IRDAI – Clarification on provisions with respect to investment in Alternative Investment Funds (AIFs

The Insurance Regulatory and Development Authority of India (“IRDAI”) has issued a Circular dated February 12, 2026, bearing Cir. No. IRDAI/F&I/CIR/INV/28/2/2026, providing clarifications on provisions relating to investment in Alternative Investment Funds (AIFs) (“Circular”).Currently, Chapter 3, Section I, Para 1.5 of the Master Circular on Actuarial, Finance and Investment Functions of Insurers dated May 17, 2024 (Ref. No. IRDAI/ACTL/CIR/MISC/80/05/2024) permits insurers to invest in AIFs. The relevant provisions are summarized below:

Existing Provisions under Para 1.5 – Investment in Alternative Investment Funds (AIFs)

1. Investments in Category I and Category II AIFs (within SEBI Regulations) are permitted as part of “Other Investments”.
   • Category I AIFs include Infrastructure Funds, SME Funds, Venture Capital Funds, and Social Venture Funds.
   • Category II AIFs must invest at least 51% of their funds in infrastructure entities, SME entities, venture capital undertakings, or social venture entities.
2. All restrictions under the Insurance Act, 1938 and applicable regulations relating to overseas investments, promoter groups, and combined exposure limits continue to apply.
3. Insurers are prohibited from investing in AIF schemes having a priority distribution model that allocates losses disproportionately compared to investors of the same class.
4. Additional conditions applicable to AIF investments include:
   1. No investment is permitted in AIFs that undertake leverage or borrowing except as permitted under the SEBI (Alternative Investment Funds) Regulations, 2012.
   2. Insurers may invest only in Fund of Funds (FoFs) that comply with Section 27E of the Insurance Act, 1938.
   3. FoFs must include a clause in their offer documents preventing investments in overseas companies or overseas funds.
   4. No insurer shall invest in an AIF that has exposure to a FoF in which the insurer has already invested.
   5. The insurer must obtain a quarterly certificate from its Concurrent Auditor confirming compliance and submit it along with quarterly returns.
5. Insurers must ensure that AIFs do not invest in securities of companies incorporated outside India, in accordance with Section 27E of the Insurance Act, 1938.
6. The sponsor of the AIF must not belong to the promoter group of the insurer, and the investment manager must not be directly or indirectly controlled by the insurer or its promoters.
7. Investments in AIFs and Venture Funds are subject to the prescribed exposure norms.

Insurers had sought clarifications regarding investments in AIFs having “Excusal Rights” and the treatment of direct and indirect exposure through Fund of Funds (FoFs). In response, IRDAI has issued this Circular to broaden investment opportunities while ensuring compliance with Section 27E of the Insurance Act, 1938.

Key Highlights of the Circular

• In compliance with sub-paras 4(b), 4(c), and 5 of Para 1.5 of the Master Circular, insurers shall ensure the following:
  • Investments in AIFs shall include “Excusal Rights” as provided under SEBI Circular SEBI/HO/AFD-1/PoD/P/CIR/2023/053 dated April 10, 2023 (as amended), ensuring that proceeds attributable to the insurer are not invested outside India.
  • At the time of investment, the insurer shall provide a formal declaration citing Section 27E of the Insurance Act, 1938 as the basis for its inability to participate in overseas investments undertaken by the AIF.
  • The Private Placement Memorandum (PPM) shall contain a clause stating that capital (including any proceeds) received from the insurer shall not be drawn down, utilized, or pledged for investments outside India.
  • The statutory auditors of the AIF shall certify that the insurer’s capital has not been invested outside India.
  • The insurer shall obtain a compliance certificate from the AIF confirming that:
    • All overseas investments have been disclosed to the insurer.
    • Excusal Rights were validly invoked for the insurer’s investments.
    • No costs relating to overseas assets have been charged to the insurer.
  • The insurer’s Concurrent Auditor shall certify compliance with the Excusal Rights provisions in respect of AIFs having overseas exposure.
• The Circular also introduces a reference framework (provided as an Annexure to the Circular) to assist insurers in complying with the above requirements. The Framework integrates the SEBI Excusal Circular with the requirements of Section 27E of the Insurance Act, 1938 and establishes a binding compliance protocol for AIF Managers.
• Sub-para 4(d) of Para 1.5 of the Master Circular has been substituted as follows:

Provision	Earlier Provision	Revised Provision
Para 1.5, Sub-para 4(d)	No insurer shall invest in an AIF that, in turn, has exposure to a Fund of Funds (FoF) in which the insurer has already invested.	Insurers shall ensure compliance with the single AIF exposure limit specified under Column (c) of the table under Sub-para 7 with respect to both their direct exposure and indirect exposure (through Fund of Funds) to a single AIF.

A copy of the Circular (including the Annexure – Framework) is attached herewith for your ready reference.Source Category: IRDAI

Attachments

• Clarifications on provisions with respect to investment in Alternative Investment Funds