Gold shines bright! Several life insurers want IRDAI to allow gold ETF investments; 30% returns in 12-months
The performance of gold ETFs has been remarkable, generating over 30% returns in the previous 12-month period. (AI image)
Multiple life insurance companies have sought permission from Irdai to make investments in gold ETFs. This initiative follows the rising
gold prices
, heightened worldwide demand and the necessity to diversify portfolios, particularly when conventional investment avenues are yielding lower returns.
ULIPs provide policyholders the option to distribute their investments across equity, debt and balanced schemes, based on their risk tolerance. Insurance companies are seeking Irdai's authorisation to invest 3-5% of their ULIP assets under management in gold ETFs.
The performance of gold ETFs has been remarkable, generating over 30% returns in the previous 12-month period. This stands in stark contrast to the modest 5-8% returns offered by liquid debt funds, Nifty indices and conventional bank fixed deposits.
"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," ET quoted an insurance executive who submitted this suggestion to the regulator as saying.
Gold Shining
The life insurance sector presently manages assets worth ₹70 lakh crore. Following recent applications, the regulatory body has advised companies to present their proposals through the Life Insurance Council, the representative organisation for life insurers.
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The regulatory body has requested a comprehensive proposal detailing potential risks and corresponding mitigation strategies. The final verdict will be made after evaluating the sector-wide submission. A favourable decision would expand insurers' investment options, providing access to an asset category increasingly recognised as a secure investment during global instability.
Gold has emerged as a crucial reserve asset for numerous nations following the economic disruption caused by the Covid-19 pandemic and heightened geopolitical conflicts.
Global central banking institutions have substantially increased their gold acquisitions.
During 2024-25, the Reserve Bank of India (RBI) acquired 57.5 tonnes of gold, marking the second-largest yearly addition since 2017. The RBI's gold reserves grew by 35% over five years, reaching 880 tonnes at the end of FY25 from 653 tonnes in FY20.
According to the World Gold Council, gold currently represents approximately 12% of India's total foreign exchange reserves, an increase from 6.86% in 2021.
Additionally, insurance sector stakeholders are advocating for extended investment alternatives, requesting permission to invest in zero-coupon bonds and extended-duration corporate debt, particularly from infrastructure companies. Despite existing authorisation to invest in government securities, equities, equity derivatives and infrastructure, insurers lack sufficient long-term instruments to align with extended liability periods.
Infrastructure companies typically issue five-year debt instruments, which insurers consider insufficient for their needs. The sector has requested the government to introduce 20- and 30-year sovereign zero-coupon bonds. Gold investments have yielded twenty-fold returns over the past 25 years.
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