Mumbai : Several life insurers have approached the Insurance Regulatory and Development Authority of India (Irdai) seeking approval to invest in gold exchange-traded funds (ETFs), according to people familiar with the matter. The move comes amid increasing gold prices, growing global demand and a need for diversification as traditional asset classes deliver subdued returns.
Gold ETFs have delivered returns of more than 30% over the past 12 months. In comparison, liquid debt funds, equity indices like the Nifty and traditional bank fixed deposits have offered modest returns in the 5-8% range.
“The sharp contrast in performance is pushing us to explore gold ETFs under unit-linked insurance plans (ULIPs) to improve portfolio returns and add a hedge against market uncertainty,” an insurance executive who had sent this recommendation to the regulator said on condition of anonymity.
ULIPs offer flexibility to policyholders to allocate funds across equity, debt and balanced options, depending on their risk appetite. Insurers want the Irdai to allow them to invest 3-5% of their ULIP assets under management in gold ETFs. The life insurance industry currently has ₹70 lakh crore in assets under management. In response to recent requests, the insurance regulator advised companies to route their proposals through the Life Insurance Council, the industry body representing life insurers.
The regulator asked for a detailed proposal with risks and proposed mitigation measures. It will take a decision after reviewing the industry-wide proposal. Its approval would widen the investment universe for insurers, offering them access to an asset class that is increasingly seen as a rewarding safe haven amid global uncertainty.
Following the economic shocks triggered by the Covid-19 pandemic and rising geopolitical tensions, gold has become a strategic reserve asset for many countries. Central banks worldwide have increased gold purchases.