Summary: This blog broadly outlines the IRDAI’s prescriptive investment framework for insurers, permissible asset classes thereunder, limited applicability to insurance brokers, and the regulatory intent behind these norms. It also highlights proposed amendments to the investments regulatory framework, granting insurers greater flexibility to invest in private companies while maintaining governance safeguards. For comprehensive, insurer-specific, or instrument-specific details, it is important to refer to the full text of IRDAI’s investments regulatory framework.
Introduction
Insurance companies are subject to strict regulatory requirements designed to ensure adequate reserves, investments that guarantee solvency, and the capacity to settle policyholder claims. The insurance regulator Insurance Regulatory and Development Authority of India (“IRDAI”) regulates the investment functions of insurers by specifying the types of assets and instruments they can invest in, the amounts they can allocate to each asset class, and the risk levels they are permitted to assume.
Investments Regulatory Framework
The Insurance Act, 1938, as amended from time to time (the “Act”) read along with the IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations, 2024 (the “Investment Regulations”), Master Circular on Actuarial, Finance and Investment Functions of Insurers dated May 17, 2024 (“Master Circular”), and circulars issued periodically (collectively the “IRDAI Investments Framework”) govern the investment functions of insurance companies. The provisions set out in the Investments Framework are largely prescriptive in nature to ensure satisfactory checks and balances apropos solvency and liquidity. Following are the key categories of approved investments as per the Investment Regulations read with the Master Circular and circulars issued by the IRDAI periodically:
| Category | Heads |
| Central and State Government Securities (including special bonds issued by the Government of India) | Central and State Government BondsCentral and State Government Guaranteed LoansTreasury Bills |
| Corporate Bonds and Debentures | Investment-grade bonds issued by rated corporates |
| Equity | Listed equity sharesEquity shares acquired via IPOs subject to certain conditions such assatisfactory performance and dividend record for at least two years prior to listing (for IPOs);compliance with prudential and exposure norms; andbecoming “actively traded” and “liquid” within three months of listing. |
| Debt Instruments by Banks | Perpetual Debt Instruments (Tier-I capital)Upper Tier-II capital instrumentsAdditional Tier 1 (Basel III compliant) Perpetual Bonds (AT1 Bonds)Non-cumulative and cumulative preference shares, subject to RBI and IRDAI conditions |
| Infrastructure Debt Funds (IDFs) | Debt securities of IDF-NBFCs (Non-Banking Financial Companies registered as Infrastructure Debt Funds) providedthe IDF-NBFC is registered with RBI;debt securities have a residual tenure of at least five years; anda minimum credit rating of “AA” or equivalent by a SEBI-registered agency. |
| Mutual Funds & ETFs | SEBI-regulated mutual fundsEquity ETFsGILT ETFsDebt ETFs with CPSE bonds |
| Alternative Investment Funds | Category I and II AIFs (within exposure limits) |
| Asset-Backed Securities | Asset-backed securitiesPass-through certificates (PTCs)Security receipts (SRs) |
| Other Approved Investments | Onshore rupee bonds issued by multilateral agencies like Asian Development Bank (ADB) and International Finance Corporation (IFC), subject to classification norms Tax-free bonds and other bonds issued by infrastructure-related government entities (e.g., HUDCO) |
| Real Estate and Infrastructure Trusts | Units of REITs (Real Estate Investment Trusts)Units of InvITs (Infrastructure Investment Trusts) |
| Derivatives (for hedging purposes) | Interest rate derivativesCredit default swaps |
*Details set out above subject to exposure norms, prudential limits, and sectoral caps as prescribed by IRDAI regulations and circulars.
Considering insurers must adhere to strict guidelines on permissible investments, asset diversification, liquidity, and risk management, their decisions are rooted in their fiduciary and regulatory obligations to policyholders and the broader financial system.
Applicability to insurance brokers
The IRDAI (Insurance Brokers) Regulations, 2018, requires insurance brokers to exclusively engage in the business of insurance broking. Combined with the absence of any regulatory provision for broker-led investments, this stipulation may have given rise to the highly conservative view that insurance brokers cannot undertake investment functions.
Opinions remain divided on the applicability of the IRDAIInvestments Framework to insurance brokers. The Investment Regulations and the Master Circular specifically state that they apply to “all insurers including those engaged exclusively in reinsurance business, unless otherwise specified”, which could be inferred as the investment management under the IRDAI Investments Framework being restricted to insurers and insurance brokers not being allowed to manage investments under these regulations.
Given this ambiguity, insurance brokers limit investment activities to shareholder funds and surplus funds (including revenue from operations) rather than premiums or insurance monies that may be held by an insurance broker. A review of publicly available data of leading insurance brokers shows not only investment trends across mutual funds, fixed deposits, bonds, and ETFs but also some broker investments in shares, stocks, and equity instruments of listed and unlisted companies. Since the IRDAI has not passed any adverse orders against insurance broking companies for their investment activities, these activities appear to fall within permissible regulatory bounds.
Proposed amendments to the Investments Regulatory Framework
Currently, insurers are explicitly prohibited from investing Controlled Funds or Specified Assets in shares or debentures of private limited companies that are subject to lower disclosure and regulatory standards, making them non-transparent and potentially higher-risk instruments. Such absolute restriction prohibits insurers from allocating any part of these funds to private company shares, regardless of percentage limits or prudential norms.
Under the proposed amendments to the Act as released by the Department of Financial Services, Ministry of Finance on November 26, 2024,[1] Section 27A(4) (Further provisions regarding investments) of the Act as well as Section 2(3)(iv) of the Act (definition of “Approved Securities”) are proposed to be deleted (referenced sub-sections set out below for ease of reference):
Section 27A(4): An insurer shall not out of his controlled fund or assets as referred to in sub-section (2) of section 27 invest or keep invested in the shares or debentures of any private limited company.
Section 2(3)(iv): securities issued or guaranteed fully as regards principal and interest by the Government of any Part B State and specified as approved securities for the purposes of this Act by the Central Government by notification in the Official Gazette.
Read harmoniously, these amendments to the Act indicate the Government’s intention to remove the extant restrictions on insurance companies investing in shares or debentures of private limited companies. This decision can be ascribed to the IRDAI’s shift from a rule-based to a principle-based regulatory approach and aimed at giving insurers more flexibility in investment decisions, including investments in private companies, while maintaining strong governance and oversight checks. The Government is expected to introduce these amendments during the ongoing winter session of the Parliament.[2]
Further, life insurers, following their remarkable gains of over 30 per cent over the past year, have sought regulatory approval from IRDAI to participate in gold ETFs. If granted, this could help diversify insurers’ investment portfolios and protect against ongoing market volatility, considering traditional assets yield lower returns.[3]
Conclusion
The IRDAI’s Investments Framework reflects a careful balance between safeguarding policyholder interests and enabling insurers to pursue optimal returns. While insurers operate under a tightly regulated regime with prescriptive norms, the proposed amendments signal a shift towards a more principle-based approach, one that could unlock new investment avenues such as private company securities and gold ETFs.
Insurance brokers, despite a record deal rush indicating surplus liquidity in the sector,[4] insurance brokers remain conservative, with investment activities confined to proprietary funds because of the regulatory stance or the lack of it. Be that as it may, the absence of adverse regulatory action by the IRDAI suggests a degree of tolerance within defined boundaries.
The IRDAI’s Investment Framework is likely to evolve in response to the dynamic needs of the insurance sector and broader financial markets, redefining investment flexibility. The imminent legislative changes and IRDAI’s evolving posture may significantly reshape the investment landscape, offering both opportunities and responsibilities for insurers and brokers alike. Stakeholders should remain vigilant and adaptive, aligning their strategies with regulatory developments to ensure both compliance and competitiveness in a rapidly evolving insurance ecosystem.
[1] DFS’s Office Memorandum F. No. 12018/2/2021-Ins.II dated November 26, 2024
[2] CNBCTV18, December 16, 2025, accessed at https://www.cnbctv18.com/business/finance/insurance-amendment-bill-introduced-in-lok-sabha-key-proposed-changes-fdi-ws-l-19793045.htm (As on the date of the publication of this blog, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Bill, 2025 has been introduced by the government in the Lower House (Lok Sabha) of the Parliament.)
[3] The Economic Times, Online Edition, June 27, 2025, accessed at https://economictimes.indiatimes.com/markets/stocks/news/life-insurers-see-the-shine-seek-irdai-nod-to-invest-in-gold-etfs/articleshow/122101456.cms?from=mdr
[4] The Economic Times, Online Edition, July 26, 2025, accessed at https://economictimes.indiatimes.com/industry/banking/finance/insure/irdai-warns-brokers-on-deal-rush/articleshow/122912655.cms?from=mdr
