Sovereign Wealth Funds - An Option for India

The very fundamental belief of every investment is that the investor wants to maximize the gains of his investment. This is also the situation when the Government of a particular State is itself an investor. Previously, the Governments used to keep excess of Foreign Reserves as a measure to deal with any sort of financial crisis as the recent sub-prime crisis. For this, most governments kept their reserves in U.S. Treasury bills or similar bonds issued by other governments. The advantage of such an investment was that it was reasonably liquid to realize quick stabilization in a currency crisis but it came with an attached problem of low returns. The new capital exporters want free and secure access to industrial-country assets to maximize the returns on their holding of capital while diversifying the attendant risks. But capital importers have legitimate concerns about the motivations and consequences of these transactions, especially since the wealth is owned and invested by governments and related entities. A mutually beneficial bargain is there for the taking. This is the cardinal principle for the on which Sovereign Wealth Funds (hereinafter referred as ‘SWF') are established all over the world.Part I of the paper details the basic concept of the Sovereign Wealth Funds. Part II of the paper tries to classify the various types of existing sovereign wealth funds so as to gain a detailed qualitative analysis. Through Part III and IV of this paper, the author seeks to establish the benefits and concerns surrounding the concept of Sovereign Wealth Funds taking an account of the success and failures of the existing Sovereign Wealth Fund Schemes present across the world. Finally in Part V, even though India is at the brink of introducing the concept of such a Fund, we have tried to conceptualize the reasons because of which India should adopt it