Sovereign wealth fund
Also called: SWF · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
A sovereign wealth fund (SWF) is an investment fund owned by the state. It invests a country's surplus money, such as oil earnings or excess reserves, in assets around the world to earn long-term returns for future generations. Countries usually build SWFs when they run surpluses. India has no classic SWF because it runs both fiscal and current account deficits. The National Investment and Infrastructure Fund (NIIF, 2015), in which the Government of India holds 49%, works as a quasi-SWF.
Example
Norway invests its oil revenues through its Government Pension Fund Global. Other well-known SWFs are ADIA (Abu Dhabi), GIC (Singapore) and PIF (Saudi Arabia). India gives foreign SWFs tax exemptions to attract their money into Indian infrastructure.
Don't confuse with
- Foreign exchange reserves: held by the central bank (RBI) in safe, liquid assets to defend the currency and pay for imports. An SWF takes more risk in search of higher long-term returns.
Related concepts
- Mutual fund
- Net Asset Value
- Systematic Investment Plan
- Index fund
- Exchange-Traded Fund
- Gold ETF
- Fund of funds
- Real Estate Investment Trust
- Infrastructure Investment Trust
- Domestic institutional investors