IRDAI allows insurers to invest in startups via FOF

IRDAI has allowed the insurers to invest in fund of funds that invest within the country, in a move that is expected to open up more capital options for India’s burgeoning startup ecosystem.

However, insurers are barred from investing in fund of funds that invest in overseas companies or funds,IRDAI said in a circular modifying the guidelines for alternative funds or AIFs.

The insurance regulator also barred insurers from investing in alternative investment funds in which the insurer has taken an exposure. Insurers will also have to obtain a quarterly report from a concurrent auditor about their compliance with these conditions and file it along with their quarterly periodical returns, the circular said.

A fund of funds is essentially an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. In the context of AIFs, a fund of funds is an AIF that invests in another AIF.

Anil Agrawal, Joint Secretary at the Department for Promotion of Industry and Internal Trade, in a tweet, remarked, “This would lead to major mobilization of domestic capital for investing into startups.”