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Indian mortgage lender LIC Housing Finance Ltd, a unit of Life Insurance Corp of India (LIC), will raise Rs 500 crore ($96.5 million) for its urban development fund, a move that will mark the state-owned group's foray into private equity.

The fund, which will be managed by LIC Housing Finance's asset management unit, will invest in companies developing affordable housing, industrial and IT parks, special economic zones and other allied segments through equity and equity-related instruments.

It expects to close the fund raising in eight to nine months, said D.K. Mehrotra, acting chairman of LIC of India, the country's largest insurance company.

As much as Rs 200 crore has already been raised, with LIC of India and LIC Housing Finance each having invested Rs 50 crore.

Local institutional investors and high networth individuals are also likely to subscribe.

"Looking at the increasing need for equity for successful financial closure of projects, the LIC Group has ventured into the private equity space with its maiden offering," said A.K. Sharma, chief executive of the company's asset management unit.

The fund will invest only in projects at late stage of development, and not in the entity itself, reducing investment risks, he added.

Of the total, 50 percent will be invested in IT and industrial parks, special economic zones and warehouses, and the balance in mid-income affordable housing.

It is carrying out due diligence and looking at various proposals and hopes to make its first investment soon.

"A pipeline has been created. There are many proposals (for investments) but the investment committee will decide on where to invest," Sharma said.

The fund's performance will be linked to profit and the indicative rate of return is expected to be 12 percent, he said.

Shares of LIC Housing Finance, valued by the market at about $2 billion, ended up 2.3 percent at Rs 236.95 in a Mumbai market that closed 0.86 percent lower.

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