Insurance Regulatory and Development Authority of India (IRDA) gave the green signal to insurance companies to invest in venture capital funds (VCs). Investing in VCs will expose the insurance companies to a huge amount of risk as VCs are high-risk high-return. The insurance companies will have to work out which VC they should invest and how much. The objective of the VC in which they would be investing should be very clear as it would be the deciding factor on the investment returns. The things to be checked are solvency ratio, percentage share in the venture capital, exit clause, and the management track record.
With the world economy facing a recession and economic giant USA adopting the fetal position, the VC concept that has been the driving force of the dotcom boom, has burst. Result: Nightmare for VCs.
Insurance companies will have a large corpus to invest in VCs. In which case, they should have decision-making rights in the VC. This is important to protect the insurer’s insurance customers.
November 19th, 2008 at 5:19 pm
To invest in VC’s is certainly very risky. But one must also not forget the phrase - High risk high returns. I think if the insurance companies invest in VC’s after adequate research it should not be a problem.
December 17th, 2008 at 5:16 pm
Wow now that’s something…having money invested into VC should be some task…though there is high return but what about the risk my friend…i want to know whether VC is riskier than equities or both are at par.
December 18th, 2008 at 1:12 pm
Hey do ou think this is safe???? Is are money lying in proper hands???
December 18th, 2008 at 1:50 pm
I agree with Manisha…what about peoples money as its a high risk investment product one cannot mess with peoples money so what if one gets higher returns….what if it doesn’t yield one?
December 18th, 2008 at 1:52 pm
Since IRDA has given permission to insurance companies I am sure they know what lies ahead after all they are the regulators and would not allow any activities that would stake peoples trust.
December 18th, 2008 at 1:53 pm
I agree with Fiona…why would government allow any activity that would hold huge risk to peoples money and trust…I am sure they have weighed their pros and cons before passing the consent.
December 18th, 2008 at 1:58 pm
If funds could be invested in equities it can very well be invested in VC’s and i see no harm in that as equity is high risk and high return fund as well….however equities pays well in long run.
December 18th, 2008 at 3:45 pm
I donno why every one trust IRDA so much …they have not done anything about miss selling of the insurance products till date…their are various products available in the insurance industry which actually have no benefits..
December 18th, 2008 at 3:52 pm
To Sean Walsh : VC is definitely more risky then Equities…equities are available in variants such as large cap, mid cap and small cap. Venture capital is the investment in an idea which is not tried..and the investment is totally based on the management capabilities..
In case of venture capital investment the product, the market response everything is unknown.
Secondly, its easy to exit from equity investment as they are traded on stock exchange.. but for VC it takes long time and therefore very much uncertain.
December 18th, 2008 at 4:06 pm
BTW insurance companies are not going to invest all their money in VC funds…its going to be very small percentage of their total holdings…which will help them incresing their overall returns …so no need to worry