Insurance Regulatory and Development Authority (IRDA) permits insurance companies to invest in Category I & Category II Alternative Investment Funds (AIF) related to infrastructure and SME sectors. By a Circular dated March 18, 2013, insurers are permitted to invest in Category I & II AIFs under the extant SEBI Regulations.
The permitted Funds in Category I are Infrastructure Fund, SME Fund, Venture Capital Fund and Social Venture Fund as defined in Alternate Fund Regulations. Whereas, in Category II, at least 51% of the funds of such AIF shall be invested in either of the Infrastructure entities or SME entities or Venture Capital undertakings or Social Venture entities.
In the year 2011, the scope of investments by insurance companies in venture funds was expanded to include venture funds investing in micro, small and medium enterprises.
Insurers are not permitted to invest in AIFs, which has the nature of Funds of Funds and Leverage Funds.
The Venture Funds registered under Venture Fund Regulations will continue to be regulated by the said Regulations till they wound up or obtain re-registration under the Alternative Fund Regulations, as prescribed.
For life insurance companies overall Exposure to venture Funds and AIFs put together should not exceed 3 % of respective fund and 5 % in the case of general insurance companies.
All fresh investments in AIFs/Venture Funds shall comply with the above stated exposure limits and the Insurers are permitted to continue to hold the existing investments in AIFs/Venture Funds which are not complying with the above exposure limits.