The Insurance Regulatory and Development Authority of India (IRDAI) issued a clarification to its circular in October 2022 that investment in any single mutual fund should not exceed 20 per cent of the total investment in the mutual fund category at any time.
It stated in a January 31 notification that the clause would come into effect from April 1, 2023. Additionally, it said the threshold limit of 20 per cent for each mutual fund would include investments in exchange-traded funds (ETFs).
As per the IRDAI clarification, “at any point of time, investment in any single mutual fund shall not exceed 20 per cent of the total investment in mutual funds (all taken together)” It further said, “the clause shall come into operation from 1st April 2023. The threshold limit of 20 per cent for each mutual fund shall also include investments in exchange-traded funds (ETFs).”
Additionally, in its circular, the regulatory body shared that insurers are not permitted to invest in alternative investment funds (AIFs) where rights attached to the units vary.
“It is clarified that Insurers are not permitted to invest in any scheme of AIFs that have a priority distribution model wherein such AlFs have adopted a distribution waterfall in such a way that may lead to a share of losses more than pro-rata to their holding, compared to other investors belonging to the same class,” the circular notified.
Meanwhile, the master circular IRDAI Investment Regulations, 2016, released on October 27, 2022, had notified that insurers could invest in equity ETFs as a part of mutual fund exposure while informing of certain conditions. The conditions said that “only passively managed schemes of the Mutual Funds which are registered with Sebi and governed by Sebi (Mutual Funds) Regulations, 1996, as amended from time to time are eligible. In addition, these schemes should be benchmarked and be tracked based on a publicly available Index 2.”
The total expense ratio shall not exceed 0.50 per cent, and at least 85 per cent of securities in the equity basket shall be compliant with dividend distribution norms as per Regulation 3 (A)(5) of IRDAI (Investment), 2016, to qualify as a part of “Approved Investment.”
Additionally, it said that the insurers are required to ensure compliance with “the provisions of Sec. 27E of the Insurance Act, 1938, and shall invest only in ETFs which invest in domestic equities.”
These instruments shall be listed on at least one stock exchange that has nationwide connectivity terminals. These Investments shall be governed by the exposure norms applicable for Investment in Mutual Funds by Insurers. However, exposure to stocks through ETF shall not be reckoned for the overall exposure norms prescribed for Individual stocks vide Regulation 9 of IRDAI (Investment) Regulations, 2016, as amended from time to time, it said.
