Indian Insurance Firms can now invest in Funds Of Funds (FoF), Says IRDA

• After this decision IRDA, the startups across the country will get financial support from insurance companies.
• Encouraging insurance companies for Investment in (FoF) to make diversify investments for better return because investment is usually made into gold, real estate, and stocks.
• The Govt government has set its mind to increase the supply of funds to startups so that overseas dominance in a startup could reduce and it’ll also help in economic growth and job creation.

Insurance regulator Insurance Regulatory Development Authority (IRDA) has allowed Indian insurance companies to make investments invest in a fund of funds (FoF) to support startups.

Insurance regulator Insurance Regulatory Development Authority (IRDA) is an autonomous body set up in 1999 by the Indian Govt to protect the interest of customers dealing in financial products and promotes insurance and re-insurance industries in India.

According to the statement, Indian insurance companies are allowed to invest in startups but the fund will be invested in only Indian-based startups but not made into overseas companies.

The decision taken by IRDA comes close to the heels of the recent decision of the government to allow private retirement funds to park a certain percentage of their capital in Alternate Investment Funds (AIFs).

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Siddarth Pai, Founding Partner and CFO at 3one4 Capital, and Co-Chair at Regulatory Affairs Committee, IVCA, on the decision said, “This move is going to provide a strong platform to the people want to set up their enterprise and it will also help accelerate the quantum of rupee capital going into Indian startups.”

He further said, “The FOF system is the perfect vehicle in terms of diversification for Indian institutional capital and the inability of insurance companies, whose annual premium flows is orders of magnitude larger than the entire Indian AIF universe.”

The participation of domestic families and venture firms in AIFs has been limited, overseas institutions are dominating in this segment. The decision by IRDA is taken to make diversify investment with the domestic fund to earn a better return and into newer areas as most of the investments are made into gold, real estate, and stocks.

Ashley Menezes, Partner, and COO, ChrysCapital Advisors, LLP, stated, “It is a big win for the non-public fairness trade that insurance companies at the moment are permitted to make investments into funds of funds as effectively, comparable to them making direct funding in an AIF. This permits insurance companies to de-risk their publicity.”

In March the central Government said that 5 % of their investible surplus has to be locked up into AFIs. It announced that that non-government provident funds, superannuation funds, and gratuity funds to be invested into items mentioned by Category I and Category II AIFs, topic to sure circumstances.

“This step taken by the IRDA and the transfer by PFRDA last months demonstrates that the government has set its mind to increase the supply of funds to startups so that overseas dominance in Indian startups could reduce and it’ll also help in economic growth and job creation," he said.

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