes of mutual funds.

Till now, funds were allowed to put money only in gilt funds.

In addition, the Irda stated that investment in mutual funds at any point of time shall not exceed 50 per cent of the investment falling under "other than approved investments" for both life and non-life insurance companies. In the case of public sector insurers, the limit will be one-fifth of "other than approved investments".

Irda will review the exposure limit periodically. The authority has also stated that investment in mutual fund schemes will be restricted to those funds that are registered with and governed by the Securities & Exchange Board of India (Sebi).

S B Mathur, chairman of Life Insurance Corporation, said the insurance behemoth would certainly make use of the opportunity. However, he said he did not wish to comment further before going through the fine print of the notification concerned.

Mathur could not comment on the size of the investable surplus LIC normally has in its hands.

"The figure varies every day. Sometimes, we have a Rs 2,000 crore surplus on a day and some days it goes down to Rs 700 crore," he added.

Considering that LIC has a Rs 1,000 crore average daily investiable surplus, it could be well assumed the size of the money that would go to gilt, debt and liquid schemes.

Shivaji Dam, CEO of Om Kotak Life Insurance Company, said the move would help the life insurance firms match long term liabilities with returns.

"The companies will be equipped to provide better returns. Interest risks will also be covered," he said.

Welcoming the move, Association of Mutual Funds in India (AMFI) chairman A P Kurian said the body had been pressing for the permission for long.

"The move is the beginning in the right direction. I think, insurance companies should also be permissed to investment in equity schemes, at least income and index funds. I am hopeful that gradually the insurance companies will be allowed to do so," he added.

Besides, the insurer has to ensure that investments in mutual funds are diversified among the various funds operating in the country.

This implies that insurers cannot restrict their exposure to a single mutual fund, belonging to the group and should avoid concentration of investment in any particular scheme.

Irda stated that where the mutual fund is part of the same group, whereby there is direct or indirect control of the insurer or promoter, investment cannot exceed 20 per cent of the amount of investment falling under "other approved investments".

Further, Irda stated that the insurer will not be allowed to make any investment in shares or debentures of any private limited company in which investment is made by the mutual fund.

Irda said every quarter the insurer must mention the net asset value of its investments in funds and a separate fair value change account segregated for each of the mutual fund investment shall be maintained.