Insurers seek to invest in gold, fund of funds

Regulator not in favour of insurance firms dabbling in commodities.

With new stringent guidelines completely changing the texture of unit-linked insurance products (Ulips), life insurance companies have asked the insurance regulator to allow them to put money in investment options such as fund of funds and gold exchange traded funds.

A senior official at the Insurance Regulatory and Development Authority (Irda) said the companies had filed innovative products in this regard. “Since investments in these segments are either explicitly or implicitly banned, clearing (such) products (is) difficult,” he said.

There are 10-15 products with the regulator under the new norms. Last month, Irda had cleared two products of each life insurance company, including two unit-linked pension plans.

“Irda is asking for one clarification or another. We are allowed to sell them if there is no objection raised in these 30 days (after filing),” said a senior executive of a life insurance company.

The regulator is not in favour of insurance companies taking exposure to commodities. “Huge exposure to gold or any commodity is avoidable,” an Irda official added.

“Gold can be one good avenue of investment. It may not be the best option compared to diversified equity but it has a lot of customer appeal,” said Max New York Life’s chief financial officer, Sunil Kakar.

On fund of funds, insurance experts say it would be like outsourcing a service to manage funds. “Insurance companies are suppose to manage funds of policyholders. A fund of funds (holding a portfolio of other investment funds) option is unlikely to be allowed in the insurance industry,” said a senior executive of a large life insurance company.

“Gold is considered a long-term investment. Things like real estate funds cannot be allowed by the regulator because there is huge underlying risk. Since we can only invest in securities, investment in gold will also need an amendment in regulations,” said Bharti Axa Life Insurance’s chief financial officer, G Srinivasan.