Insurers may invest in debt ETFs of CPSEs: IRDAI

Funds must hold CPSE debt securities

The Insurance Regulatory and Development Authority of India (IRDAI) has decided to permit insurers to invest in debt ETFs (exchange traded funds) with underlying debt securities of central public sector enterprises (CPSEs).

Announcing this and also prescribing guidelines for such investments, the regulator on Wednesday said debt ETFs with underlying debt securities of CPSEs were being permitted as an eligible class of investment. Such debt ETFs are proposed to be launched in the country. Investments in them by insurers would form part of their mutual fund exposure. IRDAI’s approval for investment in debt ETFs comes ahead of the opening of the Bharat Bond ETF.

The decision also assumes significance in the context of IRDAI, in the wake of IL&FS crisis, reportedly advising insurers to diversify their investments as a better risk management measure. The regulator had, as per reports, also asked insurers having exposure to IL&FS to make provision for the same and not write them off.

Earlier this month, the Cabinet Committee on Economic Affairs had given its approval for the creation and launch of Bharat Bond Exchange Traded Fund (ETF) to create an additional source of funding for central public sector undertakings (CPSUs), CPSEs, central public financial institutions and other government organisations.

In its guidelines for insurers investing in Debt ETF, the regulator listed certain conditions, in addition, to the exposure and prudential norms applicable for investments in mutual funds. Noting that the debt ETF will be issued by mutual funds, registered and governed by the SEBI, the insurance regulator said the minimum investment by the insurer should not be less than creation unit size. Also, it should not be reduced to below creation unit size.

Pointing out that the debt ETF will be investing in a basket of securities issued by CPSEs, which are part of constituents of a publicly available index. “If any of the underlying securities gets downgraded below ‘AA’, the debt ETF shall be automatically reclassified under ‘Other Investment,’ the circular issued by IRDAI general manager-investments S.N.Jayasimhan said.

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Printable version | Feb 28, 2020 5:51:09 AM |

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