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IRDAI allows insurers to invest for Private equity funds

  • Published
    26th Nov, 2022

India’s insurance regulator IRDAI has approved proposals for private equity funds to directly invest in insurers, allowing promoters to dilute up to 26% stake to dispense with its approval for raising capital such as subordinated debt and preference shares.


What are private equity funds?

  • Similar to a mutual fund or hedge fund, a private equity fund is a pooled investment vehicle where the adviser pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund.
    • Difference: Unlike mutual funds or hedge funds, however, private equity firms often focus on long-term investment opportunities in assets that take time to sell with an investment time horizon typically of 10 or more years.
  • Although a private equity fund may be advised by an adviser that is registered with the Securities and Exchange Commission (SEC), private equity funds themselves are not registered with the SEC.
  • As a result, private equity funds are not subject to regular public disclosure requirements.

Who can invest?

  • A private equity fund is typically open only to accredited investors and qualified clients, they include;
    • Institutional investors, such as insurance companies, university endowments, pension funds, and high-income and net-worth individuals.
  • The initial investment amount for a private equity investment is often very high.

Who are insurers?

  • An insurer also called an 'insurance company is an entity that accepts the risk and promises to pay for the losses that arise within the policy term.
  • The insurer commits to pay for the loss in exchange for the premiums, paid regularly.
  • Even if you are not invested in private equity funds directly, you may be indirectly invested in a private equity fund if you participate in a pension plan or own an insurance policy,

Entities regulated by IRDAI:

  • Life Insurance Companies - Both public and private sector Companies
  • General Insurance Companies - Both public and private sector Companies. Among them, there are some standalone Health Insurance Companies that offer health Insurance policies.
  • Re-Insurance Companies
  • Agency Channel
  • Intermediaries include the following:
    • o    Corporate Agents
    • o    Brokers
    • o    Third Party Administrators
    • o    Surveyors and Loss Assessors.
  • For example, Pension plans and insurance companies may invest some portion of their large portfolios in private equity funds

Role of IRDAI:

  • The Insurance Regulatory and Development Authority of India (IRDAI), is a statutory body formed under Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999)
  • Aim: overall supervision and development of the Insurance sector in India.
  • The key objectives of the IRDAI include the promotion of competition so as to enhance customer satisfaction through increased consumer choice and fair premiums while ensuring the financial security of the Insurance market.
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