Irda may allow insurers to invest in equity ETFs
Jan 10 2014 , Mumbai
According to the draft norms released by the Insurance Regulatory and Development Authority (Irda) on Thursday, the investment by insurers in equity ETFs will be allowed where the overall expense ratio of the ETF is below 0.40 per cent of the daily net asset value and all the companies in the equity basket are compliant regarding dividend distribution norms as specified for life and non-life insurance companies, respectively, to qualify as ‘approved investment’. In case the equity ETF basket fails to meet the dividend distribution norms, it would be classified as other investment category.
“The equity ETF will not hold more than 15 per cent of the fund in a single company. It has to ensure that the total exposure to a particular sector not to exceed 30 per cent of the fund. It has to be compulsorily listed on at least two exchanges having nationwide terminals. It not to have overseas investments and are allowed to invest only in domestic equities,” said Irda.
AK Sridhar, chief investment officer of IndiaFirst Life Insurance, said, “Equity ETF is the quickest and easiest way for an insurance company to take a diversified market exposure. It also helps insurers to manage their industry level exposure limits and company level exposure limits.”
At present, life insurers cannot invest more than 15 per cent of its fund in a particular sector/industry and also has to limit their exposure to a particular company to 10 per cent of its fund.
Said a market expert, “The move will allow the government to use LIC funds for investments in the PSU ETFs for long term. While insurers had been asking the regulator to allow them to invest in equity ETFs, the timing is coinciding with the government’s launch of PSU ETF.”
According to LIC investment plans, the public sector behemoth would be investing Rs 2.25 lakh crore this financial year.
According to a PTI report, Arvind Mayaram, the economic affairs secretary, said the government would float some PSU shares through the central public sector enterprises ETF. The ETF is estimated to have a corpus of Rs 3,000 crore. The proposed ETF comprising shares of listed CPSEs would serve as an additional mechanism for the government to monetise its shareholdings in those companies.
Irda said that it is in receipt of representations for allowing insurance companies to invest in equity ETFs. Equity ETFs are funds whose unit price is derived from the basket of underlying equity shares. These baskets of securities differ depending upon the nature of ETF for example the value of NIFTYBeEs is derived from securities that comprises the Nifty index.