Insurers will now be able to invest in debt ETFs (exchange traded funds) with underlying debt securities of central public sector enterprises (CPSEs), says the insurance regulator.
Earlier this month, the Cabinet approved the launch of ETFs for bonds to create an additional source of funding for CPSEs.
“The IRDAI hereby permits debt ETFs with underlying debt securities of CPSEs proposed to be launched in India, as eligible class of investment, and as a part of mutual fund exposure,” IRDAI said in a circular.
The insurance watchdog said that all exposure and prudential norms applicable to investments in mutual funds investments shall apply to investments in debt ETFs.
Bajaj Allianz General Insurance chief investment officer Amit Joshi told Times of India, “We have been investing directly in these bonds in our portfolio management. The ETF setup provides a readymade basket of quality bonds, hence operationally, it makes it easier to take exposure in a diversified manner at a low cost.”
Sompo General Insurance chief investment officer Hareshwar Karekar reiterated that debt ETFs will be an added avenue for investment in fixed income assets, although insurers already have direct exposure in the form of debt security issued by CPSEs. He added that in the present market condition, investment in debt ETFs will be beneficial only if liquidity can be assured.