Real Estate Investment Trusts (REITs), which pool funds to distribute property ownership, and Infrastructure Investment Trusts (InvITs) have become major investment avenues for long-term funds, while gold as an asset class surged nearly 90% in dollar terms in the past five years.
Insurance Regulatory and Development Authority of India’s (IRDAI) proposed norms showed the regulator would allow insurers to buy into gold Exchange Traded Funds (ETFs) under Unit-Linked Insurance Plans (ULIPs).
The proposed rules double the cap on REIT and InvIT exposure to 6% of own fund size for life insurers and 6% of investment assets for general insurers, up from the current 3%. This is being proposed to channel more long-term insurance capital into infrastructure and real estate.
As of March 31, 2024, life insurance companies held ₹61.57 lakh crore in total funds.
Of this, ₹53.96 lakh crore (87.64%) was in traditional policies and ₹7.61 lakh crore (12.36%) in ULIPs. Insurers had invested ₹24.37 lakh crore in central government securities, ₹12.95 lakh crore in state government bonds, ₹5 lakh crore in housing and infrastructure, and ₹10.65 lakh crore in other approved assets.
Also, the regulator plans to reduce the public float requirement for REITs and InvITs at the time of investment from 30% to 25%, in line with capital market regulations.
With assets under management of InvITs and REITs expanding at 15-20% to ₹7.5-8 lakh crore by FY25, according to a Crisil report, IRDAI’s proposals are expected to support capital flow into these sectors, given the push for infrastructure financing.
IRDAI has also proposed that up to 5% of a segregated ULIP fund’s assets could be invested in gold ETFs, within the overall mutual fund cap of 15%. This proposal, which is based on requests from two large life insurers, has come as gold has delivered more than 30% returns over the past year, far outperforming equities, fixed deposits, and liquid funds, which returned 5-8%.