The Insurance Regulatory and Development Authority (IRDA) has now allowed insurers to invest in Category I AIFs and those Category II AIFs which would invest at least 51% of their funds in entities in the infrastructure or SME sector or in venture capital undertakings or social venture entities. IRDA by way of its Circular dated 23 August, 2013 has revised the earlier position whereby insurers could invest only in Category I AIFs that were engaged in infrastructure sectors or invested in medium, small and micro enterprises (SME) related opportunities. However, the Circular restricts insurers from investing in funds which use leverage or that are fund of funds.
This is a welcome measure by IRDA, paving way for new investment avenues for Category II Funds concentrated in priority sectors such as infrastructure and SMEs. This would allow further unlocking of funds from the insurance sector to move to priority sectors. The government should also look to permit pension funds to invest in infrastructure and SME funds, which will give the much needed push to such sectors by unlocking a large pool of money which is currently underutilized by pension funds.