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| LIC mulls Rs 400-cr investment in VCs |
| Anirudh Laskar / Mumbai Dec 19, 2008, 00:04 IST |
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The country’s largest insurance company, Life Insurance Corporation of India (LIC), is planning to invest over Rs 400 crore in venture capital (VC) funds over the next few months.
During 2007-08, the public sector company had approved investment proposals of around Rs 200 crore in VC funds but has so far invested only Rs 50 crore, a senior LIC executive told Business Standard. The remaining Rs 150 crore may be part of the Rs 400-crore investment lined up for the next few months. The funds are made available to VCs by way of loans.
“We have disbursed loans of Rs 5 crore (each) to five VC funds so far this year, but we are planning to invest more than Rs 400 crore in VCs till March 2009,” the LIC executive said.
Venture capital is a type of private equity capital provided to early-stage or start-up companies, with high growth potential. The funds are generally invested with an aim to garner returns through an eventual public listing of the company via an initial public offering. Venture capital investments are generally made as cash in exchange for shares in the invested company. The investments typically come from institutional investors and high networth individuals.
VC funds are typically invested across a gamut of 10-25 companies, and the returns are pegged at 20-25 per cent.
According to the Insurance Regulatory and Development Auhtority (Irda) investment guidelines, LIC is allowed to invest 50 per cent or more in government securities, while 15 per cent can flow to infrastructure projects and companies, and the remaining 35 per cent can be allocated to equities, venture capital funds, mutual funds, deposits and other money market instruments such as commercial papers, certificate of deposits, and non-convertible debentures.
Last year, LIC had pumped in money across 15 VC funds. The number of proposals have increased this year.
“LIC is receiving a number of proposals from VC funds, but will be cautious while investing. The returns offered by these VC funds are linked to G-Sec yields. Till last year, the funds were fetching better returns. This year, the yields on 10-year benchmark G-Secs have come down from 9 per cent to about 5.5 per cent, which in turn will impact the rate of returns offered by VC funds. So, we will be selective in VC investment this year,” the executive added.
LIC’s investment in VC funds are mostly for five years or so with focus on investing across sectors.
Earlier this year, Irda relaxed the norms for life insurance companies to invest in VCs but the response from most insurers is muted so far.
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