New Delhi, April 16 -- The Indian government is preparing a framework to minimise risks and allow domestic pension funds and insurance companies to invest in startups, according to officials familiar with the matter.

Currently, these institutions which manage nearly Rs 100 lakh crore (USD 1.2 trillion) of public money are permitted to invest only 3-5 per cent of their surplus into alternative investment funds (AIFs) or fund of fund that back startups. Direct startup investments are not allowed due to concerns over the high failure rates in the sector.

"The biggest concern is that eight out of 10 startups end up failing and to have public money being invested in a risky asset class would need a safety net," said an official.

The Departm...