IRDA clears insurers' exchange traded funds investments

MUMBAI: The insurance regulator has said that it will allow insurance companies to invest in exchange traded funds (ETFs) and has come out with draft guidelines for such investments. The move gains significance considering that the government plans to transfer shares in public sector companies to ETFs to achieve its disinvestment target.
"The authority is in receipt of representations to allow insurance companies to invest in equity exchange traded funds," said a circular from IRDA, explaining the rationale for issuing draft guidelines for allowing insurance companies to invest in ETFs.The regulator has said that equity ETFs shall come under current exposure norms applicable to investment in mutual funds (MFs) by insurance companies.
IRDA has said that insurers can invest in only those equity ETFs that do not hold more than 15% of the fund in a single company. Equity ETFs will be restricted to schemes of MFs that are registered with Sebi and governed by Sebi (Mutual Funds) Regulations, 1996.
The government has indicated that it plans to divest shares in some public sector companies to an ETF. It is expected that there will be around 11 PSUs in the ETF and by selling shares over a period of time, the government would reduce volatility in PSU stocks. Life insurance companies, particularly the Life Insurance Corporation of India, have been major investors in the disinvestment process earlier.