In today’s Finshots, we look at why India doesn’t have a sovereign wealth fund*, why some people think Life Insurance Corporation of India (LIC) already behaves like one, and why the truth is a lot trickier.

The Story

*Okay, before you jump in and say, “Hey Finshots, India does have a sovereign wealth fund. It’s called the National Investment and Infrastructure Fund (NIIF)!”… let’s politely pause you right there. Because yes, you’re right, but only partially.

NIIF was set up in 2015 as India’s first sovereign-anchored fund, with the government putting in an initial seed. Now, for the uninitiated, sovereign wealth funds (SWFs) are basically giant investment pools owned by governments. They’re funded by foreign-currency reserves or other government surpluses and are managed separately from the money used to run day-to-day government operations.

But NIIF is a bit different.

Think of it as a quasi-sovereign wealth vehicle that’s been tailored for India’s own needs. Instead of (primarily) chasing foreign acquisitions, the fund is mainly designed to invest in domestic infrastructure like roads, ports, renewables, logistics, the works. Today, NIIF manages about $5 billion across its funds.

And here’s something else you should know. The government owns 49% of NIIF’s funds; the majority 51% comes from institutional investors. We’re talking names like HDFC, Axis Bank, ICICI Bank, and global giants like ADIA, Temasek, and international pension funds.

So in spirit, NIIF behaves less like a traditional SWF, which typically deploys state surplus globally and more like a capital-mobilising platform for India’s infrastructure story.

Which is why, the Indian government recently floated an ambitious plan to create a $50 billion Bharat Sovereign Wealth Fund. A move that would place India alongside Singapore, Norway, the UAE, and other economies that deploy national savings into global markets and strengthen geopolitical influence.

This announcement immediately set off debates. Where would the capital come from? Would it be fiscally prudent? And given India’s persistent trade deficit, does the country even generate the kind of surplus dollars that usually fund such investment vehicles?

But this got a lot of people thinking, “If India wants a powerful, state-backed investment engine, why not use the giant it already has?”

Unlike many nations, India has LIC — a financial colossus with a current AUM of over ₹50 lakh crore and growing. LIC already invests in government bonds, equities, PSUs, and even infrastructure bonds. Whenever the government needs a reliable anchor for an IPO, a backstop for a struggling bank, or a stabiliser during market stress, LIC often steps in.

So LIC undeniably displays the traits of a sovereign investor. It has a massive capital base and the scale to take concentrated bets, precisely the traits an SWF needs. Countries like Singapore (Temasek) and Malaysia (Khazanah) use state-owned investment firms to shape national industrial strategy. On the surface, the logic fits. If they can do it, why can’t LIC?

Well, it’s because LIC’s foundation is built on a completely different premise.

You see, as we mentioned earlier, sovereign wealth funds are generally funded by national surpluses such as oil windfalls, export profits, fiscal savings, or excess foreign reserves. They deploy a country’s excess capital into productive assets. The risks they take are the state’s responsibility. And if something goes wrong, the cost eventually lands with the government, not individual citizens.

LIC, by contrast, runs on policyholder money. Every rupee comes from families buying term insurance, retirement plans, and products for their long-term savings. LIC’s core mandate is fiduciary: protect capital, deliver stable returns, and honour claims. Its job is not nation-building gambles or “strategic” stake purchases that may or may not pay off.

And this is where tension creeps in.

Whenever the government nudges LIC to rescue a company, support disinvestment, or soak up PSU equity, LIC starts behaving like a de facto sovereign wealth fund, albeit without the transparency, safeguards, or autonomy that actual SWFs are built on.

That poses two significant risks:

1. Structural Mismatch:
   SWFs invest globally to generate foreign exchange income. India, however, has a widening trade deficit and has no meaningful surplus USD to deploy abroad. LIC isn’t designed to fill that gap. Its investments are predominantly domestic because its liabilities (future insurance payouts) are domestic too. Moreover, the regulations governing an insurance company’s use of policyholder premiums for investments are pretty strict.
   
   As per the Insurance Act, 1938 and its amendments, no insurer should invest, directly or indirectly, the funds of the policyholder outside India. Here is a list of the approved investments by the IRDAI. However, exceptions such as rupee-denominated bonds issued by multilateral bodies or incubators are allowed on a case-by-case basis, subject to explicit conditions. These also require approval from the IRDAI, the RBI, and compliance with FEMA (Foreign Exchange Management Act). This makes it all the more difficult for LIC to invest in global instruments.
2. Governance Concerns:
   SWFs publish clear investment charters and detailed performance metrics. LIC, especially when executing decisions aligned with government priorities, remains opaque. If policyholder funds are used to support sensitive projects, it becomes difficult to judge whether those moves are financially sound or a case of mission drift.

Just to be clear, LIC already does all this to some extent, but within the country. It’s already a heavyweight and can absolutely co-invest in national priorities. But that doesn’t make it a sovereign wealth fund. It makes it a large insurance company being stretched beyond its native design.

Because at the end of the day, LIC’s first duty is to policyholders. That must stay intact. Its governance, risk frameworks, and investment criteria should remain insulated from external demands. If LIC ever participates in projects, it must do so under disclosed frameworks with risk caps.

Then, we must build a dedicated SWF separately. This would require funds coming in from the right places. Not insurance premiums. And India has three such sources.

The first is asset monetisation. The government owns airports, highways, ports, pipelines, mining rights, land banks, stakes in PSUs, and large pools of brownfield infrastructure that already generate stable cash flows. The Department of Investment and Public Asset Management (DIPAM) is already in the business of selling or leasing these assets through disinvestment and monetisation pipelines. Instead of pushing all proceeds directly into the annual budget, a portion of these earnings could be channelled into a sovereign fund. Singapore built Temasek using exactly this model.

The second source is foreign reserves, which today stands close to $700 billion. Many countries carve out a small surplus slice to deploy abroad through their SWFs. Even a cautious allocation of 1-2% of our reserves could seed an investable corpus without compromising RBI mandates.

The third source is future fiscal surpluses. As the tax base widens and the deficit narrows, we could earmark a portion of its future windfall revenues, such as telecom spectrum receipts, strategic PSU stake sales, or the divestment of non-core government companies, for the fund instead of folding everything into annual spending. Norway’s fund (Statens pensjonsfond), for instance, started with oil money but today uses its taxes and licensing fees from oil companies to back its global investment book.

A fund built on these foundations would be structurally different from LIC or any other domestic institution. It would be free to invest wherever it sees fit. From Silicon Valley tech to African infrastructure, Southeast Asian ports, energy assets, and venture capital, as well as stakes in domestic and global companies. It would be guided by an independent investment charter that prioritises returns, diversification, and future economic security over short-term political pressure.

The bottom line is this: LIC can support national priorities, but it can’t replace a sovereign wealth fund. Its capital belongs to policyholders and shareholders, not the state.

And until India has the surpluses to build an actual SWF, LIC must remain exactly what people signed up for, a safe, stable institution that protects lives, not an investment fund wearing an insurance company’s badge.

Until then…

PS: Here’s an interesting resource from the IMF on how Norway built its SWF.

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