IRDA may let insurers invest in gold and ETFs

MUMBAI: The Insurance Regulatory and Development Authority (Irda) is vetting a proposal to allow life insurance companies to invest in gold and exchange-traded funds, or ETFs. The move will provide greater flexibility to local insurers to invest in various asset classes.

A senior Irda official said the regulator is weighing the two options. "We may allow insurance companies to invest in gold and equity ETFs with a cap of 5-10%. There are proposals from various companies to let them invest in ETFs of commodities and equities," said the official.

An exchange-traded fund is an investment fund traded on stock exchanges just like stocks. Gold ETFs invest directly in gold and hence track its prices closely, eliminating the hassles of stocking up on physical gold. Equity ETF mirrors a basket of stocks such as S&P CNX Nifty or BSE Sensex, which reflects the composition of an index.

The Irda official said the regulator would, however, like to restrict the exposure of insurers to any single commodity.

After the regulatory changes in the Ulip space, insurance companies are not able to innovate products. "The charges are capped. There is not much innovation that we can bring. One product is replicating another," said a senior executive of a large insurance company.

Insurance companies are looking forward to new options for investment flexibility. "This will improve our investment choice. Whenever there is an inflow in Ulips, we can quickly allocate funds in ETFs and then take a call on where to invest," said Abhijit Gulanikar, chief investment officer of SBI Life .

There are 16 ETFs in India, including gold and equity. According to the current regulations, insurance companies cannot invest in commodities. These changes will, however, require amendments in regulations. After the Insurance Act is amended, Irda will have the power to introduce changes in the investment norms.